Document:

Financial Consultant Agreement

Exhibit 10.2

Financial Consultant Agreement

April 21, 2008

Doug Thomas, President/CFO

Rival Technologies, Inc.

3155 East Patrick Lane, Suite 1

Las Vegas, NV 89120

USA

Dear Doug,

In regard to our prior discussions, MidSouth Capital Markets Group (“MSCM”) a Georgia Corporation, would be pleased to serve as financial consultant to Rival Technologies, Inc. (RVTI) (the “Company) in connection with an OTCBB Listing for RVTI and thereafter secure additional market makers for the company’s stock. The initial terms of this Engagement shall be for six months on a non-exclusive basis, and the proposed terms are outline below.

The Services of MSCM

In its role as Financial Consultant, MSCM shall provide the following services:

·

Serve as liaison and procure a market maker for a 211 filing for an OTCBB listing.

·

Services will include ascertaining all necessary documents needed for the filing, advising on responses to any comment letters from the NASD.

·

Procuring five additional market makers in RVTI after trading commences in the stock.

·

We will also arrange a one day investor and broker roadshow for your company in Atlanta, GA; at any time for a period of one year after the date of the engagement. The roadshow will include a Luncheon with at least 40 brokers and several meeting at the offices of Atlanta based NASD Broker Dealers.

Compensation

In connection with the services to be provided, as outline above, the Company shall pay ot MSCM fees in the following manner;

MSCM shall in the following manner:

MSCM shall receive the sum of 25,000 shares of restricted stock. Such compensation would only be vested when RVTI receive a clearance letter fro the NASD approving of the quotation from OTCBB listing. The names of the market makers and the names of the traders will be submitted to RVTI when all are on the box.

Representations and Warranties

All communication and information provided by the Company to MSCM, whether written or oral, with respect to operations and profitability are true and accurate. MS may rely on the accuracy thereof.

The financial statement of the Company together with the related schedules and notes as set forth in the Company’s annual report and or subsequent quarterly reports present fairly the financial position of the Company and the results of its operations and the changes in its financial position at the respective dates and for the respective periods for which they apply; such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied, throughout the periods indicated except as otherwise stated therein.

The Company is not in default, which default ahs not been waived, in the performance of any obligation, agreement or condition contained in any debenture, note or other evidence of indebtedness or any debenture or loan agreement of the Company. Except with respect to such defaults which have been waived in writing or for which consents have been obtained in writing, the execution and delivery of this Agreement and the consummation of the transactions herein contemplated; and compliance with the terms of the Agreement will not conflict with or result in a breach of any of the terms, conditions or provision of, or constitute a default under, the certificate of incorporation, as amended, or bylaws of the Company, any note, indenture, mortgage, deed of trust, or other agreement or instrument to which the Company is a party or by which it or any of its property is bound, or any existing law, order, rule, regulation, writ, injunction, or decree of any government, governmental instrumentality, agency or body, arbitration tribunal or court, domestic or foreign, having jurisdiction over the Company or its property.

The Company is duly incorporated and validly existing and is in good standing as a corporation under the laws of State Nevada with authorized and outstanding capital stock as set forth in the Company’s most recent filing with the SEC, and with full corporate power and the authority to own its property and conduct its business, present and proposed, as described in the filing, the Company has full corporate power and authority to enter into this Agreement. The Company is duly qualified and in good standing as  foreign corporation in each jurisdiction in which it owns or leases real property or transacts business requiring such qualification, except where the failure to so qualify or to be in good standing would not result in a material adverse effect on the Company.

The Stock and Warrant have been duly and validly authorized and, when issued and delivered as described in the Agreement or in the Warrants as applicable, will be validly issued, fully paid and non-assessable. The Stock and Warrant Stock upon issuance will not be subject to the preemptive rights of any shareholders of the Company. The Warrants, when sold and delivered, will constitute valid and binding obligations of the Company enforceable against it in accordance with the terms thereof. A sufficient number of shares of common stock will be reserved for issuance upon exercise of the Warrants.

Notice

Except as otherwise specifically agreed, all notices and other communications made under this agreement shall be in writing and when delivered in person or by facsimile transmission, shall be deemed given on the same day if delivered on a business day during normal business hours, or on the first business day following delivery in person or by facsimile outside normal business hours, or on the date indicated on the return receipt requested. All notices sent shall be sent to the representative of the party to be notified at the addresses indicated respectively below, or at such other addresses as the parties to be notified may from time to time by like notice hereafter specify:

If to the Company:

Doug Thomas, President/CFO

Rival Technologies, Inc.

3155 East Patrick Lane, Suite 1

Las Vegas, NV 89120

USA

If to MidSouth Capital Markets Group, Inc:

Mr. Timothy C. Moody, President

MidSouth Capital Markets Group.

208 Summitrail Lane

Dawsonville, GA 30534

Indemnification and Contribution

The Company agrees to indemnify MSCM (and its directors, officers, shareholders, partners, agents, employees, and controlling persons) to the full extent required by law against any and all claims, losses and expenses as incurred (including all reasonable fees and disbursements of MSCM) in connection with such claims arising from MSCM engagement hereunder.

In like manner, MSCM shall indemnify the Company, and hold it harmless, fro any and all loss, damage, liability or expense, including cost and reasonable attorney’s fees, to which it may become subject, or which it may incur by reason of or in connection with any misrepresentations or misstatements of facts that MSCM, or any of its representatives, may wilfully make, knowing such statements to be false.

Confidentiality

In connection with the engagement, MSCM shall have access to confidential material of the Company. MSCM, its shareholders, employees and agents shall keep all such information strictly confidential in whatever form so received, and shall execute a confidentiality agreement if so requested by the Company, and MSCM agrees that the Company shall be entitled to equitable and injunctive relief including damages in the event MSCM breached any of its confidentiality obligations to the Company.

If the foregoing correctly sets forth our entire understanding, please sign and return the enclosed copy of this Agreement.

Very truly yours,

Timothy C. Moody

President

AGREED AND ACCEPTED THIS   22nd DAY OF APRIL 2008 by:

Rival Technologies, Inc.

By:  /s/Douglas B. Thomas

       Douglas B. Thomas, President/CFOExhibit 10.16

 

METASTORM INC.

 

STOCK
PURCHASE AGREEMENT

 

OCTOBER
5, 2005

 

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Form of Fifth
  Articles of Amendment and Restatement

  
	
  Exhibit A-1

  	
   

  	
  Form of Warrant

  
	
  Exhibit B

  	
   

  	
  Stockholder List

  
	
  Exhibit C

  	
   

  	
  Form of Fourth
  Amended and Restated Stockholders Agreement

  
	
  Exhibit D

  	
   

  	
  Form of Third
  Amended and Restated Registration Rights Agreement

  
	
  Exhibit E

  	
   

  	
  Form of Opinion of
  Venable LLP

  
	
  Exhibit F

  	
   

  	
  Form of Management
  Letter

  

 

i

 

SCHEDULES

 

	
  Schedule 1

  	
   

  	
  Purchasers, Shares
  Purchased and Purchase Price

  
	
  Schedule 1.2

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Disclosure Schedule:

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
   

  	
  Foreign Jurisdictions

  
	
  Section 2.2

  	
   

  	
  Capitalization

  
	
  Section 2.3

  	
   

  	
  Subsidiaries

  
	
  Section 2.6

  	
   

  	
  Governmental Consents

  
	
  Section 2.7

  	
   

  	
  Litigation

  
	
  Section 2.8(b)

  	
   

  	
  Patents and Trademarks

  
	
  Section 2.8(c)

  	
   

  	
  Inbound License
  Agreements

  
	
  Section 2.8(d)

  	
   

  	
  Outbound License
  Agreements

  
	
  Section 2.8(f)

  	
   

  	
  Owned Software

  
	
  Section 2.8(g)

  	
   

  	
  Owned Internet
  Identifiers

  
	
  Section 2.8(h)

  	
   

  	
  Liens on Owned
  Intellectual Property

  
	
  Section 2.8(s)

  	
   

  	
  Support and Maintenance
  Service Obligations

  
	
  Section 2.11

  	
   

  	
  Absence of Liabilities

  
	
  Section 2.13

  	
   

  	
  No Conflict of Interest

  
	
  Section 2.17(b)

  	
   

  	
  Company Benefit Plans

  
	
  Section 2.17(c)

  	
   

  	
  Exceptions to Company
  Benefit Plans

  
	
  Section 2.18

  	
   

  	
  Tax Returns and Audits

  
	
  Section 2.25

  	
   

  	
  Changes

  

 

ii

 

METASTORM INC.

 

STOCK PURCHASE
AGREEMENT

 

THIS
STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of October 5,
2005, by and among METASTORM INC.,
a Maryland corporation (the “Company”), and the several purchasers named
in Schedule 1 attached hereto (each
individually, a “Purchaser” and collectively the “Purchasers”).  All capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in Appendix A attached hereto.

 

WITNESSETH:

 

WHEREAS,
subject to the terms and conditions set forth herein, the Company desires to
issue and sell to the Purchasers shares of the Company’s Series BB
Convertible Preferred Stock, par value $0.01 per share (the “Series BB
Preferred Stock”) for an aggregate purchase price of Five Million Dollars
($5,000,000).

 

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

 

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

 

1.1                                 Sale and Issuance of Series BB Preferred
Stock.

 

(a)                                  The Company has authorized the issuance
and sale of Three Million Six Hundred Eight Thousand Two Hundred Thirty-Three
(3,608,233) shares of the Series BB Preferred Stock at a purchase price of
one and 38.572/100.000 dollars ($1.38572) per share to the Purchasers.  The Company shall adopt and file with the
State Department of Assessments and Taxation of the State of Maryland (the “SDAT”)
on or before the Closing (as defined below) the Fifth Articles of Amendment and
Restatement of the Company which shall be in the form attached hereto as Exhibit A (the “Fifth
Articles”).

 

(b)                                 Subject to the terms and conditions of
this Agreement, each Purchaser, subject to and in reliance upon the
representations, warranties and covenants of the Company, and the other terms
and conditions of this Agreement, severally, but not jointly, agrees to
purchase at the Closing, and the Company agrees to sell and issue to such
Purchaser at the Closing, such number of shares of the Company’s Series BB
Preferred Stock as set forth opposite such Purchaser’s name on Schedule 1 attached hereto for the
purchase price indicated with respect to such Purchaser on Schedule
1, with the aggregate purchase price for all of the shares of Series BB
Preferred Stock to be sold hereunder being Five Million Dollars ($5,000,000).

 

(c)                                  Subject to the terms and conditions of
this Agreement, each eligible Purchaser (a “Qualified Purchaser”),
subject to and in reliance upon the representations, 

 

 

warranties and covenants of the Company, and the other terms and
conditions of this Agreement, severally, but not jointly, agrees to purchase at
the Closing, and the Company agrees to sell and issue to such Qualified
Purchaser at the Closing, warrants exercisable to purchase a number of shares
of Series BB Preferred Stock equal to two shares for every dollar by which
the amount of the Holder’s aggregate investment in the Series BB Preferred
Stock set forth opposite such Holder’s name on Schedule
1.2 attached hereto exceeds the product of (i) $5,000,000
(the “Investment Amount”) multiplied by (ii) the Pro Rata
Percentage (as defined below).  In the
event that the Company sells additional shares of Series BB Preferred
Stock after the date hereof and prior to December 31, 2005, in accordance
with the terms and conditions of the Company’s Fifth Articles of Amendment and
Restatement (the “Articles”), the number of Warrant Shares shall be
recalculated in accordance with the previous sentence by adding to the
Investment Amount the additional cash proceeds received by the Company as a
result of such sale.  “Pro Rata
Percentage” shall mean the number of shares of Series AA Convertible
Preferred Stock, par value $0.01 per share (the “Series AA Preferred
Stock”) held by the Holder divided by the total number of Series AA
Preferred Stock outstanding; provided, that for the purposes of
determining the Pro Rata Percentage of ICG Holdings, Inc. (“ICG”),
ICG shall be deemed to own all shares of Series AA Preferred Stock issued
to CommerceQuest Inc. and CommerceQuest UK Limited in the Acquisition (as
defined below).  Such warrants, upon any
such issuance, shall be substantially in the form of Exhibit A-1
hereto (the “Warrants”).

 

1.2                                 Closing; Delivery. 
The closing of the purchase and sale of the Series BB Preferred
Stock (the “Closing”) shall take place at the offices of Venable LLP,
1800 Mercantile Bank and Trust Building, 2 Hopkins Plaza, Baltimore, Maryland,
at 10:00 a.m., on October 5, 2005, or at such other time and place as
the Company and the Purchasers mutually agree upon, orally or in writing.  At the Closing, the Company shall deliver to
each Purchaser a certificate registered in the name of such Purchaser
representing the Series BB Preferred Stock and, if applicable, the
Warrants being purchased thereby against payment of the purchase price
therefore, such payment to be made in the amount set forth opposite such
Purchaser’s name on Schedule 1
hereto by cashiers or certified check or wire transfer of immediately available
U.S. funds.  The Company and each
Purchaser shall take such additional actions and execute and deliver such
additional agreements and other instruments and documents as necessary or
appropriate to effect the transactions contemplated by this Agreement in
accordance with its terms.

 

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

 

2.1                                 Organization, Good Standing and
Qualification.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland
and has full corporate power and authority to carry on its business as now
being conducted.  The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify or become licensed is reasonably likely to be
materially adverse to the business, results of operations, financial condition,
assets or liabilities 

 

2

 

of the Company (a “Material Adverse Effect”).  Section 2.1
of the Disclosure Schedule sets forth a true and complete list of all foreign
jurisdictions in which the Company is so qualified or licensed and in good
standing.

 

2.2                                 Capitalization.

 

(a)                                  Upon approval of the Fifth Articles by
the Company’s stockholders and the filing of the Fifth Articles with the SDAT,
the authorized capital stock of the Company will consist of the following:

 

(i)                                     40,000,000 shares of Series AA
Preferred Stock, of which 21,656,965.65 shares are issued and outstanding;

 

(ii)                                  6,800,000 shares of Series BB
Preferred Stock, none of which are issued and outstanding; and

 

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

 

(b)                                 The Company has reserved 87,500 shares of
Common Stock for issuance to directors, key employees and consultants to the
Company pursuant to its 1999 Equity Incentive Plan, which has been duly adopted
by the Company’s board of directors and approved by the Company’s
shareholders.  The Company’s board of
directors and shareholders have approved the 2004 Omnibus Stock Plan which
allows the Company to issue stock options to purchase up to 4,075,191 shares of
Common Stock for issuance to directors, key employees and consultants and
1,443,779.71 restricted stock units for shares of Series AA Preferred
Stock for issuance to key employees.

 

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

 

(d)                                 The Company shall adopt and file the
Fifth Articles with the SDAT on or before the Closing.

 

(e)                                  Attached hereto as Exhibit B
is a true and complete list of the Company’s stockholders, showing the number
of shares of capital stock of the Company held of 

 

3

 

record by each stockholder as of the date of this Agreement.  Except as provided in Section 2.2
of the Disclosure Schedule, there are no agreements, written or oral, between
the Company and any holder of its capital stock, or among any holders of its
capital stock, relating to the issuance, acquisition (including without
limitation rights of first refusal or preemptive rights), disposition,
registration under the Securities Act of 1933, as amended (the “Securities
Act”), or voting of the capital stock of the Company.

 

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

 

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

 

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

 

4

 

Stock purchased hereunder has been duly and validly reserved for
issuance, and upon issuance in accordance with the terms of the Fifth Articles,
against payment received therefor, shall be duly and validly issued, fully paid
and nonassessable and free of restrictions on transfer other than restrictions
on transfer under this Agreement, the Stockholders Agreement and applicable
federal and state securities laws and will be issued in compliance with all
applicable federal and state securities laws. 
Neither the issuance, sale or delivery of the Series BB Preferred Stock
nor the issuance or delivery of the Common Stock upon conversion of the Series BB
Preferred Stock nor the issuance or delivery of the Series BB Preferred
Stock upon exercise of the Warrants is subject to any preemptive right of the
stockholders of the Company with which the Company has not complied or which
has not been properly waived or to any right of first refusal or other right in
favor of any individual or entity.

 

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

 

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

 

2.8                                 Intellectual Property.

 

(a)                                  Intentionally Reserved.

 

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

 

5

 

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

 

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

 

(e)                                  No Intra-company License Agreements
exist.

 

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

 

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

 

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

 

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

 

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

 

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

 

(l)                                     To the Company’s knowledge, the operation
of the Company’s business as presently conducted, and as conducted since January 1,
2000, does not infringe any 

 

6

 

Intellectual Property rights of any third-party.  For the avoidance of doubt, the use by the
Company of any Licensed Intellectual Property pursuant to a valid Inbound
License Agreement shall not be construed as an infringement of any Intellectual
Property rights of the licensor for purposes of this Section 2.8(l).

 

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

 

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

 

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

 

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

 

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

 

(r)                                    No Owned Software or any other Software
used by the Comapny in the ordinary course of its business is, includes, or is
a derivative of any Software (A) for which the source code is in the
public domain, or (B) that includes “open source” code or is licensed 

 

7

 

pursuant to an “open source” license, including by way of example, but
not in limitation, the GNU General Public License, the Mozilla Public License,
the BSD License or the Apache Software License.

 

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

 

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

 

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

 

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

 

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

 

2.9                                 Compliance with Other Instruments.

 

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

 

8

 

default under any such provision, instrument, judgment, order, writ,
decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or its subsidiaries,
except where any such violation, conflict, default or creation of any such
lien, charge or encumbrance would not have a Material Adverse Effect.

 

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

 

2.10                           Agreements; Action.

 

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

 

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

 

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

 

2.12                           Disclosure.  The Company
has fully provided each Purchaser with all the information which such Purchaser
has requested in writing.  No representation
or warranty of the 

 

9

 

Company contained in this Agreement and the schedules and exhibits
attached hereto, any certificate furnished or to be furnished to the Purchasers
at the Closing (when read together) contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.

 

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

 

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

 

2.15                           Private Placement. 
Subject to the truth and accuracy of the Purchasers’ representations set
forth in this Agreement, the offer, sale and issuance of the Series BB
Preferred Stock as contemplated by this Agreement is exempt from the registration
requirements 

 

10

 

of the Securities Act, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss
of such exemption.

 

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

 

2.17                           Employee Benefit Plans.

 

(a)                                  Intentionally Reserved.

 

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

 

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

 

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

 

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

 

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

 

(b)                                 The Company has complied in all material
respects with all applicable tax laws relating to the payment and withholding
of material Taxes (including, without limitation, withholding of Taxes pursuant
to Sections 1441, 1442, 3402 and 4999 of the 

 

11

 

Code and employment
withholding Taxes) and have, within the time and manner prescribed by law,
withheld and paid over to the proper Governmental Entity all amounts required
to be withheld and paid over under all applicable tax laws.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

2.19                           Labor Agreements and Actions. 
Neither the Company nor its subsidiaries is bound by or subject to (and
none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the knowledge of the Company,
has sought to represent any of the employees, representatives or agents of the
Company or any of its subsidiaries. 
There is no strike or other labor dispute involving the Company and any
of its subsidiaries pending, or to the knowledge of the Company, threatened,
which could have a Material Adverse Effect, nor is the Company aware of any
labor organization activity involving its employees or those of any
subsidiary.  The Company and its
subsidiaries have complied in all material respects with all applicable federal
and state equal employment opportunity laws and with all other laws related to
employment or the health and safety of its employees.

 

2.20                           Employees; Employment and Consulting
Agreements.

 

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

 

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

 

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

 

2.21                           Permits.  The Company
and each of its subsidiaries has all material franchises, permits, licenses and
any similar authority necessary for the conduct of its business as

 

13

 

now being conducted by it. 
Neither the Company nor any of its subsidiaries is in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14

 

(d)                                 any satisfaction or discharge of any
lien, claim or encumbrance or payment of any obligation by the Company or any
of its subsidiaries, except in the ordinary course of business and that is not
material to the business, financial condition, operating results, assets,
properties or prospects of the Company or any of its subsidiaries (as such
business is presently conducted and as it is proposed to be conducted);

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(m)                               any arrangement or commitment by the
Company or any of its subsidiaries to do anything described in this Section 2.24
(other than negotiating with Purchasers and their representatives regarding the
terms contemplated by this Agreement); or

 

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

 

15

 

2.26                           Insurance.  The Company
and its subsidiaries maintain and/or are covered by valid policies of workers’
compensation insurance and of insurance with respect to their properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations engaged in the same or similar business, including, without
limitation, insurance against loss, damage, fire, theft, public liability and
other risks.

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)                                  A waiver signed by holders of at least
two-thirds (2/3) of the then outstanding
shares of Series AA Preferred Stock which shall affirmatively (i) waive
all rights and claims relating to accrued but unpaid dividends or distributions
(whether or not declared) on the Series AA Preferred Stock as of the date
hereof and (ii) approve the issuance of the Series BB Preferred Stock
and the Warrants; and

 

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

 

18

 

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

 

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

 

4.9                                 Fifth
Articles.  The Company shall have
filed the Fifth Articles with the State Department of Assessments and Taxations
of the State of Maryland on or prior to the date of the Closing, which shall
continue to be in full force and effect as of the date of the Closing.

 

4.10                           Acquisition.  The Company shall have completed the transactions
(the “Acquisition”) contemplated under that certain Asset Purchase
Agreement by and among the Company, as Buyer, and CommerceQuest, Inc. and
CommerceQuest UK Limited, jointly as Sellers, dated as of September 22,
2005, in accordance with the terms therein.

 

4.11                           Payment
of Expenses.  The Company shall have
paid in accordance with Section 8.8 the expenses and disbursements of ICG,
Mayflower L.P. and Wall Street Technology Partners LP (the “Lead Investors”).

 

4.12                           Minimum
Investment.  In addition to the other
conditions specified in this Section 4, it shall be a further condition to
the obligations of the Purchasers, that the Company shall have received an
aggregate of Five Million Dollars ($5,000,000),
evidenced by payment for the Series BB Preferred Stock.

 

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

 

4.14                           Management
Letter.  The Company and ICG Holdings, Inc.
shall have executed and delivered the Letter regarding Information Rights and
Sarbanes-Oxley Compliance, dated as of the date of Closing and attached hereto
as Exhibit F.

 

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

 

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

 

19

 

with the same
effect as though such representations and warranties had been made on and as of
the Closing.

 

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

 

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

 

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

 

6.                                      Intentionally
Reserved.

 

7.                                      Affirmative
Covenants.

 

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

 

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

 

8.                                      Miscellaneous.

 

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

 

20

 

to this Agreement
shall survive the execution and delivery of this Agreement and the Closing for
a period of 18 months after the date hereof.

 

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

 

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

 

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

 

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

 

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

 

if to the Company at:

 

Metastorm Inc.

8825 Stanford Boulevard

Suite 200

Columbia, Maryland 21045-4757

Attention:  Robert J. Farrell

Telecopier: (410) 290-1172

 

with a
copy to:

 

Venable LLP

Two Hopkins Plaza, Suite 1800

Baltimore, MD  21201

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

Telecopier:  (410) 244-7742

 

21

 

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

 

8.8                                 Expenses.  Each party shall bear its own costs and
expenses, provided, however, that the Company shall pay and be
responsible for all out-of-pocket expenses of the Lead Investors and the
reasonable fees of the counsel for the Lead Investors incurred with respect to
this Agreement, the documents referred to herein and the transactions
contemplated hereby up to a maximum of $25,000.

 

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

 

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

 

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

 

22

 

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

 

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

 

[signatures
on next page]

 

23

 

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

 

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  METASTORM INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Robert J. Farrell

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert J. Farrell

  	
   

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive
  Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PURCHASERS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MAYFLOWER L.P.

  
	
   

  	
   

  	
  By:

  	
  3i Investments plc

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ben Gales

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Ben Gales

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Authorized Person

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ICG HOLDINGS, INC.

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Suzanne Niemeyer

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Suzanne Niemeyer

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WALL STREET TECHNOLOGY PARTNERS LP

  	
   

  
	
   

  	
   

  	
  By:

  	
  Wall Street Technology Managers LP

  
	
   

  	
   

  	
  Its:

  	
  General Partner

  
	
   

  	
   

  	
   

  	
  By:

  	
  Technology Equity Employees LLC

  	
   

  
	
   

  	
   

  	
   

  	
  Its:

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Adam Lichtenstein

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Adam Lichtenstein

  	
   

  
	
   

  	
   

  	
   

  	
  Its:

  	
  Authorized Person

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Richard H. Wolf

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Richard H. Wolf

  	
   

  
	
   

  	
   

  	
   

  	
  Its:

  	
  Authorized Person

  	
   

  

 

24

 

Appendix
A

 

Definitions

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Schedule 1

 

Purchasers,
Shares Purchased and Purchase Price

 

	
  Purchaser

  	
   

  	
  Shares of Series BB

  Preferred Stock

  Purchased

  	
   

  	
  Purchase Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ICG Holdings, Inc.

  100 Lake Drive, Suite 4

  Pencader Corporate Center

  Newark, Delaware 19702

  Attn: General Counsel

  	
   

  	
  2,140,138

  	
   

  	
  $

  	
  2,965,632.03

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mayflower L.P. (formerly 3i Group, plc)

  121 Cambridge Science Park

  Milton Road

  Cambridge CB4 0FZ (UK)

  Attn: Ben Gales

  	
   

  	
  851,017

  	
   

  	
  $

  	
  1,179,271.28

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wall Street Technology Partners LP

  75 Wall Street

  34th Floor

  New York, NY 10005

  Attn: Adam Lichtenstein

  	
   

  	
  617,078

  	
   

  	
  $

  	
  855,097.33

  	
   

  

 

 

Schedule 1.2

 

Qualified
Purchasers, Shares Eligible for Purchase Pursuant to Warrant

and Exercise Price

 

	
  Qualified Purchaser

  	
   

  	
  Shares Eligible for

  Purchase Pursuant to

  Warrant

  	
   

  	
  Exercise

  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ICG Holdings, Inc.

  100 Lake Drive, Suite 4

  Pencader Corporate Center

  Newark, Delaware 19702

  Attn: General Counsel

  	
   

  	
  1,775,470

  	
   

  	
  $

  	
  1.38572

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mayflower L.P. (formerly 3i Group, plc)

  121 Cambridge Science Park

  Milton Road

  Cambridge CB4 0FZ (UK)

  Attn: Ben Gales

  	
   

  	
  706,008

  	
   

  	
  $

  	
  1.38572

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wall Street Technology Partners LP

  75 Wall Street

  34th Floor

  New York, NY 10005

  Attn: Adam Lichtenstein

  	
   

  	
  511,931

  	
   

  	
  $

  	
  1.38572

  	
   

  

 

 

EXHIBIT A

 

Form of
Fifth Articles of Amendment and Restatement

 

See
Attached

 

 

Exhibit A

 

METASTORM
INC.

 

FIFTH ARTICLES OF AMENDMENT AND RESTATEMENT

 

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

 

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

 

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

 

Metastorm Inc.

 

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

 

THIRD:  The address of the principal office of the
Corporation in Maryland is 8825 Stanford Boulevard, Suite 200, Columbia,
Maryland 21045-4757.  The name of the
resident agent is Allison McCann, whose address is 8825 Stanford Boulevard, Suite 200,
Columbia, Maryland 20145-4757.  Said
resident agent is a citizen of the State of Maryland residing therein.

 

FOURTH:  The amount of the total authorized capital
stock of this Corporation shall be up to 101,979,000 shares, divided as
follows:  (i) 55,179,000 shares of
Common Stock, par value $0.01 per share (the “Common Stock”), and (ii) 46,800,000
shares of Preferred Stock, par value $0.01 per share (the “Preferred Stock”),
of which 40,000,000 shares shall be designated as “Series AA Convertible
Preferred Stock” (the “Series AA Preferred Stock”) and 6,800,000
shares shall be designated as “Series BB Convertible Preferred Stock” (the
“Series BB Preferred Stock”).  The aggregate par value of all shares of
capital stock having a par value is $1,019,790.

 

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

 

(b)                                 Preferred Stock. 
The Preferred Stock authorized hereby may be divided and issued from
time to time in series.  Except as
otherwise provided in the Corporation’s Charter, or as may be provided in that
certain Fourth Amended and Restated Stockholders Agreement dated September 30,
2005, by and among the

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The
Board is also authorized to decrease the number of shares of any series,
subsequent to the issuance of that series, but not below the number of shares
of such series then outstanding.  In case
the number of shares of any series shall be so decreased, the shares
constituting such decrease shall

 

2

 

resume the status which
they had prior to the adoption of the resolution originally fixing the number
of shares of such series.

 

FIFTH:  For purposes of Article Sixth below, the
following terms shall have the respective meanings indicated:

 

“Acquisition”
means a consolidation or merger of the Corporation with or into any other
corporation or other entity or person, or an acquisition of assets or other
corporate reorganization, in which stockholders of the Corporation immediately
prior to such consolidation, merger, acquisition of assets or reorganization,
own less than fifty percent (50%) of the voting power or equity of the
surviving entity immediately after such consolidation, merger, acquisition of
assets or reorganization, or any transaction or series of related transactions
in which in excess of fifty percent (50%) of the Corporation’s voting power or
equity is transferred.

 

“Additional
Shares of Common Stock” means all shares of Common Stock issued (or,
pursuant to Section 5(d)(ii) of Article Sixth, deemed to be
issued) by the Corporation after the Series AA Original Issue Date, other
than (a) shares of Common Stock issued or issuable upon the conversion of
shares of the Series AA Preferred Stock or Series BB Preferred Stock;
(b) shares of Common Stock or Series AA Preferred Stock issued or
issuable to employees, directors or consultants of the Corporation pursuant to
a plan or arrangement approved by the Board (provided that the Board shall also
approve the grant of shares of Common Stock or Series AA Preferred Stock
or other securities exercisable for such shares of Common Stock or Series AA
Preferred Stock in connection therewith); (c) shares of Common Stock
issued pursuant to a merger or consolidation of the Corporation with or into
any other corporation or corporations approved in accordance with Section 4(b) of
Article Sixth; (d) shares of Common Stock issued in connection with
an acquisition approved in accordance with 4(b) of Article Sixth; (e) shares
of Common Stock issued or issuable to commercial banking or equipment lease
financing entities in connection with banking or lease financing transactions
approved by the Board; and (f) shares of Common Stock and/or Series AA
Preferred Stock issued pursuant to Section 6.7 of that certain Stock
Purchase Agreement dated as of May 7, 2001 and pursuant to Section 6.7
of that certain Stock Purchase Agreement dated as of June 28, 2001.

 

3

 

“Asset
Transfer” means a sale, lease or other disposition of all or substantially
all of the assets of the Corporation, in one or more related transactions.

 

“Business
Day” means, each day, other than a Saturday or a Sunday, which is not a day
on which banking institutions in New York, New York are authorized or required
by law, regulation or executive order to close.

 

“Convertible
Securities” means any stock, evidences of indebtedness or other securities
of the Corporation directly or indirectly convertible into or exchangeable for
Additional Shares of Common Stock, other than the Series BB Preferred
Stock or warrants exercisable for shares of Series BB Preferred Stock.

 

“Liquidation”
means (i) the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; (ii) Qualified Sale Transaction or (iii) the
commencement by the Corporation of a voluntary case under the federal bankruptcy
laws or any other applicable federal or state bankruptcy, insolvency or similar
law, the consent to the entry of an order for relief in an involuntary case
under such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, the making of an assignment by the
Corporation for the benefit of its creditors, the admission in writing by the
Corporation of its inability to pay its debts generally as they become due, if
a decree or order for relief in respect of the Corporation shall be entered by
a court having jurisdiction in the premises in an involuntary case under the
federal bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law or the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or any substantial part of its property.

 

“Options”
means rights, options or warrants to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities, excluding options to purchase
Common Stock or Series AA Preferred Stock of the Corporation issued to
employees, directors or consultants of the Corporation pursuant to a plan or
arrangement approved by the Board.

 

“Qualified
Initial Public Offering” means the closing of a firm commitment
underwritten public offering, pursuant to an effective

 

4

 

registration statement
under the Securities Act of 1933, as amended (the “Securities Act”),
covering the offer and sale of Common Stock to the public that raises gross
proceeds for the Corporation of at least $35,000,000  and
at an initial price per share to the public of at least $4.15716 (such price
subject to appropriate adjustment for any Recapitalization Events).

 

“Qualified
Sale Transaction” means an Acquisition or Asset Transfer.

 

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

 

“Series AA
Conversion Price” means $1.38572 per share (subject to adjustment as
provided in Section 5 of Article Sixth).

 

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

 

“Series AA
Conversion Date” shall have the meaning set forth in Section 5(b) of
Article Sixth.

 

“Series AA
Dividend Payment Date” means the payment date for each declared dividend
with respect to the Series AA Preferred Stock.

 

“Series AA
Dividend Record Date” means the date designated by the Board of Directors
for the payment of dividends that is not more than 35 nor less than 10 days
prior to the applicable Series AA Dividend Payment Date.

 

“Series AA
Original Issue Date” shall have the meaning set forth in Section 2(a) of
Article Sixth.

 

“Series AA
Stated Value” means $1.38572 per share (subject to appropriate adjustment
for any Recapitalization Event).

 

SIXTH: 
The Series AA Preferred Stock shall be subject to all of the
provisions of the Corporation’s Charter relating to the capital stock of the
Corporation generally and shall have the following preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of

 

5

 

redemption (section
references below are to the corresponding sections in this Article Sixth):

 

Section 1.                                            Rank.  The Series AA Preferred Stock will, with
respect to dividend rights and rights upon Liquidation, rank:  (a) senior to (i) the Common Stock,
and (ii) all classes or series of capital stock of the Corporation now or
hereafter authorized, issued or outstanding expressly designated as ranking
junior to the Series AA Preferred
Stock as to dividend rights and rights upon Liquidation of the Corporation; (b) on
parity with any class or series of capital stock of the Corporation expressly
designated as ranking on parity with the Series AA Preferred Stock as to
dividend rights and rights upon Liquidation of the Corporation; and (c) junior
to (i) the Series BB Preferred Stock, and (ii) any class or
series of capital stock of the Corporation expressly designated as ranking
senior to the Series AA Preferred
Stock as to dividend rights and rights upon Liquidation of the
Corporation.  The term “capital stock”
does not include convertible debt securities, which rank senior to the Series AA Preferred Stock prior to
conversion into such capital stock.

 

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

 

Subject to the preferential rights of the holders of any class or
series of capital stock of the Corporation ranking senior to the Series AA
Preferred Stock as to dividends, the holders of shares of the Series AA
Preferred Stock shall be entitled to receive, when, as and if authorized by the
Board of Directors and declared by the Corporation, out of funds legally
available for the payment of dividends, cumulative dividends at the rate of
8.00% per annum.  Unless otherwise waived
in writing by holders of at least two-thirds (2/3) of the then outstanding Series AA
Preferred Stock, such dividends shall accrue and be cumulative from and
including the date on which such shares of Series AA Preferred Stock are
issued (the “Series AA Original Issue Date”) and shall be payable
quarterly in arrears on each Series AA Dividend Payment Date, commencing January 1,
2006; provided, however, that if any Series AA Dividend Payment Date is
not a Business Day, then the dividend which would otherwise have been payable
on such Series AA Dividend Payment Date may be paid on the next succeeding
Business Day, except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if paid on such Series AA
Dividend Payment Date, and no interest or additional dividends or other sums
shall accrue on the amount so payable from

 

6

 

such
Series AA Dividend Payment Date to such next succeeding Business Day.  The amount of any dividend payable on the Series AA
Preferred Stock for any partial Series AA Dividend Period shall be
prorated and computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends will be payable to holders of record as they appear in
the stockholder records of the Corporation at the close of business on the
applicable Series AA Dividend Record Date. 
Notwithstanding any provision to the contrary contained herein, each
outstanding share of Series AA Preferred Stock shall be entitled to
receive a dividend with respect to any Series AA Dividend Record Date
equal to the dividend paid with respect to each other share of Series AA
Preferred Stock that is outstanding on such date.

 

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

 

(b)                         Except as
provided in Section 2(d) below, no dividends shall be declared or
paid or set apart for payment and no other distribution of cash or other
property may be declared or made, directly or indirectly, on or with respect to
any shares of Common Stock or shares of any other class or series of capital
stock of the Corporation ranking, as to dividends, on parity with or junior to
the Series AA Preferred Stock (other than a dividend paid in shares of
Common Stock or in shares of any other class or series of capital stock ranking
junior to the Series AA Preferred Stock as to dividends and upon
Liquidation) for any period, nor shall any shares of Common Stock or any other
shares of any other class or series of capital stock of the Corporation
ranking, as to dividends or upon Liquidation, on parity with or junior to the Series AA
Preferred Stock be redeemed, purchased or otherwise acquired for any
consideration and no other distribution of cash or other property may be made,
directly or indirectly, on or with respect thereto by the Corporation (except
by conversion into or exchange for other shares of any class or series of
capital stock of the Corporation ranking junior to the Series AA Preferred
Stock as to dividends and upon Liquidation), unless full cumulative dividends
on, first, the Series BB Preferred Stock for all past dividend periods and
the then current dividend period shall have been or contemporaneously are (i) declared
and paid or (ii) declared and a sum sufficient for the payment thereof is
set apart for such payment and, second, the Series AA Preferred Stock

 

7

 

for
all past dividend periods and the then current dividend period shall have been
or contemporaneously are (i) declared and paid or (ii) declared and a
sum sufficient for the payment thereof is set apart for such payment.

 

(c)                          When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon the Series AA Preferred Stock and the shares of any other
class or series of capital stock ranking, as to dividends, on parity with the Series AA
Preferred Stock, all dividends declared upon the Series AA Preferred Stock
and each such other class or series of capital stock ranking, as to dividends,
on parity with the Series AA Preferred Stock shall be declared pro rata so
that the amount of dividends declared per share of Series AA Preferred
Stock and such other class or series of capital stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the Series AA
Preferred Stock and such other class or series of capital stock (which shall
not include any accrual in respect of unpaid dividends on such other class or
series of capital stock for prior dividend periods if such other class or
series of capital stock does not have a cumulative dividend) bear to each
other.  No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series AA Preferred Stock which may be in arrears.

 

(d)                         Holders of shares of Series AA
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or shares of stock, in excess of full cumulative dividends on the Series AA
Preferred Stock as provided herein.  Any
dividend payment made on the Series AA Preferred Stock shall first be
credited against the earliest accrued but unpaid dividends due with respect to
such shares which remains payable. 
Accrued but unpaid distributions on the Series AA Preferred Stock
will accumulate as of the Series AA Dividend Payment Date on which they
first become payable.

 

Section 3.                                            Intentionally Reserved.

 

Section 4.                                            Voting Rights.

 

(a)                                  Each outstanding share of Series AA
Preferred Stock, prior to its conversion to Common Stock, shall be entitled to
the number of votes equal to the number of votes to which the number of shares
of Common Stock into which such share of Series AA Preferred Stock is
convertible (as adjusted from time to time pursuant

 

8

 

to Section 5 hereof) would be entitled at each
meeting of the stockholders of the Corporation (and for purposes of written
actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration.

 

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

 

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

 

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

 

(iii) 
issue, authorize or sell any Convertible Securities convertible into or
exchangeable for or having conversion option rights to purchase any preferred
stock ranking senior to or on parity with the Series AA Preferred as to
dividend rights, voting rights and/or rights upon liquidation, dissolution or
winding up of the Corporation;

 

(iv) 
merge or consolidate the Corporation or any of its subsidiaries with or into
another entity, or enter into any other recapitalization or similar transaction
with any entity if such transaction would result in, the stockholders of the
Corporation, immediately prior to the date of the transaction, not owning a
majority of the outstanding shares of the capital stock of the surviving entity
immediately after such transaction;

 

9

 

(v) 
engage someone as the Chief Executive Officer of the Corporation or terminate
the employment of the Chief Executive Officer of the Corporation;

 

(vi) 
substantially change the business in which the Corporation engages as of the Series AA
Original Issue Date;

 

(vii) 
issue any equity securities of the Corporation within a fiscal year for
consideration in excess of $10,000,000;

 

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

 

(ix) 
sell, transfer, lease or dispose of all or substantially all of the assets of
the Corporation or of any of its subsidiaries in one transaction or a series of
related transactions, or effect the liquidation, dissolution or winding-up of
the Corporation or any of its subsidiaries; or

 

(x) 
declare and pay dividends or other distributions upon, or redeem, purchase,
retire or otherwise acquire for value, any shares of the capital stock of the
Corporation (other than, in each case, with respect to the Series BB
Preferred Stock) or any shares of the capital stock of any subsidiary of the
Corporation (other than the payment of dividends or distributions, or other
payments in redemption, made by such subsidiary solely to the Corporation and
other than pursuant to repurchase agreements that have been approved by the
disinterested Members of the Board);

 

(xi)  make or cause any of its subsidiaries to
make, any loan, advance or payment to, or transfer of any assets or property
to, enter into any contract or amendment of any agreement with, or engage in
any other transaction with, any person or entity in which any stockholder,
director or other officer of the Corporation, or any of their respective
immediate families or affiliates have an interest in excess of $7,500;

 

10

 

(xii)  incur indebtedness for borrowed money in
excess of $10,000,000; or

 

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

 

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

 

(d)           For all other matters on which the
holders of Common Stock are entitled to vote, the holders of the Series AA
Preferred Stock shall vote on an “as-converted” basis together with the holders
of Series BB Preferred Stock (voting on an “as-converted” basis) and
Common Stock as a single class.

 

Section 5.               The holders of the Series AA
Preferred Stock shall have conversion rights as follows (the “Series AA
Conversion Rights”):

 

(a)           Right to Convert. Each share
of Series AA Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time, into such number of fully
paid and nonassessable shares of Common Stock as determined by multiplying the
number of shares of Series AA Preferred Stock outstanding for each
stockholder by the Series AA Conversion Value and then dividing by the Series AA
Conversion Price (subject to appropriate adjustment in accordance with this Section 5).  No additional consideration shall be paid by
a holder of Series AA Preferred Stock upon exercise of Conversion Rights.

 

(b)           Mechanics of Conversion.

 

(i)            In order for a holder of Series AA
Preferred Stock to convert shares of Series AA Preferred Stock into shares
of Common Stock, such holder shall surrender the certificate or certificates
for such shares of Series AA Preferred Stock, at the office of the
transfer agent for  the Series AA Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to
convert all or any number of the shares of Series AA

 

11

 

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

 

(ii)           The Corporation shall, at all times
when the Series AA Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series AA Preferred Stock, such number of
its duly authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series AA Preferred
Stock.

 

(iii)          All shares of Series AA Preferred
Stock which shall have been surrendered for conversion as herein provided shall
no longer be deemed to be outstanding and all rights with respect to such
shares, shall immediately cease and terminate on the Series AA Conversion
Date, except only the right of the holders thereof to receive shares of Common
Stock in exchange therefor.  Any shares
of Series AA Preferred Stock so converted shall be retired and canceled
and shall not be reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series AA
Preferred Stock accordingly.

 

12

 

(c)           Adjustments to Conversion Price for Diluting Issues.

 

(i)            No Adjustment of Conversion Price.  No adjustment in the number of shares of
Common Stock into which the Series AA Preferred Stock is convertible shall
be made, by adjustment in the applicable Series AA Conversion Price
thereof:  (A) unless the
consideration per share (determined pursuant to Section 5(c)(iv)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series AA Conversion Price in
effect on the date of, and immediately prior to, the issuance of such
Additional Share of Common Stock, (B) upon the issuance of any shares of Series BB
Preferred Stock or shares of Common Stock issuable upon the conversion thereof;  or (C) if prior to such issuance, the Corporation
receives written notice from the holders of at least two-thirds (2/3) of the then outstanding shares of Series AA
Preferred Stock agreeing that no such adjustment shall be made as the result of
the issuance of such Additional Shares of Common Stock.

 

(ii)           Issuance of Securities Deemed Issuance
of Additional Shares of Common Stock. 
If the Corporation at any time or from time to time after the Series AA
Original Issue Date shall issue any Convertible Securities or Options or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Convertible Securities or Options, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issuance or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 5(c)(iv)) of such Additional Shares of Common Stock
would be less than the Series AA Conversion Price in effect on the date of
and immediately prior to such issuance, or such record date, as the case may
be, and provided that in any such case in which Additional Shares of Common
Stock are deemed to be issued:

 

13

 

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

 

(2)           if
such Options or Convertible Securities by their terms provide, with the passage
of time or otherwise, for any increase in the consideration payable to the
Corporation, or decrease in the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Series AA Conversion
Price computed upon the original issuance thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;

 

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

 

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

 

14

 

upon the exercise or conversion of any such Option
or Convertible Security.

 

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

 

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

 

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

 

(iii)          Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock.  In the event the Corporation shall at any
time after the Series AA Original Issue Date issue Additional Shares of
Common 

 

15

 

Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 5(c)(iii),
but excluding shares issued as a dividend or distribution as provided in Section 5(e) or
upon a stock split or combination as provided in Section 5(f)), without
consideration or for a consideration per share (determined pursuant to Section 5(c)(iv) hereof)
less than the Series AA Conversion Price in effect on the date of and
immediately prior to such issuance, then and in each such case, such Series AA
Conversion Price shall be reduced, concurrently with such issuance, to a price
(calculated to the nearest hundredth of a cent) determined by multiplying the Series AA
Conversion Price by a fraction:

 

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

 

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

 

(iv)          Determination
of Consideration.  For purposes of
this Section 5(c), the consideration received by the Corporation for the
issuance of any Additional Shares of Common Stock shall be computed as follows:

 

(1)           Cash and Property.  Such
consideration shall:

 

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

 

16

 

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

 

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

 

(2)           Options
and Convertible Securities.  The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(ii),
relating to Options and Convertible Securities, shall be determined by
dividing:

 

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

 

(b)           the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a 

 

17

 

subsequent adjustment of such number) issuable upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities.

 

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

 

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

 

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

 

(ii)           the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, if such record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the 

 

18

 

Series AA Conversion
Price for the Series AA Preferred Stock shall be recomputed accordingly as
of the close of business on such record date and thereafter the Series AA
Conversion Price for the Series AA Preferred Stock shall be adjusted
pursuant to this paragraph as of the time of actual payment of such dividends
or distributions.

 

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

 

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

 

19

 

(h)           Adjustment for Merger or
Reorganization.  In case of any
consolidation or merger of the Corporation with or into another corporation
which does not cause a Liquidation, each share of Series AA Preferred
Stock shall thereafter be convertible into the kind and amount of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such Series AA
Preferred Stock would have been entitled upon such consolidation or merger;
and, in such case, appropriate adjustment (as determined in good faith by the
Board) shall be made in the application of the provisions in this Section 5
set forth with respect to the rights and interest thereafter of the holders of
the Series AA Preferred Stock, to the end that the provisions set forth in
this Section 5 (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series AA Preferred
Stock.

 

(i)            No Impairment.  The Corporation will not, by amendment of its
Charter or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series AA
Preferred Stock against impairment.

 

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

 

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

 

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

 

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

 

20

 

(iv)          of the Liquidation of the Corporation;

 

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

 

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

 

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

 

(k)           Certificate as to Adjustments.  Upon the occurrence of each adjustment or
readjustment pursuant to this Section 5, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series AA Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.  The Corporation shall, upon the written
request at any time of any holder of Series AA Preferred Stock, furnish or
cause to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments; (ii) the Series AA Conversion Price
then in effect; and (iii) the number of shares of Common Stock and the
amount, if any, of other property which then would be received upon the
conversion of Series AA Preferred Stock.

 

(l)            Stock to be Reserved.  The Corporation will at all times reserve and
keep available out of its authorized Common Stock, 

 

21

 

solely for the purpose of
issuance upon the conversion of Series AA Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series AA Preferred
Stock.  The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the Series AA
Conversion Price in effect at the time. 
The Corporation will take all such action as may be necessary to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed.  The Corporation will not take any action
which results in any adjustment of the Series AA Conversion Price if the
total number of shares of Common Stock issued and issuable after such action
upon conversion of the Series AA Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Corporation’s Charter.

 

(m)          Issue Tax.  The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the holder of the Preferred Stock which is being
converted.

 

(n)           Closing of Books.  The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Series AA
Preferred Stock in any manner which interferes with the timely conversion of
such Series AA Preferred Stock, except as may otherwise be required to
comply with applicable securities laws.

 

22

 

Section 6.               Exclusion of Other Rights.  Except as set forth in the Charter and the
Stockholders Agreement, the Series AA Preferred Stock shall not have any
preferences or other rights, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption.

 

Section 7.                                            Mandatory
Conversion of Series AA Preferred Stock.

 

(a)           (i) 
Upon written request of the holders of more than two-thirds (2/3) of the then outstanding shares of the
Series AA Preferred Stock and the Series BB Preferred Stock, voting together as
a single class, the Corporation shall convert all of the outstanding shares of
Series AA Preferred Stock into shares of Common Stock in accordance with Section
5 and (ii) upon the closing of a Qualified Initial Public Offering, all of the
Series AA Preferred Stock then outstanding shall automatically be converted
into shares of Common Stock at the Series AA Conversion Price (subject to
appropriate adjustment in accordance with Section 5) in accordance with Section
5.

 

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

 

(c)           All certificates evidencing shares of
Series AA Preferred Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after the
date such certificates are so required to be surrendered, be deemed to have
been retired and canceled and the shares of Series AA Preferred Stock
represented thereby converted into Common Stock for all purposes as of the date
of conversion set forth in Section 5(a) above, notwithstanding the
failure of the holder or holders thereof to surrender such certificates.

 

23

 

SEVENTH:  For purposes of Article Eighth below,
the following terms shall have the respective meanings indicated:

 

“Acquisition”
means a consolidation or merger of the Corporation with or into any other
corporation or other entity or person, or an acquisition of assets or other
corporate reorganization, in which stockholders of the Corporation immediately
prior to such consolidation, merger, acquisition of assets or reorganization,
own less than fifty percent (50%) of the voting power or equity of the
surviving entity immediately after such consolidation, merger, acquisition of
assets or reorganization, or any transaction or series of related transactions
in which in excess of fifty percent (50%) of the Corporation’s voting power or
equity is transferred.

 

“Additional
Shares of Common Stock” means all shares of Common Stock issued (or,
pursuant to Section 5(d)(ii) of Article Eighth, deemed to be
issued) by the Corporation after the Series BB Original Issue Date, other
than (a) shares of Common Stock issued or issuable upon the conversion of
shares of the Preferred Stock; (b) shares of Common Stock or Series BB
Preferred Stock issued or issuable to employees, directors or consultants of
the Corporation pursuant to a plan or arrangement approved by the Board
(provided that the Board shall also approve the grant of shares of Common Stock
or Series BB Preferred Stock or other securities exercisable for such
shares of Common Stock or Series BB Preferred Stock in connection
therewith); (c) shares of Common Stock issued pursuant to a merger or
consolidation of the Corporation with or into any other corporation or
corporations approved in accordance with Section 4(b) of Article Eighth;
(d) shares of Common Stock issued in connection with an acquisition
approved in accordance with 4(b) of Article Eighth; (e) shares
of Common Stock issued or issuable to commercial banking or equipment lease
financing entities in connection with banking or lease financing transactions
approved by the Board; and (f) shares of Common Stock and/or Series BB
Preferred Stock issued pursuant to Section 6.7 of that certain Stock
Purchase Agreement dated as of May 7, 2001 and pursuant to Section 6.7
of that certain Stock Purchase Agreement dated as of June 28, 2001.

 

“Asset
Transfer” means a sale, lease or other disposition of all or substantially
all of the assets of the Corporation, in one or more related transactions.

 

“Business
Day” means, each day, other than a Saturday or a 

 

24

 

Sunday, which is not a
day on which banking institutions in New York, New York are authorized or
required by law, regulation or executive order to close.

 

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

 

“Liquidation”
means (i) the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; (ii) Qualified Sale Transaction or (iii) the
commencement by the Corporation of a voluntary case under the federal
bankruptcy laws or any other applicable federal or state bankruptcy, insolvency
or similar law, the consent to the entry of an order for relief in an
involuntary case under such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, the
making of an assignment by the Corporation for the benefit of its creditors,
the admission in writing by the Corporation of its inability to pay its debts
generally as they become due, if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the premises in
an involuntary case under the federal bankruptcy laws or any other applicable
federal or state bankruptcy, insolvency or similar law or the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or any substantial part of its property.

 

“Options”
means rights, options or warrants to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities, excluding options to purchase
Common Stock or Series BB Preferred Stock of the Corporation issued to
employees, directors or consultants of the Corporation pursuant to a plan or
arrangement approved by the Board.

 

“Qualified
Initial Public Offering” means the closing of a firm commitment
underwritten public offering, pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the “Securities Act”),
covering the offer and sale of Common Stock to the public that raises gross
proceeds for the Corporation of at least $35,000,000 and at an initial price
per share to the public of at least $4.15716 (such price subject to appropriate
adjustment for any Recapitalization Events).

 

25

 

“Qualified
Sale Transaction” means an Acquisition or Asset Transfer.

 

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

 

“Series BB
Conversion Price” means $1.38572 per share (subject to adjustment as
provided in Section 5 of Article Eighth).

 

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

 

“Series BB
Conversion Date” shall have the meaning set forth in Section 5(b) of
Article Eighth.

 

“Series BB
Dividend Payment Date” means, the means the payment date for each declared
dividend with respect to the Series BB Preferred Stock.

 

“Series BB
Dividend Record Date” means, the date designated by the Board of Directors
for the payment of dividends that is not more than 35 nor less than 10 days
prior to the applicable Series BB Dividend Payment Date.

 

“Series BB
Original Issue Date” shall have the meaning set forth in Section 2(a) of
Article Eighth.

 

“Series BB
Redemption Price” means, for each share of Series BB Preferred Stock, (1) the
Series BB Stated Value, plus (2) an amount equal to all accrued but
unpaid dividends (whether or not declared) on such share of Series BB
Preferred Stock since the Series BB Original Issue Date (as adjusted for
any stock split or other like event) up to and including the date fixed for
redemption, without interest.

 

“Series BB
Stated Value” means $1.38572 per share (subject to appropriate adjustment
for any Recapitalization Event).

 

EIGHTH:  The Series BB Preferred Stock shall be
subject to all of the provisions of the Corporation’s Charter relating to the
capital stock of the Corporation 

 

26

 

generally and shall have
the following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption (section references below are to the corresponding
sections in this Article Eighth):

 

Section 1.               Rank. 
The Series BB Preferred Stock will, with respect to dividend rights
and rights upon Liquidation, rank:  (a) senior
to (i) the Common Stock, (ii) the Series AA Preferred Stock, and
(iii) all classes or series of capital stock of the Corporation now or
hereafter authorized, issued or outstanding expressly designated as ranking
junior to the Series BB
Preferred Stock as to dividend rights and rights upon Liquidation of the
Corporation; (b) on parity with any class or series of capital stock of
the Corporation expressly designated as ranking on parity with the Series BB Preferred Stock as to dividend rights and
rights upon Liquidation of the Corporation; and (c) junior to any class or
series of capital stock of the Corporation expressly designated as ranking
senior to the Series BB
Preferred Stock as to dividend rights and rights upon Liquidation of the
Corporation.  The term “capital stock”
does not include convertible debt securities, which rank senior to the Series BB Preferred Stock prior to conversion into
such capital stock.

 

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

 

Subject to the preferential rights of the holders of any class or
series of capital stock of the Corporation ranking senior to the Series BB
Preferred Stock as to dividends, the holders of shares of the Series BB
Preferred Stock shall be entitled to receive, when, as and if authorized by the
Board of Directors and declared by the Corporation, out of funds legally
available for the payment of dividends, cumulative dividends at the rate of
8.00% per annum.  Such dividends shall
accrue and be cumulative from and including the first date on which any shares
of Series BB Preferred Stock are issued (the “Series BB Original
Issue Date”) and shall be payable quarterly in arrears on each Series BB
Dividend Payment Date, commencing January 1, 2006; provided, however, that
if any Series BB Dividend Payment Date is not a Business Day, then the
dividend which would otherwise have been payable on such Series BB
Dividend Payment Date may be paid on the next succeeding Business Day, except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if paid on such Series BB Dividend
Payment Date, and no interest or additional 

 

27

 

dividends
or other sums shall accrue on the amount so payable from such Series BB
Dividend Payment Date to such next succeeding Business Day.  The amount of any dividend payable on the Series BB
Preferred Stock for any partial Series BB Dividend Period shall be
prorated and computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends will be payable to holders of record as they appear in
the stockholder records of the Corporation at the close of business on the
applicable Series BB Dividend Record Date. 
Notwithstanding any provision to the contrary contained herein, each
outstanding share of Series BB Preferred Stock shall be entitled to
receive a dividend with respect to any Series BB Dividend Record Date
equal to the dividend paid with respect to each other share of Series BB
Preferred Stock that is outstanding on such date.

 

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

 

(b)        Except as provided in Section 2(d) below,
no dividends shall be declared or paid or set apart for payment and no other
distribution of cash or other property may be declared or made, directly or
indirectly, on or with respect to any shares of Common Stock or shares of any
other class or series of capital stock of the Corporation ranking, as to
dividends, on parity with or junior to the Series BB Preferred Stock
(other than a dividend paid in shares of Common Stock or in shares of any other
class or series of capital stock ranking junior to the Series BB Preferred
Stock as to dividends and upon Liquidation) for any period, nor shall any
shares of Common Stock or any other shares of any other class or series of
capital stock of the Corporation ranking, as to dividends or upon Liquidation,
on parity with or junior to the Series BB Preferred Stock be redeemed,
purchased or otherwise acquired for any consideration and no other distribution
of cash or other property may be made, directly or indirectly, on or with
respect thereto by the Corporation (except by conversion into or exchange for
other shares of any class or series of capital stock of the Corporation ranking
junior to the Series BB Preferred Stock as to dividends and upon Liquidation),
unless full cumulative dividends on the Series BB Preferred Stock for all
past dividend periods and the then current dividend period shall have been or
contemporaneously are (i) declared and paid or 

 

28

 

(ii) declared
and a sum sufficient for the payment thereof is set apart for such payment.

 

(c)         When dividends are not
paid in full (or a sum sufficient for such full payment is not so set apart)
upon the Series BB Preferred Stock and the shares of any other class or
series of capital stock ranking, as to dividends, on parity with the Series BB
Preferred Stock, all dividends declared upon the Series BB Preferred Stock
and each such other class or series of capital stock ranking, as to dividends,
on parity with the Series BB Preferred Stock shall be declared pro rata so
that the amount of dividends declared per share of Series BB Preferred
Stock and such other class or series of capital stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the Series BB
Preferred Stock and such other class or series of capital stock (which shall
not include any accrual in respect of unpaid dividends on such other class or
series of capital stock for prior dividend periods if such other class or
series of capital stock does not have a cumulative dividend) bear to each
other.  No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series BB Preferred Stock which may be in arrears.

 

(d)        Holders of shares of Series BB
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or shares of stock, in excess of full cumulative dividends on the Series BB
Preferred Stock as provided herein.  Any
dividend payment made on the Series BB Preferred Stock shall first be
credited against the earliest accrued but unpaid dividends due with respect to
such shares which remains payable. 
Accrued but unpaid distributions on the Series BB Preferred Stock
will accumulate as of the Series BB Dividend Payment Date on which they
first become payable.

 

Section 3.               Intentionally Reserved.

 

Section 4.               Voting Rights.

 

(a)           Each outstanding share of Series BB
Preferred Stock, prior to its conversion to Common Stock, shall be entitled to
the number of votes equal to the number of votes to which the number of shares
of Common Stock into which such share of Series BB Preferred Stock is
convertible (as adjusted from time to time pursuant to Section 5 hereof)
would be entitled at each meeting of the stockholders of the Corporation (and
for purposes of written actions 

 

29

 

of stockholders in lieu of meetings) with respect to
any and all matters presented to the stockholders of the Corporation for their
action or consideration.

 

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

 

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

 

 (ii)  issue, authorize or sell any
preferred stock (or any options, warrants or similar participation rights to
purchase such preferred stock) ranking senior to or on parity with the Series BB
Preferred Stock as to dividend rights, voting rights and/or rights upon
liquidation, dissolution or winding up of the Corporation;

 

 (iii)  issue, authorize or sell any
Convertible Securities convertible into or exchangeable for or having
conversion option rights to purchase any Common Stock;

 

(iv) 
issue, authorize or sell any Common Stock or Convertible Securities convertible
into or exchangeable for or having conversion option rights to purchase any
preferred stock ranking senior to or on parity with the Series BB
Preferred as to dividend rights, voting rights and/or rights upon liquidation,
dissolution or winding up of the Corporation, other than options to purchase up
to 87,500 shares of Common Stock (and the Common Stock underlying such options)
issued to employees, consultants or directors of the Corporation in accordance
with any plan approved by the Corporation’s Board of Directors;

 

(v) 
merge or consolidate the Corporation or any of its subsidiaries with or into
another entity, or enter into any other recapitalization or similar transaction
with any entity if such transaction would result in, the stockholders of the
Corporation, immediately prior to the date of the transaction, 

 

30

 

not owning a majority of
the outstanding shares of the capital stock of the surviving entity immediately
after such transaction;

 

(vi) 
engage someone as the Chief Executive Officer of the Corporation or terminate
the employment of the Chief Executive Officer of the Corporation;

 

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

 

(viii) 
issue any equity securities of the Corporation within a fiscal year for consideration
in excess of $10,000,000;

 

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

 

(x) 
sell, transfer, lease or dispose of all or substantially all of the assets of
the Corporation or of any of its subsidiaries in one transaction or a series of
related transactions, or effect the liquidation, dissolution or winding-up of
the Corporation or any of its subsidiaries;

 

(xi)  declare and pay dividends or other
distributions upon, or redeem, purchase, retire or otherwise acquire for value,
any shares of the capital stock of the Corporation or any shares of the capital
stock of any subsidiary of the Corporation (other than the payment of dividends
or distributions, or other payments in redemption, made by such subsidiary
solely to the Corporation and other than pursuant to repurchase agreements that
have been approved by the disinterested Members of the Board);

 

(xii)  make or cause any of its subsidiaries to
make, any loan, advance or payment to, or transfer of any assets or property
to, enter into any contract or amendment of any agreement with, or engage in
any other transaction with, any person or entity in which any stockholder,
director or other officer of the Corporation, or any of their respective 

 

31

 

immediate families or
affiliates have an interest in excess of $7,500;

 

(xiii)  incur indebtedness for borrowed money in
excess of $500,000;

 

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

 

(xv)  take any action that would increase or
decrease the number of authorized shares of Series BB Preferred Stock.

 

(c)           The Corporation shall not permit any
of its subsidiaries to take any action which, if taken by the Corporation,
would require the consent of the holders of a majority of the Series BB
Preferred Stock in accordance with the preceding subsection.

 

(d)           For all other matters on which the
holders of Common Stock are entitled to vote, the holders of the Series BB
Preferred Stock shall vote on an “as-converted” basis together with the holders
of Series AA Preferred Stock (voting on an “as converted” basis) and
Common Stock as a single class.

 

Section 5.               The holders of the Series BB
Preferred Stock shall have conversion rights as follows (the “Series BB
Conversion Rights”):

 

(a)           Right to Convert. Each share
of Series BB Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time, into such number of fully
paid and nonassessable shares of Common Stock as determined by multiplying the
number of shares of Series BB Preferred Stock outstanding for each
stockholder by the Series BB Conversion Value and then dividing by the Series BB
Conversion Price (subject to appropriate adjustment in accordance with this Section 5).  No additional consideration shall be paid by
a holder of Series BB Preferred Stock upon exercise of Conversion Rights.

 

(b)                                 Mechanics of Conversion.

 

(i)                                     In order for a holder of Series BB
Preferred Stock to convert shares of Series BB Preferred Stock into shares
of 

 

32

 

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

 

(ii)           The Corporation shall, at all times
when the Series BB Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series BB Preferred Stock, such number of
its duly authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series BB Preferred
Stock.

 

(iii)          All shares of Series BB Preferred
Stock which shall have been surrendered for conversion as herein provided shall
no longer be deemed to be outstanding and all rights with respect to such
shares, shall immediately cease and terminate on the Series BB Conversion
Date, except only the right of the holders thereof to receive shares of Common
Stock in exchange therefor.  Any shares
of Series BB Preferred Stock so converted shall be retired and canceled
and shall not be reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series BB
Preferred Stock accordingly.

 

33

 

(c)           Adjustments to Conversion Price
for Diluting Issues.

 

(i)            No Adjustment of Conversion Price.  No adjustment in the number of shares of
Common Stock into which the Series BB Preferred Stock is convertible shall
be made, by adjustment in the applicable Series BB Conversion Price
thereof:  (A) unless the
consideration per share (determined pursuant to Section 5(c)(iv)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series BB Conversion Price in
effect on the date of, and immediately prior to, the issuance of such
Additional Share of Common Stock, or (B) if prior to such issuance, the
Corporation receives written notice from the holders of at least two-thirds (2/3) of the then outstanding shares of Series BB
Preferred Stock agreeing that no such adjustment shall be made as the result of
the issuance of such Additional Shares of Common Stock.

 

(ii)           Issuance of Securities Deemed
Issuance of Additional Shares of Common Stock.  If the Corporation at any time or from time
to time after the Series BB Original Issue Date shall issue any
Convertible Securities or Options or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
such Convertible Securities or Options, then the maximum number of shares of
Common Stock (as set forth in the instrument relating thereto without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issuance or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Section 5(c)(iv))
of such Additional Shares of Common Stock would be less than the Series BB
Conversion Price in effect on the date of and immediately prior to such
issuance, or such record date, as the case may be, and provided that in any
such case in which Additional Shares of Common Stock are deemed to be issued:

 

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

 

34

 

conversion or exchange of
such Convertible Securities;

 

(2)           if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, or decrease in
the number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Series BB Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;

 

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

 

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

 

Upon the expiration of
any such Options or any rights of 

 

35

 

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

 

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

 

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

 

(iii)          Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock.  In the event the Corporation shall at any
time after the Series BB Original Issue Date issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 5(c)(iii), but excluding shares issued as a dividend
or distribution as provided in Section 5(e) or upon a stock split or
combination 

 

36

 

as provided in Section 5(f)),
without consideration or for a consideration per share (determined pursuant to Section 5(c)(iv) hereof)
less than the Series BB Conversion Price in effect on the date of and
immediately prior to such issuance, then and in each such case, such Series BB
Conversion Price shall be reduced, concurrently with such issuance, to a price
(calculated to the nearest hundredth of a cent) determined by multiplying the Series BB
Conversion Price by a fraction:

 

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

 

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

 

(iv)                              Determination
of Consideration.  For purposes of
this Section 5(c), the consideration received by the Corporation for the
issuance of any Additional Shares of Common Stock shall be computed as follows:

 

(1)                                  Cash and Property.  Such
consideration shall:

 

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

 

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

 

37

 

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

 

(2)           Options and Convertible Securities.  The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Section 5(c)(ii), relating to Options and Convertible
Securities, shall be determined by dividing:

 

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

 

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

 

38

 

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

 

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

 

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

 

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

 

39

 

such dividends or
distributions.

 

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

 

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

 

(h)           Adjustment for Merger or
Reorganization.  In case of any
consolidation or merger of the Corporation with or into another corporation
which does not cause a Liquidation, each share of Series BB Preferred
Stock shall thereafter be convertible into the kind and amount of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the 

 

40

 

Corporation deliverable upon
conversion of such Series BB Preferred Stock would have been entitled upon
such consolidation or merger; and, in such case, appropriate adjustment (as
determined in good faith by the Board) shall be made in the application of the
provisions in this Section 5 set forth with respect to the rights and
interest thereafter of the holders of the Series BB Preferred Stock, to
the end that the provisions set forth in this Section 5 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series BB Preferred Stock.

 

(i)            No Impairment.  The Corporation will not, by amendment of its
Charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series BB
Preferred Stock against impairment.

 

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

 

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

 

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

 

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

 

(iv)          of the Liquidation of the Corporation;

 

then the Corporation
shall cause to be filed at its principal office or at the office of the transfer
agent of the Series BB Preferred Stock, and shall cause to be mailed to
the holders of 

 

41

 

the Series BB
Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten (10) days prior to the
record date specified in (A) below or twenty (20) days before the date
specified in (B) below, a notice stating:

 

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

 

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

 

(k)           Certificate as to Adjustments.  Upon the occurrence of each adjustment or
readjustment pursuant to this Section 5, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series BB Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.  The Corporation shall, upon the written
request at any time of any holder of Series BB Preferred Stock, furnish or
cause to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments; (ii) the Series BB Conversion Price
then in effect; and (iii) the number of shares of Common Stock and the
amount, if any, of other property which then would be received upon the
conversion of Series BB Preferred Stock.

 

(l)            Stock to be Reserved.  The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series BB Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series BB Preferred
Stock.  The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and 

 

42

 

free from all taxes, liens
and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, the Corporation covenants that it will from time
to time take all such action as may be requisite to assure that the par value
per share of the Common Stock is at all times equal to or less than the Series BB
Conversion Price in effect at the time. 
The Corporation will take all such action as may be necessary to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed.  The Corporation will not take any action
which results in any adjustment of the Series BB Conversion Price if the
total number of shares of Common Stock issued and issuable after such action
upon conversion of the Series BB Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Corporation’s Charter.

 

(m)          Issue Tax.  The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Preferred Stock
which is being converted.

 

(n)           Closing of Books.  The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Series BB
Preferred Stock in any manner which interferes with the timely conversion of
such Series BB Preferred Stock, except as may otherwise be required to
comply with applicable securities laws.

 

Section 6.               Exclusion of Other Rights.  Except as set forth in the Charter and the
Stockholders Agreement, the Series BB Preferred Stock shall not have any
preferences or other rights, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption.

 

43

 

Section 7.                                            Mandatory
Conversion of Series BB Preferred Stock.

 

(a)           (i)  Upon written request of the
holders of more than two-thirds (2/3)
of the then outstanding shares of the Series BB Preferred Stock and the Series AA
Preferred Stock, voting together as a single class, the Corporation shall
convert all of the outstanding shares of Series BB Preferred Stock into
shares of Common Stock in accordance with Section 5 and (ii) upon the
closing of a Qualified Initial Public Offering, all of the Series BB
Preferred Stock then outstanding shall automatically be converted into shares
of Common Stock at the Series BB Conversion Price (subject to appropriate
adjustment in accordance with Section 5) in accordance with Section 5.

 

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

 

(c)           All certificates evidencing shares of
Series BB Preferred Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after the
date such certificates are so required to be surrendered, be deemed to have
been retired and canceled and the shares of Series BB Preferred Stock
represented thereby converted into Common Stock for all purposes as of the date
of conversion set forth in Section 5(a) above, notwithstanding the
failure of the holder or holders thereof to surrender such certificates.

 

Section 8.                                            Redemption.

 

(a)                                  Redemption
Option.  At any time and upon written
request of the holders of more than sixty-six percent (66%) of the then
outstanding shares of the Series BB Preferred Stock (the “Redemption
Request”), the Corporation shall redeem from the holders thereof all, but
not less than all, of the then issued and outstanding shares of Preferred Stock
(collectively, the

 

44

 

 “Redemption Shares”) at the Series BB
Redemption Price.  The date of redemption
shall be on a date selected by the Corporation that is no later than 180 days
after receipt by the Corporation of the Redemption Request (the “Date of
Redemption”).

 

(b)           Manner of Redemption.  In the event the Corporation redeems the
Redemption Shares pursuant to subsection (a) above, the Corporation shall
send written notice of its intent or obligation to do so to each holder of
record of such shares at least thirty (30) days prior to the Date of
Redemption, which shall set forth the following:  (i) the number of shares to be redeemed
by the Corporation from such shareholder; (ii) the aggregate number of
Redemption Shares to be redeemed from all the holders thereof; (iii) the
Date of Redemption; (iv) the Series BB Redemption Price per share;
and (v) instructions to the holders thereof to surrender all certificates
evidencing the Redemption Shares to the Corporation at its principal office (or
such other place as may be designated in the notice by the Corporation); provided,
however, that the failure of the Corporation to deliver such notice
shall not relieve the Corporation of its obligation to redeem the Redemption
Shares pursuant to the terms of this Section 8.  Upon receipt of such notice, each holder of
Redemption Shares shall surrender to the Corporation all certificates
evidencing the shares to be redeemed as instructed, and, thereupon, the
Corporation shall pay the Series BB Redemption Price for each such share
to the order of the holder of the shares so redeemed and each such certificate
and the shares evidenced thereby shall be canceled and retired.  No Redemption Shares redeemed by the
Corporation shall be reissued by the Corporation.  From and after the Date of Redemption set
forth in the Corporation’s notice of redemption, no further dividends shall
accrue upon any shares of Series BB Preferred Stock, subject to the
redemption thereof on such date.

 

(c)           Funds Insufficient to Effect
Redemptions.  If, at any time, the
Corporation shall be required to redeem any shares of the Series BB
Preferred Stock and the Corporation shall not have assets or funds legally
available for the redemption of all of the shares required to be redeemed, then
the Corporation shall redeem ratably from the holders of the Series BB
Preferred Stock such number of shares as it shall have funds legally available
therefore and shall issue to the holders of the Series BB Preferred Stock
one-year notes bearing interest at 8.0% per annum with such other terms and
conditions as the holders of a majority of the Series BB Preferred Stock
and the Company shall reasonably agree, with a principal amount for each note
equal to the Series BB Redemption Price for the shares owned by any such
holder of Series BB Preferred Stock not redeemed by the Company.

 

45

 

NINTH:  Liquidation, Dissolution or Winding Up.

 

Section 1.  Series BB Liquidation Payment.

 

(a)           Upon any Liquidation (as defined in Article Fifth
and Article Seventh), before any distribution or payment shall be made to
holders of shares of Common Stock, Series AA Preferred Stock or any other
class or series of capital stock of the Corporation ranking, as to rights upon
any Liquidation, junior to the Series BB Preferred Stock, the holders of
shares of Series BB Preferred Stock shall be entitled to be paid out of
the assets of the Corporation legally available for distribution to its
stockholders, after payment or provision of the debts and other liabilities of
the Corporation, for each share of Series BB Preferred Stock, an amount
equal to:

 

the Series BB Stated
Value, plus an amount equal to the greater of:

 

(x) any accrued and
unpaid dividends (whether or not declared) to the date of payment; or

 

(y) subject to Section 1(b) below,
an amount equal to:

 

(1)  any proceeds of the Liquidation remaining
available for distribution multiplied by a fraction, the numerator of which is
the number of shares of Common Stock into which such share of Series BB
Preferred Stock is convertible and the denominator of which is the total number
of shares of Common Stock into which all outstanding shares of Series AA
Preferred Stock and Series BB Preferred Stock are convertible until each
share of Series AA Preferred Stock has received the Series AA
Liquidation Payment (as defined below) pursuant to Section 2 below
(provided that if there are no shares of Series AA Preferred Stock then
outstanding, the amount of proceeds payable under this clause (1) shall be
zero) (any distribution made under this clause (a) (y)(1) being
referred to herein as the “Series BB Initial Participation”), plus

 

(2) any proceeds of the Liquidation remaining for
distribution after the payment of the distribution described in this clause (a) above
and Section 2 below, 

 

46

 

multiplied by a
fraction, the numerator of which is the number of shares of Common Stock into
which such share of Series BB Preferred Stock is convertible and the
denominator of which is the total number of outstanding shares of Common Stock
plus the total number of shares of Common Stock into which all outstanding
shares of Series BB Preferred Stock are convertible (any distribution made
under this clause (a)(y)(2) being referred to herein as the “Series BB
Common Participation”).

 

(b)           In the event that, upon such
Liquidation, the available assets of the Corporation are insufficient to pay
the amount of the liquidating distributions on all outstanding shares of Series BB
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Corporation ranking, as to
liquidation rights, on parity with the Series BB Preferred Stock in the
distribution of assets, then the holders of the Series BB Preferred Stock
and each such other class or series of shares of capital stock ranking, as to
liquidation rights, on parity with the Series BB Preferred Stock, shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.  For the purpose of this clause
(b), in the event that after payment in full of the Series BB Stated Value
for each outstanding share of Series BB Preferred Stock, the holders of Series BB
Preferred Stock are entitled to receive the Series BB Initial
Participation:  (i) the Series BB
Preferred Stock and the Series AA Preferred Stock shall be deemed to rank
on parity with each other with respect to proceeds remaining after payment of
the Series BB Stated Value pursuant to Section 1(a) above and
available for distribution of the Series BB Initial Participation and the Series AA
Liquidation Payment; and (ii) the allocation of such proceeds to each
share of Series BB Preferred Stock shall be as set forth in clause (a)(y)(1) of
Section 1 above (and the allocation of such proceeds to each share of Series AA
Preferred Stock shall be as set forth in Section 2(b) below); and (ii) after
payment in full of the Series BB Stated Value and the Series BB
Initial Participation for each outstanding share of Series BB Preferred
Stock, the Series BB Preferred Stock shall be deemed to rank on parity
with the Common Stock (but for the sake of clarity, not the Common Stock into
which the outstanding Series AA Preferred Stock is convertible) to the
extent that any distributions representing the Series BB Common
Participation are to be made.

 

47

 

Section 2.  Series AA Liquidation Payment.

 

(a)           Upon any Liquidation, before any
distribution or payment shall be made to holders of shares of Common Stock or
any other class or series of capital stock of the Corporation ranking, as to
rights upon any Liquidation, junior to the Series AA Preferred Stock, the
holders of shares of Series AA Preferred Stock shall be entitled to be
paid out of the assets of the Corporation legally available for distribution to
its stockholders, after payment or provision of the debts and other liabilities
of the Corporation and any payments due to holders of the Series BB
Preferred Stock with respect to the Series BB Stated Value, and if
applicable, pursuant to clause (a)(x) of Section 1 above, and any
other stock of the Corporation ranking senior to the Series AA Preferred
Stock, for each share of Series AA Preferred Stock, an amount, subject to Section 2(b) below,
equal to:

 

the Series AA
Stated Value, plus an amount equal to any accrued and unpaid dividends (whether
or not declared) to the date of payment (the “Series AA Liquidation
Payment”).

 

(b)           In the event that, upon such
Liquidation, the available assets of the Corporation are insufficient to pay
the amount of the liquidating distributions on all outstanding shares of Series AA
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Corporation ranking, as to
liquidation rights, on parity with the Series AA Preferred Stock in the
distribution of assets, then the holders of the Series AA Preferred Stock
and each such other class or series of shares of capital stock ranking, as to
liquidation rights, on parity with the Series AA Preferred Stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.  For the purpose of this clause
(b), in the event that after payment in full of the Series BB Stated Value
for each outstanding share of Series BB Preferred Stock, the holders of Series BB
Preferred Stock are entitled to receive the Series BB Initial
Participation:  (i) the Series BB
Preferred Stock and the Series AA Preferred Stock shall be deemed to rank on
parity with each other with respect to proceeds remaining after payment of the Series BB
Stated Value pursuant to Section 1(a) above and available for
distribution of the Series BB Initial Participation and the Series AA
Liquidation Payment; and (ii) the allocation of such proceeds to each
share of Series AA Preferred Stock shall be an amount equal to such
remaining proceeds multiplied by a fraction, the numerator of which is the
number of shares of Common Stock into which each share of 

 

48

 

Series AA Preferred
Stock is convertible and the denominator of which is the total number of shares
of Common Stock into which all outstanding shares of Series AA Preferred
Stock and Series BB Preferred Stock are convertible until each such share
of Series AA Preferred Stock has received hereunder the Series AA
Liquidation Payment (and the allocation of such proceeds to each share of Series BB
Preferred Stock shall be as set forth in clause (a)(y)(1) of Section 1
above).

 

Section 3.  Common Stock Liquidation Payment

 

(a)           Upon any Liquidation, the holders of
shares of Common Stock shall be entitled to be paid out of the assets of the
Corporation legally available for distribution to its stockholders, after
payment or provision of the debts and other liabilities of the Corporation and
any payments due to holders of the Series BB Preferred Stock with respect
to the Series BB Stated Value, and if applicable, pursuant to clause (a)(x) of
Section 1 above, and the Series AA Preferred Stock and any other
stock of the Corporation ranking senior to the Common Stock, for each share of
Common Stock, an amount equal to all remaining assets and funds of the
Corporation legally available for distribution, if any, ratably, with each such
other class or series of shares of capital stock ranking, as to liquidation
rights, on parity with the Common Stock in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.  For the purpose of this Section 3, after
payment in full of the Series BB Stated Value for each outstanding share
of Series BB Preferred Stock, the Series BB Preferred Stock shall be
deemed to rank on parity with the Common Stock to the extent that any
distributions representing the Series BB Common Participation are to be
made.

 

Section 4.  Notice of Liquidation.

 

Written notice of any
Liquidation stating the payment date or dates when, and the place or places
where, the amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage pre-paid, not less than 10 nor more than
90 days prior to the payment date stated therein, to each record holder of
shares of Series AA Preferred. Stock and Series BB Preferred Stock at
the respective addresses of such holders as the same shall appear on the stock
transfer records of the Corporation. 
After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Series AA Preferred Stock and Series BB
Preferred Stock 

 

49

 

(as the case may be) will
have no right or claim to any of the remaining assets of the Corporation.

 

Section 5.  Treatment of Liquidation Obligations.

 

In determining
whether a distribution (other than upon Liquidation), by dividend, redemption
or other acquisition of shares of stock of the Corporation or otherwise, is
permitted under the Maryland General Corporation Law, amounts that would be
needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
shares of Series AA Preferred Stock and Series BB Preferred Stock
shall not be added to the Corporation’s total liabilities.

 

TENTH:  The Corporation shall have seven (7) directors,
which number may be increased by the Board. 
Robert J. Farrell, Harry Copperman, Mike Zisman, Mike Forster and Adam
Lichtenstein  shall act as directors of the
Corporation until the first annual meeting following the filing with, and
acceptance for record by, the State Department of Assessments and Taxation of
the State of Maryland of the Fifth Articles of Amendment and Restatement of
which this Article Tenth of the Charter of the Corporation is a part, and
until their successors are duly chosen and qualified.

 

ELEVENTH:   Indemnification; Limitation of Liability

 

Section 1.               Mandatory Indemnification.

 

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

 

Section 2.               Discretionary Indemnification.

 

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

 

Section 3.               Advancing Expenses Prior to a
Decision.

 

The
Corporation shall advance expenses to its directors and officers 

 

50

 

entitled to mandatory
indemnification to the maximum extent permitted by the Maryland General
Corporation Law and may in the discretion of the Board advance expenses to
employees, agents and others who may be granted indemnification.

 

Section 4.               Other Provisions for
Indemnification.

 

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

 

Section 5.               Limitation of Liability of
Directors and Officers.

 

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

 

Section 6.               Effect of Amendment or Repeal.

 

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

 

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

 

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

 

51

 

set forth in the Charter.

 

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

 

FIFTEENTH:  The duration of the Corporation shall be
perpetual.

 

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

 

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

 

THIRD:  The Board of Directors of the Corporation
deemed the amendment and restatement of the Charter of the Corporation as
hereinabove set forth advisable and directed the amendment be submitted to the
stockholders of the Corporation for consideration at a meeting duly convened
and held on September 29, 2005.  The
amendment and restatement of the Charter of the Corporation was approved by the
stockholders of the Corporation by 

 

52

 

written consent in lieu
of meeting dated September 29, 2005 in accordance with Section 2-505
of the Maryland General Corporation Law.

 

FOURTH:  The address of the principal office of the
Corporation in Maryland is 8825 Stanford Boulevard, Suite 200, Columbia,
Maryland 21045-4757.  The name of the
resident agent is Allison McCann, whose address is 8825 Stanford Boulevard, Suite 200,
Columbia, Maryland 20145-4757.

 

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

 

SIXTH:
These Fifth Articles of Amendment and Restatement decrease the par value of the
authorized stock of the Corporation. 
Immediately before the amendment, the total number of shares of all
classes of stock of the Corporation heretofore authorized and the number and
par value of the shares of each class were 65,000,000 shares, of the par value
of $0.10 each, of which 35,000,000 shares were designated Common Stock and
30,000,000 shares were designated Preferred Stock.  The aggregate par value of all shares having
par value was $6,500,000.  As amended and
restated, the total number of shares of all classes of stock of the Corporation
as increased, and the par value of such shares, are 101,979,000  shares, of the par value of $0.01 each, of
which 55,179,000 shares are designated Common Stock and 46,800,000 shares are
designated Preferred Stock.  The
aggregate par value of all shares having par value is $1,019,790.

 

53

 

IN
WITNESS WHEREOF, the Corporation has caused these Fifth
Articles of Amendment and Restatement to be signed in its name and on its
behalf by its President and attested to by its Secretary on this 30th
day of September, 2005.

 

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

 

 

	
  WITNESS/ATTEST:

  	
   

  	
  METASTORM INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
  (SEAL)

  
	
  Christopher S. Desautelle

  	
   

  	
  Robert J.
  Farrell

  
	
  Secretary

  	
   

  	
  President

  

 

54

 

EXHIBIT
A-1

 

Form of
Warrant

 

See
Attached

 

 

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

 

WARRANT AGREEMENT
TO PURCHASE STOCK OF

 

METASTORM INC.

 

	
  Issue Date:
  October 4, 2005

  	
   

  	
  Expiration Date:

  	
  October 4,
  2015

  

 

THIS
WARRANT AGREEMENT (this “Warrant”) evidences the agreement of Metastorm
Inc., a Maryland corporation (the “Company”), for value received, the
receipt and sufficiency of which are hereby acknowledged, to issue to
                                          ,
or its assigns (“Holder”), and the right of the Holder, at the Holder’s
option, to purchase, up to
                            
fully paid and nonassessable shares (the “Warrant Shares”) of Series BB
Convertible Preferred Stock, par value $0.01 per share (the “Series BB
Preferred Stock”), at the initial exercise price per share set forth herein
pursuant to Section 2 of this Warrant, and otherwise subject to the
provisions and upon the terms and conditions set forth in this Warrant.  Capitalized terms used herein but not
otherwise defined herein shall have the meaning assigned them in that certain
Stock Purchase Agreement, dated as of October 4, 2005 (the “Purchase
Agreement”), by and among the Company and the purchasers listed on the
signature pages thereto.  The number
of Warrant Shares shall be equal to two shares for every dollar by which the
amount of the Holder’s aggregate investment in the Series BB Preferred
Stock set forth opposite such Holder’s name on Schedule 1.2 of the
Purchase Agreement exceeds the product of (i) $5,000,000 (the “Investment
Amount”) multiplied by (ii) the Pro Rata Percentage (as defined
below).  In the event that the Company
sells additional shares of Series BB Preferred Stock after the date hereof
and prior to December 31, 2005, in accordance with the terms and
conditions of the Company’s Fifth Articles of Amendment and Restatement (the “Articles”),
the number of Warrant Shares shall be recalculated in accordance with the
previous sentence by adding to the Investment Amount the additional cash
proceeds received by the Company as a result of such sale.  “Pro Rata Percentage” shall mean the
number of shares of Series AA Convertible Preferred Stock, par value $0.01
per share (the “Series AA Preferred Stock”) held by the Holder
divided by the total number of Series AA Preferred Stock outstanding.

 

This Warrant is subject
to the following terms and conditions:

 

 

1.                                       Term
of Warrant.  On the terms and
conditions set forth herein, this Warrant shall be exercisable, in whole or in
part, at any time after the date of issuance of this Warrant and ending at 5:00 p.m.,
New York time, on October 4, 2015 (the “Termination Date”).

 

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

 

3.                                       Exercise
of Warrant.

 

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

 

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

 

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

 

X = Y(A-B)

    A

 

Where:                    X =                               The
number of Warrant Shares to be issued to the Holder.

 

Y =                                The
number of Warrant Shares purchasable under this Warrant.

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

7.                                       Transfer
of Warrant.

 

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

 

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

 

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

 

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

 

3

 

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

 

(e)                                  Compliance
with Securities Laws.

 

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

 

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

 

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

 

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

 

8.                                       Adjustments
to Exercise Price and Number of Securities.

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)                                  Cash
and Property.  Such consideration
shall:

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(d)                                 a
Liquidation shall be proposed;

 

9

 

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

 

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

 

(a)                                  If
to the Company:

 

Metastorm Inc.

8825 Stanford
Boulevard

Suite 200

Columbia, MD 21045

Attention:  President

Facsimile:  (410) 290-1172

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

	
   

  	
  METASTORM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

 

ATTACHMENT
1

 

NOTICE OF EXERCISE

 

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

 

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

 

 

	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
   

  	
  (Address)

  

 

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

 

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Name)

  
	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
  (Signature)

  

 

 

ATTACHMENT 2

 

ASSIGNMENT FORM

 

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

 

	
  Name of Assignee

  	
   

  	
  Address

  	
   

  	
  No. of Shares*

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

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

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Signature of Holder

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

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

 

 

EXHIBIT B

 

Stockholder
List

 

See
Attached

 

 

SEE
SCHEDULE 2.2 TO STOCK PURCHASE AGREEMENT

 

 

EXHIBIT C

 

Form of
Fourth Amended and Restated Stockholders Agreement

 

See
Attached

 

 

FOURTH
AMENDED AND RESTATED

STOCKHOLDERS
AGREEMENT

 

THIS FOURTH AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT (this “Agreement”), dated as of October 4,
2005, by and among (i) Metastorm Inc., a Maryland corporation (the “Company”),
(ii) the Purchasers (the “Series BB Investors”) of the Company’s
Series BB Convertible Preferred Stock, par value $0.01 per share (the “Series BB
Preferred Stock”), listed on Schedule 1 to the Stock Purchase
Agreement dated as of the date hereof (the “Stock Purchase Agreement”),
and (iii) the Series AA Holders (as defined below) of the Company’s Series AA
Convertible Preferred Stock, par value $0.01 per share (the “Series AA
Preferred Stock”).

 

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

 

WHEREAS, the obligation of the Series BB
Investors to enter into the Stock Purchase Agreement and purchase the Series BB
Preferred Stock is conditioned upon the execution and delivery by each of the
parties hereto of this Agreement; and

 

WHEREAS, the Company, the Prior Preferred Holders (as
defined below), the Original Series AA Investors (as defined below) and
the Original Stockholders (as defined below) previously entered into that
certain Third Amended and Restated Stockholders Agreement, dated as of September 1,
2004 (the “Prior Stockholders Agreement”), which Prior Stockholders
Agreement is being amended, restated and superseded in its entirety by this
Agreement;

 

WHEREAS, pursuant to Section 5.6 of the Prior
Stockholders Agreement, the holders of two-thirds (2/3)
of the Company’s Capital Stock on a Fully-Diluted Basis have approved such
amendment and restatement of the Prior Stockholders Agreement, such approval
evidenced by their signatures hereon; and

 

WHEREAS, the parties hereto desire to set forth their
mutual agreement regarding various matters relating to the Company, including
certain restrictions with respect to the ownership of shares of the Company’s
capital stock, corporate governance and certain other matters;

 

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

 

 

ARTICLE 1

 

DEFINITIONS

 

SECTION 1.1                          Certain
Definitions.  As used in this
Agreement, the following terms shall have the following respective meanings:

 

“Acquisition”
means a consolidation or merger of the Company with or into any other
corporation or other entity or person, or an acquisition of assets or other
corporate reorganization, in which stockholders of the Company immediately
prior to such consolidation, merger, acquisition of assets or reorganization
own less than fifty percent (50%) of the voting power or equity of the
surviving entity immediately after such consolidation, merger, acquisition of
assets or reorganization, or any transaction or series of related transactions
in which in excess of fifty percent (50%) of the Company’s voting power or
equity is transferred.

 

“Affiliate”
means, with respect to any Person, any Person that, directly or indirectly, controls,
is controlled by or is under common control with such first-named Person.  For the purposes of this definition, “control”
(including with correlative meanings, the terms “controlled by” and “under
common control with”) shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.  In addition, in the case of
each Stockholder, an “Affiliate” of such Stockholder shall include the partners
thereof.  For greater certainty, (i) in
the case of Mayflower L.P. (“3i”), “Affiliate” shall include any Affiliate of
3i Group plc or any entity or vehicle including a partnership in which 3i Group
plc and/or its Affiliates has a majority economic interest and which is managed
by 3i Group plc or any of its Affiliates, (ii) in the case of Ironside
Ventures, L.P. and Ironside Venture Partners II, LLC, each of Ironside
Ventures, L.P. and Ironside Venture Partners II, LLC shall be deemed to be an
Affiliate of the other, and (iii) without limiting the definition of
Affiliate with respect to ICG (as defined below), in the case of ICG, each of
Internet Capital Group, Inc., ICG and CQ shall be deemed to be an
Affiliate of each other.

 

“Asset Transfer” means a sale, lease or other
disposition of all or substantially all of the assets of the Company, in one or
more related transactions.

 

“Board” has the meaning set forth in Section 2.4(b) of
this Agreement.

 

“Business Day” means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in the City of New York, New York are authorized or obligated by law or
executive order to close.

 

“Bylaws” means the Company’s Bylaws, as the
same may hereafter be amended in accordance with applicable law and the terms
thereof and hereof.

 

“Capital Stock” means the capital stock of the
Company, including, without limitation, the Common Stock, the Preferred Stock
and the Original Stockholder Shares.

 

2

 

“Charter” shall have the meaning given to such
term in Section 1-101(e) of the Maryland General Corporation Law, as
amended.

 

“Commission” means the U.S. Securities and
Exchange Commission.

 

“Co-Sale Shares” means the shares of Common
Stock proposed to be Transferred to a Third Party subject to Section 2.3(a) of
this Agreement.

 

“Co-Seller” has the meaning set forth in Section 2.3(c) of
this Agreement.

 

“CQ” means CommerceQuest, Inc., a Florida
corporation.

 

“Drag-Along Shares” has the meaning set forth
in Section 2.3(h) of this Agreement.

 

“Election Notice” has the meaning set forth in Section 2.3(c) of
this Agreement.

 

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

 

“Fully-Diluted Basis” gives effect, without
duplication, to (i) all shares of Common Stock outstanding at the time of
determination plus (ii) all shares of Common Stock issuable upon conversion
of the Preferred Stock or any other convertible securities of the Company or
upon the exercise of any option, warrant or similar right (whether or not
presently exercisable) to acquire shares of Common Stock, as if such Preferred
Stock or other convertible securities had been so converted or such option,
warrant or similar right had been so exercised.

 

“Hoffer” has the meaning set forth in Section 2.3(a) of
this Agreement.

 

“Liquidation” means (i) the voluntary or
involuntary liquidation, dissolution or winding up of the Company; (ii) a
Qualified Sale Transaction; or (iii) the commencement by the Company of a
voluntary case under the federal bankruptcy laws or any other applicable
federal or state bankruptcy, insolvency or similar law, the consent to the
entry of an order for relief in an involuntary case under such law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Company or of any substantial
part of its property, the making of an assignment by the Company for the
benefit of its creditors, the admission in writing by the Company of its
inability to pay its debts generally as they become due, if a decree or order
for relief in respect of the Company shall be entered by a court having
jurisdiction in the premises in an involuntary case under the federal
bankruptcy laws or any other applicable federal or state bankruptcy, insolvency
or similar law or the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company or
any substantial part of its property.

 

“New Securities” has the meaning set forth in Section 2.4(b) of
this Agreement.

 

“New Series AA Investors” means CQ and
CommerceQuest UK Limited, a corporation organized under the laws of England and
Wales.

 

3

 

“Notice of Transfer” has the meaning set forth
in Section 2.3(b) of this Agreement.

 

“Original Series AA
Investors” means the holders of Series AA Preferred Stock, as listed
on Exhibit A attached hereto, who converted outstanding note
obligations into shares of Series AA Preferred Stock on September 1,
2004.

 

“Original Stockholders”
means the holders of Series AA Preferred Stock, as listed on Exhibit A
attached hereto, who were among the holders of the Company’s previously
outstanding Common Stock prior to the conversion thereof to Series AA
Preferred Stock on September 1, 2004.

 

 “Original Stockholder Shares” means,
collectively, the shares of Series AA Preferred Stock held by the Original
Stockholders, if any, including shares of Common Stock issuable upon conversion
of any option, warrant or other convertible security granted or issued by the
Company, whether outstanding as of the date of this Agreement or granted or
issued thereafter.

 

“Permitted Transferee” means:

 

(a)                                  with
respect to any Preferred Holder, (i) any Affiliate of such Preferred
Holder, (ii) the Company or (iii) any other Person who purchases or
otherwise acquires all or a portion of such Preferred Holder’s shares of
Preferred Stock (other than a Person which purchases such shares in a
registered public offering); and

 

(b)                                 with
respect to any Original Stockholder, (i) any Affiliate of such Original
Stockholder, (ii) the Company, (iii) any Original Stockholder or (iv) any
member of the immediate family of an Original Stockholder, that is an
individual, or any trust exclusively for the benefit of such individual.

 

“Person” means any
individual, corporation, partnership, limited liability company, limited
liability partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.

 

“Preferred Holders” means the Holders consisting solely of the
Prior Preferred Stockholders, the Original Series AA Investors, the Series BB
Investors and the New Series AA Investors and any such Permitted
Transferees.

 

“Preferred Stock” means the Series AA Preferred Stock and
the Series BB Preferred Stock treated together as one class.

 

“Prior Preferred Holders” means the holders of Series AA
Preferred Stock who were holders of the Company’s previously existing and
outstanding Series A Preferred Stock and Series B Preferred Stock
prior to the conversion thereof to Series AA Preferred Stock on September 1,
2004, as listed on Exhibit A attached hereto.

 

“Purchase Offeror”
has the meaning set forth in Section 2.3(b) of this Agreement.

 

4

 

“Qualified Public Offering” means the closing
of a firm commitment underwritten public offering, pursuant to an effective
registration statement under the Securities Act, covering the offer and sale of
Common Stock to the public that raises gross proceeds for the Company of at
least $35,000,000 at an initial per share price to the public of not less than
$4.15716 (such price subject to appropriate adjustments for Recapitalization
Events).

 

“Qualified Sale Transaction” means an
Acquisition or an Asset Transfer.

 

“Recapitalization Events” shall mean stock
splits, stock dividends, combinations, recapitalizations, reorganizations,
reclassifications, mergers, consolidations and other similar events with
respect to the Company’s Capital Stock.

 

“Representing Party” has the meaning set forth
in Article 4 of this Agreement.

 

“Sale Agreement” has the meaning set forth in Section 2.3(d) of
this Agreement.

 

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

 

“Seller” has the meaning set forth in Section 2.3(b) of
this Agreement.

 

“Selling Stockholder”
has the meaning set forth in Section 2.2(a) of this Agreement.

 

“Series AA Holders” means, collectively, the Original
Stockholders, the Original Series AA Investors, the New Series AA
Investors and the Prior Preferred Holders and their Permitted Transferees who
have acquired Series AA Preferred Stock in accordance with this Agreement,
as a group.

 

The terms “Stockholders,”
collectively, and a “Stockholder,” individually, means the Series AA
Holders and the Series BB Investors.

 

“Subsidiary” means,
with respect to the Company, (i) any corporation more than 50% of whose
stock of any class or classes having by the terms thereof ordinary voting power
to elect a majority of the directors of such corporation (irrespective of
whether or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time owned by the Company and/or one or more
Subsidiaries of the Company and (ii) any partnership, limited liability
company, association, joint venture or other entity (a) in which the
Company and/or one or more Subsidiaries of the Company has more than a 50%
equity interest at the time or (b) as to which the Company and/or one or
more of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise.

 

“Tag-Along Shares” has the meaning set forth in
Section 2.3(c) of this Agreement.

 

“Third Party” has the meaning set forth in Section 2.2(a) of
this Agreement.

 

5

 

“Third Party Offer” has the meaning set forth
in Section 2.2(a) of this Agreement.

 

“Transfer” (including with correlative meanings
the terms “Transferred”, “Transferee” and “Transferor”) means any transfer,
sale, assignment, pledge (other than a bona fide pledge to a lender),
encumbrance or other disposition of Capital Stock, or any portion of the
ownership interest therein, irrespective of whether any of the foregoing are
effected voluntarily or involuntarily, by operation of law or otherwise, or
whether inter  vivos or upon death.

 

ARTICLE 2

 

TRANSFERS OF STOCK

 

SECTION 2.1                          General
Restrictions

 

(a)                                  No
Stockholder shall Transfer or otherwise dispose of any Capital Stock at any
time, unless such Transfer complies with Section 2.1(b) of this
Agreement and complies with any other provision of Article 2 of this
Agreement that is expressly applicable to such Stockholder.

 

(b)                                 Each
Stockholder may Transfer all, or any part of, or interest in, the Capital Stock
held by it at any time to a Permitted Transferee of such Stockholder; provided,
that such Transfer otherwise is made in accordance with the registration
requirements of the Securities Act or pursuant to any exemption from
registration under the Securities Act and any applicable state securities
laws.  No Transfer to a Permitted
Transferee shall be made pursuant to the immediately preceding sentence unless
the Permitted Transferee (except in any instance in which such Permitted
Transferee is the Company) shall have executed and delivered to the Company, as
a condition to its acquisition of such Capital Stock, an instrument in form and
substance reasonably satisfactory to the Company confirming that such Permitted
Transferee takes such Capital Stock, or interest therein, subject to, and
agrees to be bound by, all the terms, conditions and obligations of this
Agreement.  Notwithstanding the foregoing
provisions of this Section 2.1(b), the restrictions imposed by this Section 2.1(b) upon
the transferability of any Capital Stock shall terminate when such Capital
Stock has been registered under the Securities Act.  In connection with the termination of
restrictions on transferability of Capital Stock provided for hereunder, the
holder of a certificate representing such Capital Stock as to which such
restrictions shall have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for such Capital
Stock not bearing the restrictive legend set forth in Section 2.5.

 

(c)                                  The
rights granted to each Stockholder under this Article 2 shall inure to the
benefit of any of its respective Permitted Transferees as though such Permitted
Transferee were the same type of stockholder as the Transferor; provided,
however, that such Permitted Transferee shall be required to comply with
all applicable provisions of this Article 2 to the same extent as the
Transferor Stockholder.

 

6

 

SECTION 2.2                                                         Right
of First Refusal.

 

(a)                                  If
an Original Stockholder or a Permitted Transferee of an Original Stockholder
desires to Transfer its holdings of Capital Stock other than to a Permitted
Transferee, such Original Stockholder (the “Selling Stockholder”) shall
be required to obtain a bona fide, non-collusive, binding written offer (a “Third
Party Offer”), subject only to customary closing conditions with respect to
the proposed transfer from the proposed transferee (a “Third Party”)
which the Selling Stockholder desires to accept.  The Third Party Offer shall contain a
description of all of the consideration, material terms and conditions for the
proposed Transfer. The Selling Stockholder shall send a copy of the Third Party
Offer which shall include the identity of the Third Party to the other
Stockholders, together with a written offer to sell the offered shares of
Capital Stock to the other Stockholders, on pro rata basis at the price and on
the terms and conditions specified in the Third Party Offer.  For purposes of this Section 2.2, a
Stockholder’s pro  rata share shall be a fraction equal to the
number of shares of any Common Stock and/or any Preferred Stock (on an “as
converted” basis) then held by such Stockholder on a Fully-Diluted Basis
divided by the total number of shares of Common Stock and/or Preferred Stock
(on an “as converted” basis) of the Company on a Fully-Diluted Basis then
outstanding.

 

(b)                                 Upon
receipt of the Third Party Offer and the offer of the Selling Stockholder to
sell the offered shares of Capital Stock pursuant to the terms of Section 2.2(a) hereof,
each of the other Stockholders shall have fifteen (15) calendar days from the
receipt of the written offer from the Selling Stockholder to notify the Selling
Stockholder in writing of such other Stockholder’s election to purchase all but
not less than all of such Stockholder’s pro rata share of the offered shares of
Capital Stock.  If, upon the expiration
of such fifteen (15) day period, some but not all of the other Stockholders
have elected to purchase their pro rata shares of the offered shares of Capital
Stock, such electing Stockholders shall have an additional fifteen (15)
calendar days to elect to acquire, based on their relative percentage interests
or on such other basis as the remaining Stockholders may agree in writing, any
remaining offered shares of Capital Stock.

 

(c)                                  In
the event the other Stockholders make such election provided under Section 2.2(b) hereof,
the closing of the sale of the offered shares of Capital Stock to the other
Stockholders shall be held at the offices of the Company on the tenth (10th)
Business Day after the end of the fifteen (15) day period (or thirty (30) day
period, as the case may be) described under Section 2.2(b) or such
other time as the parties may agree in writing. 
Contemporaneously with such closing, the Selling Stockholder shall
transfer the offered shares of Capital Stock against receipt from the other
Stockholders of the purchase price and on the terms and conditions specified in
the Third Party Offer.

 

(d)                                 Notwithstanding
the provisions of Section 2.2(c) hereof, if (a) the other
Stockholders have not elected to purchase all of the offered shares of Capital
Stock within the applicable election period or (b) the closing of the sale
of all of the offered shares of Capital Stock to the other Stockholders has not
been completed by the scheduled closing date, as extended pursuant to the
provisions of Section 2.2(c) hereof, the Selling Stockholder shall
have the right for a period of ninety (90) calendar days after (i) the
expiration of the election period in Section 2.2(b) hereof or (ii) the
last date for closing of such sale under Section 2.2(c) hereof, as
applicable, to sell all but not less than all of the offered shares of Capital
Stock but only to the

 

7

 

Third
Party for a price and on terms not more favorable to the Third Party than those
of the Third Party Offer.

 

SECTION 2.3                                                   Tag-Along
Rights and Drag-Along Rights.

 

(a)                                  No
Stockholder or a Permitted Transferee of such Stockholder shall Transfer any
Capital Stock (or any interest therein) in one transaction or a series of
related transactions to a Third Party unless (i) such Transfer is made in
accordance with Section 2.3(b) through 2.3(h) of this Agreement,
or (ii) such Transfer is made to a Permitted Transferee of such
Stockholder in accordance with Section 2.1(b); provided, however,
that for purposes of this Section 2.3 (other than Section 2.3(h)),
the term “Stockholder” shall not apply to Original Stockholders other than Avi
Hoffer (“Hoffer”).  Such shares of
Capital Stock being Transferred pursuant to this Section 2.3(a) are
hereinafter referred to as “Co-Sale Shares.”

 

(b)                                 Any
Stockholder or a Permitted Transferee of such Stockholder (the “Seller”)
making a Transfer of Co-Sale Shares to a Third Party shall deliver a written
notice (the “Notice of Transfer”) to the Company.  The Notice of Transfer will contain a copy of
the definitive documentation pursuant to which the Co-Sale Shares will be
Transferred and will state (i) the Seller’s bona fide intention to
Transfer, (ii) the name and address of the prospective transferee (the “Purchase
Offeror”), (iii) the number of Co-Sale Shares to be Transferred, (iv) the
expected closing date of the transaction, (v) the class or series of the
Co-Sale Shares, and (vi) confirmation that the Purchase Offeror has been
informed of the provisions of this Section 2.3.  The Company shall promptly, and in any event
within five (5) Business Days after receipt of such Notice of Transfer,
deliver a copy of such Notice of Transfer to the other Stockholders.

 

(c)                                  Any
Stockholder may elect to participate in the Transfer contemplated by Section 2.3(b) above
by delivering a written notice (an “Election Notice”) to the Seller and
the Company within ten (10) Business Days after receipt of such Notice of
Transfer, and each such Stockholder (each a “Co-Seller”) may elect to
Transfer in such contemplated Transfer up to that number of shares of Capital Stock
of the same class or series as the Co-Sale Shares (referred to herein as “Tag-Along
Shares”) that is equal to the product of (a) the number of Co-Sale
Shares proposed to be sold by the Seller multiplied by (b) a fraction, the
numerator of which is the total number of shares of Capital Stock of the same
class or series as the Co-Sale Shares owned by such Co-Seller and the
denominator of which is the total number of shares of Capital Stock of the same
class or series as the Co-Sale Shares issued and/or issuable to the Seller and
to all Co-Sellers on a Fully-Diluted Basis. 
If any Stockholder fails to deliver an Election Notice by the close of
business on the tenth (10th) Business Day after receipt of a Notice
of Transfer, such Stockholder shall be deemed to have elected not to
participate in the Transfer covered by such Notice of Transfer.

 

(d)                                 Each
Co-Seller participating in a Transfer shall deliver to the Purchase Offeror at
a closing to be held at the offices of the Company (or such other place as the
parties agree), one or more certificates, properly endorsed for Transfer, which
represent the number of Tag-Along Shares which the Co-Seller elects to
Transfer, and may Transfer, pursuant to this Section 2.3.  Such certificates shall be transferred by the
Seller to the Purchase Offeror simultaneously with the consummation of the
Transfer of the Co-Sale Shares pursuant to the

 

8

 

terms
and conditions specified in the Notice of Transfer against receipt by the Co-Sellers
of the proceeds of the Transfer of their respective Tag-Along Shares.  If there is to be an agreement of sale or
similar instrument with respect to the proposed Transfer (a “Sale Agreement”),
the Seller will furnish a copy of the Sale Agreement in its then current form
to the Company with the Notice of Transfer, and the Company shall furnish a
copy thereof to the other Stockholders. 
As promptly as practicable after receipt of an Election Notice, if the
Sale Agreement has not previously been executed, the Seller shall furnish the
Co-Sellers with successive drafts of the Sale Agreement, if any, as
available.  As a condition to making an
Election Notice and being eligible to participate in a Transfer, each Co-Seller
shall represent and warrant to the Purchase Offeror with respect to the
Tag-Along Shares being disposed of by such Co-Seller that the transferee of the
Tag-Along Shares (or interests therein) is receiving such Tag-Along Shares (or
interests therein), free and clear of all pledges, security interests or other
liens created by such Co-Seller.  Each
Co-Seller shall accept a proportionate delegation of any duties of the Seller
under any Sale Agreement (including any indemnification obligation); provided,
however, that (a) no Co-Seller need accept joint liability with
respect to representations, warranties or covenants (including without
limitation indemnification obligations) of the Seller or any other Co-Sellers,
it being agreed that such Sale Agreement shall provide that the liability of
such Co-Seller in connection with the sale shall be several only and shall not
in any event exceed such Co-Seller’s pro rata share of any liability and (b) each
Co-Seller shall be required only to make representations or warranties to, or
enter into indemnification or contribution arrangements with, the Purchase
Offeror relating to the Sale Agreement which are reasonable in the context of
the proposed sale including, without limitation, a representation and warranty
with respect to the shares or other equity interests being disposed of by such
Co-Seller that the transferee of the shares or other equity interests evidenced
thereby is receiving such shares or other equity interests, free and clear of
all pledges, security interests or other liens. 
The Seller shall use its commercially reasonable efforts to limit the
liability of each Co-Seller participating in the sale to the proceeds received
by such Co-Seller.  To the extent that
any prospective transferee or transferees prohibit assignment and delegation of
such Sale Agreement or otherwise refuse to purchase any Tag-Along Shares from a
Co-Seller, the Seller shall not sell to such prospective transferee or
transferees any interest in the Company unless and until, simultaneously with
such sale, the Seller shall purchase from such Co-Seller the Tag-Along Shares
such Co-Seller would otherwise have been able to sell hereunder for the same
consideration and on the same terms and conditions as the proposed transfer
described in the Notice of Transfer.

 

(e)                                  The
exercise or non-exercise of the rights of the Stockholders hereunder to
participate in one or more Transfers of Co-Sale Shares made by a Seller shall
not adversely affect their rights to participate in subsequent Transfers of
Co-Sale Shares by Stockholders (including the Seller) which meet the conditions
specified in this Section 2.3.

 

(f)                                    To
the extent the Purchase Offeror is unwilling to purchase all of the Tag-Along
Shares of the Co-Sellers, then the number of Co-Sale Shares to be sold by the
Seller shall be reduced to equal the difference between (i) the total
number of shares of Capital Stock to be purchased by the Purchase Offeror and (ii) the
total number of Tag-Along Shares being sold by the Co-Sellers.

 

(g)                                 Any
Transfer made pursuant to Section 2.3 shall be consummated on the terms
set forth in the Notice of Transfer.  The
Company shall use reasonable efforts to aid such

 

9

 

closing,
including, but not limited to, exchanging the Co-Seller’s certificates for new
certificates in requested
denominations.

 

(h)                                 So long as the Preferred Holders,
collectively, hold not less than forty percent (40%) of the Company’s Common
Stock on a Fully-Diluted Basis, if the Preferred Holders holding at least
two-thirds (2/3) of the then issued and outstanding
Preferred Stock (the “Selling Holders”), approve a Qualified Sale
Transaction or a transfer of all of their shares of capital stock that they own
to any Person or Persons pursuant to a bona-fide, arms length transaction (or a
series of related transactions) or pursuant to a Qualified Sale Transaction and
desire to cause the other Stockholders to sell all of such Stockholders’
Capital Stock to such Person or Persons or pursuant to a Qualified Sale
Transaction, the Selling Holders will give at least five (5) Business Days
prior notice in writing (the “Drag-Along Notice”) to the other
Stockholders of their intention to do so, specifying the number of shares of
Capital Stock the Selling Holders propose to transfer (the “Drag-Along
Shares”), the name of the Person or Persons to whom they are proposing to
transfer the Drag-Along Shares, and the price and other material terms under
which the Drag-Along Shares are to be transferred.  Upon receipt of the Drag-Along Notice for a
sale of stock, each other Stockholder agrees, and shall be obligated, to sell
all of its Capital Stock on the terms and conditions set forth in the
Drag-Along Notice.  In addition, upon
receipt of the Drag-Along Notice for a Qualified Sale Transaction, each other
Stockholder agrees to consent to, vote for, and raise no objections against,
and waive dissenters and appraisal rights (if any), with respect to the
Qualified Sale Transaction, in addition to selling, exchanging, redeeming,
canceling or otherwise disposing of all shares of Capital Stock and options,
warrants and other rights to acquire Capital Stock on the terms and conditions
set forth in the Drag-Along Notice.  Each
other Stockholder and the Company will take all necessary and desirable actions
in connection with complying with the terms of the Drag-Along Notice.

 

In connection with the sale
of Capital Stock pursuant to a Drag-Along Notice, the Selling Holders shall
represent and warrant to the Person or Persons to whom they transferring the
Drag-Along Shares that the transferee of the Drag-Along Shares (or interests
therein) is receiving such Drag-Along Shares (or interests therein), free and
clear of all pledges, security interests or other liens created by such Selling
Holders.  Each Selling Holder shall
accept a proportionate delegation of any duties of all Selling Holders under
any sale of Drag-Along Shares (including any indemnification obligation in a
sale agreement); provided, however, that (a) no Selling
Holder need accept joint liability with respect to representations, warranties
or covenants (including without limitation indemnification obligations) of any
other Selling Holder, it being agreed that a sale agreement shall provide that
the liability of such Selling Holder in connection with the sale shall be
several only and shall not in any event exceed such Selling Holder’s pro rata
share of any liability and (b) each Selling Holder shall be required only
to make representations or warranties to, or enter into indemnification or
contribution arrangements with, the Person or Persons to whom they are
transferring the Drag-Along Shares which are reasonable in the context of the
proposed sale including, without limitation, a representation and warranty with
respect to the shares or other equity interests being disposed of by such
Selling Holder that the transferee of the shares or other equity interests
evidenced thereby is receiving such shares or other equity interests, free and
clear of all pledges, security interests or other liens.

 

10

 

SECTION 2.4                                           Preemptive
Rights.

 

(a)                                  The
Company hereby grants to each Stockholder so long as such stockholder owns, on
a Fully-Diluted Basis, at least 3% of the Common Stock, a preemptive right to
purchase such Stockholder’s pro  rata share of all or any part of
any New Securities (as defined below) which the Company may, from time to time,
propose to sell and issue.  Such
Stockholder’s pro  rata share, for purposes of this preemptive
right, is a fraction equal to the number of shares of any Common Stock and/or
any Preferred Stock (on an “as converted” basis) then held by such Stockholder
on a Fully-Diluted Basis divided by the total number of shares of Common Stock
and/or Preferred Stock (on an “as converted” basis) of the Company on a
Fully-Diluted Basis then outstanding.

 

(b)                                 Except
as set forth in the next succeeding sentence, “New Securities” shall
mean any shares of capital stock of the Company, including Common Stock,
whether now authorized or not, and rights, options or warrants to purchase said
shares of Common Stock, and securities of any type whatsoever that are, or may
become, convertible into said shares of Common Stock.  Notwithstanding the foregoing, “New
Securities” does not include (i) securities offered to the public
generally pursuant to a registration statement filed with the Commission and
declared effective under the Securities Act, (ii) securities issued in the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization or in a transaction
approved by the Board of Directors of the Company (the “Board”) and
governed by Rule 145 under the Securities Act, (iii) up to 4,075,191
shares (subject to appropriate adjustment for Recapitalization Events) of
Common Stock or options exercisable for such Common Stock and up to
1,443,779.71 shares subject to appropriate readjustment for Recapitalization
Events) of Series AA Preferred Stock or rights to receive such Series AA
Preferred Stock issued to employees pursuant to the Company’s 2004 Omnibus
Stock Plan, (iv) shares of Common Stock issued on conversion of
outstanding Preferred Stock, (v) stock issued pursuant to any rights or
agreements, including without limitation convertible securities, options and
warrants, provided that the preemptive rights established by this Section 2.4
shall apply with respect to the initial sale or grant by the Company of
interests in its capital stock pursuant to such rights or agreements, (vi) securities
issued to a financial institution in connection with a debt financing
transaction with such financial institution and approved by the Board, (vii) stock
issued in connection with any stock split, stock dividend, recapitalization or
reclassification by the Company or (viii) shares of Common Stock or
Preferred Stock issued or issuable to employees, directors or consultants of
the Company pursuant to a plan or arrangement approved by the Board, (provided
that the Board shall also approve the grant of shares of Common Stock or other securities
exercisable for such shares of Common Stock in connection therewith).

 

(c)                                  In
the event the Company proposes to undertake an issuance of New Securities, it
shall give each Stockholder having preemptive rights hereunder written notice
of its intention, describing the type of New Securities, and the price and
terms upon which the Company proposes to issue the same.  Each Stockholder shall have fifteen (15) days
from the date of receipt of any such notice to agree to purchase up to such
Stockholder’s respective pro  rata share of such New Securities
for the price and upon the terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.

 

11

 

(d)                                 If
a Stockholder fails to exercise such preemptive right within said 15-day
period, the Company shall have ninety (90) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the New Securities not elected to be purchased by
Stockholders at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company’s notice.  In the event the Company has not sold the New
Securities or entered into an agreement to sell the New Securities within said
90-day period (or sold and issued New Securities in accordance with the
foregoing within sixty (60) days from the date of said agreement), the Company
shall not thereafter issue or sell any of such New Securities, without first
offering such securities in the manner provided above.

 

(e)                                  The
preemptive right granted under this Section 2.4 shall expire upon the
closing of, and shall not apply to, a Qualified Public Offering.

 

SECTION 2.5                                                                          Restrictive
Legend.  Unless and until otherwise
permitted by Section 2.1, each certificate for Capital Stock issued to
each Stockholder, or to any subsequent Permitted Transferee of such certificate,
shall be stamped or otherwise imprinted with the following restrictive legend:

 

“The securities
represented by this certificate have been acquired for investment and have not
been registered pursuant to the Securities Act of 1933, as amended (the “Securities
Act”), or any applicable state statutes. Such securities may not be sold,
transferred or otherwise disposed of unless (a) (i) a registration
statement under the Securities Act or applicable state securities laws shall
have become effective with regard thereto, or (ii) an exemption from
registration exists under the Securities Act (or the regulations promulgated
thereunder) and applicable state securities laws and such exemption is
applicable thereto, and (b) such transfer otherwise complies with that
certain Fourth Amended and Restated Stockholders Agreement, dated as of October 4,
2005, by and among Metastorm Inc. and certain of its Stockholders, as amended
from time to time.”

 

ARTICLE 3

BOARD OF DIRECTORS

 

SECTION 3.1                                                                          Composition
of Board of Directors.

 

(a)                                  The
Board shall consist of up to seven (7) members, except when the size of
the Board may need to be increased pursuant to Section 3.1(h) herein,
at which time the Board shall consist of up to fifteen (15) members.  Stockholders shall have the right to nominate
directors as set forth below.  All
Stockholders shall comply with the provisions of this Article 3 to ensure
that nominees are elected to (or removed from) the Board.

 

12

 

(b)                                 The
Chief Executive Officer of the Company shall have the right to nominate one (1) individual
to be a director; provided, however, that such individual must be
a member of the management team of the Company (the “Management Director”).

 

(c)                                  ICG
Holdings, Inc., a Delaware corporation (“ICG”) or its assignee,
shall have the right to nominate two (2) individuals to be directors.

 

(d)                                 3i
shall have the right to nominate one (1) individual to be a director.

 

(e)                                  Wall
Street Technology Partners LP, a Delaware limited partnership (“Wall Street”),
shall have the right to nominate one (1) individual to be a director.

 

(f)                                    Wall
Street and 3i, acting jointly, and ICG, acting individually, shall each have
the right to nominate one (1) additional individual to be a director.  Such directors shall be independent and not an Affiliate of any of
the Prior Preferred Holders, the Original Series AA Investors or the Series BB
Investors.  Such directors are referred
to collectively as the “Independent Directors.”

 

(g)                                 If at any time Wall Street ceases to own more
than fifty percent (50%) of the Series AA Preferred Stock and Series BB
Preferred Stock, considered together as a single class, that it owns as of the
date hereof (on a Fully-Diluted Basis), Wall Street’s right to appoint an
individual to be a director pursuant to Section 3.1(e) shall
immediately become null and void.  If at
any time 3i ceases to own more than fifty percent (50%) of the Series AA
Preferred Stock and Series BB Preferred Stock that it owns as of the date
hereof (on a Fully-Diluted Basis), 3i’s right to appoint an individual to be a
director pursuant to Section 3.1(d) shall immediately become null and
void.  If at any time ICG ceases to own
more than fifty percent (50%) of the Series AA Preferred Stock and Series BB
Preferred Stock that it owns as of the date hereof (on a Fully-Diluted Basis),
ICG’s right to appoint an Independent Director pursuant to Section 3.1(f) shall
immediately become null and void and ICG’s right to appoint two individuals to
be directors pursuant to Section 3.1(c) shall be modified to permit
ICG to appoint one individual to be a director. 
If at any time ICG ceases to own more than eighty percent (80%) of the Series AA
Preferred Stock and Series BB Preferred Stock that it owns as of the date
hereof (on a Fully-Diluted Basis), ICG’s right to appoint two individuals to be
directors pursuant to Section 3.1(c) and ICG’s right to appoint an
Independent Director pursuant to Section 3.1(f) shall each
immediately become null and void.

 

(h)                                 Notwithstanding anything to the contrary
contained in this Section 3.1, upon the redemption of the Series BB
Preferred Stock, if the Company shall issue to the former holders of the Series BB
Preferred Stock a one-year interest bearing note in lieu of payment in full in
cash upon the redemption of the Series BB Preferred Stock in accordance
with the Company’s Fifth Articles of Amendment and Restatement (the “Fifth
Articles”), the holders of a majority of the Series BB Preferred Stock
outstanding immediately prior to the redemption shall have the right, upon the
redemption of the Series BB Preferred Stock, to designate a majority of
the directors of the Board.  This right
to designate a majority of the directors of the Board shall continue until the
one-year interest bearing note is paid in full in cash.  All Stockholders and the Company agree to
take any actions necessary or desirable (including increasing the size of the 

 

13

 

Board but not including the removal of any
directors designated by any such Stockholder) to enforce this right of the Series BB
Investors to designate a majority of the directors of the Board.

 

SECTION 3.2                                                                          Removal.  Each director designated as aforesaid by any
Stockholder or group of Stockholders and duly elected to the Board shall be
subject to removal only at the request of the Stockholder or group of
Stockholders which nominated or elected such director.

 

SECTION 3.3                                                                          Election
of Directors.  Except as set forth in
the last sentence of this Section 3.3, each Stockholder shall vote all of
its shares of Common Stock or Preferred Stock, as applicable, for the election
(or removal) of the nominees designated as provided in Sections 3.1 hereof
and, in the event of a vacancy in the Board created by the death, resignation
or removal of a director, shall vote its shares of Common Stock or Preferred
Stock, as applicable, for the election of a nominee to be designated by the
entity or group which designated the director whose position has become vacant
(unless such vacancy has resulted from the termination of the power of such
group to nominate such director).  The
Company shall take such lawful action as shall be reasonably required in order
to facilitate the nomination, removal and election of directors as aforesaid.

 

SECTION 3.4                                                                          Committees

 

(a)                                  The
Stockholders shall cause the Board to establish a Compensation Committee and an
Audit Committee.  Each committee will
consist of three (3) directors.  The
Board shall have the right to appoint all committee members, except that the
Compensation Committee must consist of at least one Independent Director and
the Audit Committee must consist of at least the two Independent
Directors.  The Audit Committee may not
consist of the Management Director.

 

(b)                                 Along
with the customary duties and powers afforded a compensation committee, the
Compensation Committee shall have the sole authority to (i) approve all
grants or awards under the Company’s equity compensation plan(s), (ii) determine
the terms of compensation and other terms of employment of the executive
officers of the Company, and (iii) approve the adoption or amendment of
any equity compensation plan.

 

(c)                                  Along
with the customary duties and powers afforded an audit committee, the Audit
Committee shall have the sole authority to approve the engagement or change of
the Company’s auditors or the selection of any appraiser for any of the assets
or securities of the Company, provided that the Company will, at all times,
utilize the auditing services of a nationally-recognized firm of independent
public accountants, such firm being acceptable to a majority of the Series BB
Investors.

 

SECTION 3.5                                                                          Board Approval. 
Approval of actions taken by the Board shall require the affirmative
vote of at least a majority of the members of the Board.

 

SECTION 3.6                                                                          Amendment; Regulatory Compliance Cooperation.  The
Company and the undersigned Preferred Holders and Original Stockholders, on
behalf of the Preferred Holders and Original Stockholders, respectively, hereby
acknowledge that Wall Street is a 

 

14

 

federally licensed Small Business Investment Company
licensed by the United States Business Administration under the Small Business
Investment Company Act of 1958, as amended, and hereby agree that in the event
that Wall Street has a Regulatory Problem (as hereinafter defined), Wall Street
shall have the right to transfer its securities of the Company without regard
to any restriction on transfer other than the securities laws restrictions set
forth in Section 2.5 hereof (provided that the transferee agrees to become
a party to this Agreement).  The parties
hereto further acknowledge that the Company has agreed to take all such actions
as are reasonably requested by Wall Street in order to (a) effectuate and
facilitate any transfer by Wall Street of any securities of the Company then
held by Wall Street to any person designated by Wall Street, (b) permit
Wall Street (or any of its affiliates (as that term is defined in 13 CFR
§121.103)) to exchange all or any portion of any voting security of the Company
then held by Wall Street on a share-for-share basis for shares of a nonvoting
security of the Company, which nonvoting security shall be identical in all
respects to the voting security exchanged for it, except that it shall be
nonvoting and shall be convertible into a voting security on such terms as are
reasonably requested by Wall Street in light of regulatory considerations then
prevailing, and (c) amend this Agreement, the Charter and Bylaws, and related
agreements and instruments to effectuate and reflect the foregoing, and the
parties hereto hereby agree to vote their securities of the Company in favor of
such amendments and actions.  For
purposes of this Agreement, a “Regulatory Problem” means any set of
facts or circumstances wherein it has been asserted by any governmental
regulatory agency (or Wall Street reasonably believes that there is a
substantial risk of such assertion) that Wall Street is not entitled to hold,
or exercise any significant right with respect to, the Series AA Preferred
Stock or the Series BB Preferred Stock held by it.

 

ARTICLE 4

 

REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS

AND THE COMPANY

 

Each of the Company and
each Stockholder (each, a “Representing Party”) hereby severally, but
not jointly, represents and warrants to each other Representing Party as
follows:

 

SECTION 4.1                                                                          Organization,
Qualification and Power.  Each
Representing Party (other than any Representing Party which is an individual)
is a corporation, limited liability company or limited partnership, as the case
may be, duly organized, validly existing and in good standing under the laws of
the state or foreign jurisdiction of its organization, and it has the requisite
corporate, limited liability company or partnership power and authority, as the
case may be, to own and hold its properties, and to carry on its business in
all material respects as conducted or presently proposed to be conducted.  Each Representing Party (other than any
Representing Party which is an individual) has requisite corporate, limited
liability company or partnership power and authority to execute, deliver and
perform this Agreement.

 

SECTION 4.2                                                                          Authorization
of Agreement; No Conflict.  The
execution, delivery and performance by each Representing Party of this
Agreement have been duly authorized by all requisite corporate, limited
liability company, partnership and individual action, as the case may 

 

15

 

be, of the Representing Party, if any, and will not
violate any provision of law, any order of any court or other agency of
government, any of such Representing Party’s organizational documents, if any,
or any provision of any indenture, agreement or other instrument to which such
Representing Party or any of such Representing Party’s properties or assets is
bound, or conflict, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument.

 

SECTION 4.3                                                                          Validity.  This Agreement has been duly executed and
delivered by each Representing Party and constitutes a legal, valid and binding
obligation of such Representing Party, enforceable against such Representing
Party in accordance with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance or other similar laws affecting
the enforcement of creditors’ rights generally and except as to the extent the
availability of equitable remedies may be limited to general principles of
equity.

 

ARTICLE 5

 

MISCELLANEOUS

 

SECTION 5.1                                                                          Access
to Company Records.  So long as any
Stockholder and its Affiliates collectively continue to hold, on a
Fully-Diluted Basis, at least 3% of the Common Stock, and in the case of
Hoffer, so long as he holds at least two-thirds of Capital Stock held by him on
the date hereof, such Stockholder shall be entitled to review the financial and
corporate books and records of the Company and to meet with the executive
officers and independent accountants of the Company for purposes reasonably
related to such Stockholder’s ownership of Common Stock or Preferred Stock,
which review and/or meetings shall take place at reasonable times during the
normal business hours of the Company
and in such a manner as to not unduly interfere with the conduct of the Company’s
business.

 

SECTION 5.2                                                                          Financial Statements.  The
Company shall, and shall cause each of its subsidiaries to, maintain true
and complete books and records of account in accordance with generally accepted
accounting principles consistently applied. 
The Company will furnish or cause to be furnished to each Stockholder,
for so long as such Stockholder and its Affiliates collectively owns, on a
Fully-Diluted Basis, at least 3% of the Common Stock and in the case of Hoffer,
so long as he holds at least two-thirds of Capital Stock held by him on the
date hereof and subject to any reasonable confidentiality undertakings by
Hoffer that the Company may request:

 

(a)                                  Within
ninety (90) days after the end of each fiscal year of the Company, audited
consolidated financial statements, including an audited balance sheet showing
the financial condition of the Company and its subsidiaries as of the close of
such fiscal year, together with statements of income and cash flow, setting
forth in comparative form with respect to such financial statements figures for
the previous fiscal year and to the current year’s annual budget, all in
reasonable detail;

 

(b)                                 Within
forty-five (45) days after the end of each fiscal quarter of the Company (other
than the last quarter of each fiscal year), an unaudited balance sheet of the
Company and its subsidiaries as of the end of such quarter, together with
statements of income 

 

16

 

and
cash flow, setting forth in comparative form with respect to the corresponding
period for the previous fiscal year and the current month’s budget, all in
reasonable detail certified by the Chief Financial Officer of the Company;

 

(c)                                  As
soon as reasonably possible, and in any event within thirty (30) days after the
end of each month, an unaudited balance sheet of the Company and its
subsidiaries as of the end of such month, together with statements of income
and cash flow, setting forth in comparative form with respect to corresponding
period for the previous fiscal year and to the current month’s budget;

 

(d)                                 Within
forty-five (45) days prior to the first day of each fiscal year of the Company,
an annual operating plan and budget, each prepared in reasonable detail, as each
has been approved by the Board of Directors of the Company; and

 

(e)                                  Such
other information regarding the business, affairs and condition of the Company
or any of its subsidiaries as such Stockholder may from time to time reasonably
request and that is reasonably available to the Company.

 

SECTION 5.3                                                                          Press
Releases and Filings.  For so long as
a Stockholder and its Affiliates collectively continue to own, on a
Fully-Diluted Basis, at least 3% of the Common Stock, the Company covenants and
agrees to provide each such Stockholder, promptly after release or filing, with
copies of any press releases or other public announcements concerning the
Company and copies of any filing by the Company with the Commission.

 

SECTION 5.4                                                                          Directors
and Officer’s Insurance.  The Company
will maintain with sound and reputable insurers directors’ and officers’
liability insurance in an amount of at least $3,000,000, which has been taken
out prior to the closing under the Stock Purchase Agreement, and the Company
will pay all premiums due thereon and will not make any material alteration to
the terms of, or the coverage provided by, such insurance policy without the
consent of at least 66 2/3% of the Capital Stock on
a Fully-Diluted Basis.

 

SECTION 5.5.                                                                       Data Protection.  The
Company shall deliver to each of its officers and directors on the date hereof,
and to each officer and director appointed or elected after the date hereof, a
notice, in the form attached hereto as Exhibit A, regarding Article Sixteenth
of the Fifth Articles, as amended and in effect on the date hereof, or in the
case of any such officer or director appointed or elected after the date
hereof, at the time of such appointment or election.

 

SECTION 5.6                                                                          Entire
Agreement; Amendment.  This Agreement
embodies the entire agreement of the parties hereto with respect to the subject
matter hereof.  Any provision of this
Agreement may be amended, waived or modified if, but only if, such amendment,
waiver or modification is in writing and is signed by the holders of at least
66 2/3% of the Capital Stock on
a Fully-Diluted Basis; provided, however, that in no event shall
any right pursuant to Section 3.1 be affected, adversely or otherwise, by
any amendment, waiver or modification without the prior written consent of the
Stockholder entitled to exercise such right. 
Whenever any provision of this Agreement requires action or approval by
the holders of a specified number of Series BB Preferred Stock, the
Original Series AA Investors, the Prior Preferred Holders or the Original
Stockholders, such action or approval may be evidenced by a written consent
executed by the 

 

17

 

requisite holders of Series BB Preferred Stock,
the Original Series AA Investors, the Prior Preferred Holders and/or the
Original Stockholders, as applicable, without any requirement of a meeting or
prior notice to the other holders of such Series BB Preferred Stock, the
Original Series AA Investors, the Prior Preferred Holders or the Original
Stockholders.  The parties hereto intend,
agree and understand that this Agreement amends and supersedes and replaces in
its entirety any and all prior agreements pertaining to the subject matter
hereof.

 

SECTION 5.7                                                                          Binding
Effect; Benefits.  This Agreement and
all the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors
and permitted assigns.  Except as
expressly provided herein, nothing in this Agreement is intended to confer on
any Persons, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.  Nothing in this
Agreement shall be construed to give the Stockholders or any other Person any
claim against the Company or its assets thereof, other than as a stockholder of
the Company.

 

SECTION 5.8                                                                          Recapitalization
and Exchanges Affecting the Common Stock. 
All the provisions of this Agreement shall apply, to the full extent set
forth herein with respect to the Original Stockholder Shares, the Common Stock,
the Preferred Stock and any and all other securities of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Original Stockholder Shares, the Common Stock, the
Preferred Stock or such other securities or by reason of any stock dividend,
split, reverse split, combination, recapitalization, reclassification, merger,
consolidation or otherwise.

 

SECTION 5.9                                                                          Notices.  All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed effectively
given and received when delivered in person or by national overnight courier
service or by certified or registered mail, return receipt requested, or by
telecopier, addressed as follows:

 

	
  (a)

  	
  if to the
  Company, at

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Metastorm Inc.

  	
   

  	
   

  	
   

  
	
   

  	
  8825 Stanford
  Boulevard

  	
   

  	
   

  	
   

  
	
   

  	
  Suite 200

  	
   

  	
   

  	
   

  
	
   

  	
  Columbia, MD
  21045-4757

  	
   

  	
   

  	
   

  
	
   

  	
  Attention:
  Robert J. Farrell

  	
   

  	
   

  	
   

  
	
   

  	
  Telecopier: (410)
  290-1172

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Venable LLP

  	
   

  	
   

  	
   

  
	
   

  	
  Two Hopkins
  Plaza, Suite 1800

  	
   

  	
   

  	
   

  
	
   

  	
  Baltimore, MD
  21201

  	
   

  	
   

  	
   

  
	
   

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

  	
   

  	
   

  	
   

  
	
   

  	
  Telecopier: (410)
  244-7742

  	
   

  	
   

  	
   

  

 

18

 

	
  (b)

  	
  if to any Stockholder:

  
	
   

  	
   

  
	
   

  	
  The address reflected
  on the records of the Company or, in any such case, at such other address or
  addresses as shall have been furnished in writing by such party to the others.

  

 

SECTION 5.10                                                                    Severability.  The invalidity, illegality or
unenforceability of one or more of the provisions of this Agreement in any
jurisdiction shall not affect the validity, legality or enforceability of the
remainders of this Agreement in such jurisdiction or the validity, legality or
enforceability of this Agreement, including any such provision, in any other
jurisdiction, it being intended that all rights and obligations of the parties
hereunder shall be enforceable to the fullest extent permitted by law.

 

SECTION 5.11                                                                    Headings.  The headings of the sections of this
Agreement are inserted for convenience only and shall not constitute a part of
this Agreement.

 

SECTION 5.12                                                                    Counterparts.  This Agreement may be in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.

 

SECTION 5.13                                                                    APPLICABLE
LAW.  THE LAWS OF THE STATE OF NEW
YORK SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF
THIS AGREEMENT, REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF
CONFLICTS OF LAW.

 

SECTION 5.14                                                                    Further
Assurances.  Each party hereto shall
do and perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements, certificates,
instruments, and documents as any other party hereto reasonably may request in
order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.

 

SECTION 5.15                                                                    Specific
Performance.  Each of the parties
hereto acknowledges and agrees that in the event of any breach of this
Agreement, the non-breaching party would be irreparably harmed and could not be
made whole by monetary damages.  It is
accordingly agreed that the parties hereto will waive the defense in any action
for specific performance that a remedy at law would be adequate and that the
parties hereto, in addition to any other remedy to which they may be entitled
at law or in equity, shall be entitled to compel specific performance of this
Agreement in any arbitration of this Agreement or in any action instituted in
any court of the United States or any state thereof having subject matter
jurisdiction of such action.

 

SECTION 5.16                                                                    Rights
Cumulative; Waiver.  The rights and
remedies of the Stockholders and the Company under this Agreement shall be
cumulative and not exclusive of any rights or remedies which any party hereto
would otherwise have hereunder or at law or in equity or by statute, and no
failure or delay by any such party in exercising any right or remedy shall
impair any such right or remedy or operate as a waiver of such right or remedy,
nor shall any single or partial exercise of any power or right preclude such
party’s other or further exercise or the exercise of any other power or
right.  The waiver by any party hereto of
a breach of any 

 

19

 

provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any party hereto to exercise any right or privilege hereunder shall be deemed a
waiver of such party’s rights or privileges hereunder or shall be deemed a
waiver of such party’s rights to exercise the same at any subsequent time or
times hereunder.

 

SECTION 5.17                                                                    Construction.  The use of the singular or plural or
masculine, feminine or neuter gender shall not be given an exclusionary meaning
and, where applicable, shall be intended to include the appropriate number or
gender, as the case may be.

 

SECTION 5.18                                                                    Group
Actions.  For purposes of this
Agreement, any action to be taken by a group of Stockholders shall be
determined by the vote of the holders of a majority of such group, unless a
greater percentage shall have been expressly set forth in this Agreement with
respect to such action.

 

SECTION 5.19                                                                    Prior
Stockholders Agreement.  This
Agreement supersedes the Prior Stockholders Agreement.

 

SECTION 5.20                                                                    Termination.  This Agreement shall terminate upon the
closing of a Qualified Public Offering.

 

SECTION 5.21                                                                    Right to Conduct
Business.  The Company hereby acknowledges that ICG
invests in numerous companies, some of which may be competitive with the
Company’s business.  ICG shall not be
liable for any claim arising out of, related to or based upon (i) the
investment by ICG in any entity competitive to the Company, or (ii) actions
taken by any partner, officer or other representative of ICG to assist any such
competitive company, whether or not such action was taken as a board member of
such competitive company or otherwise, and whether or not such action has a
detrimental effect on the Company.

 

[signatures
on next page]

 

20

 

Schedule A

 

Prior Preferred Holders, Original Stockholders,

Original Series AA Investors, New Series AA Investors and Series BB
Investors

 

Prior Preferred Holders

 

Sandler Internet Partners, L.P.

Sandler Capital Partners IV, L.P.

Sandler Capital Partners IV FTE, L.P.

Sandler Co-Investment Partners, L.P.

Axiom
Venture Partners II, LP

J.
Allen Dougherty, Trustee FBO Peter Wetherill

Pennstone,
LLC

Riggs
Capital Partners, LLC

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

Gail
Dougherty

Mark
T. Cannon

Nancy
Walker

Paul
E. Ambrose and Paula J. Ambrose

Michael
Savage

David
R. Schaeffer

Stephen
Todd Walker

Mark
O’Neill

Wall
Street Technology Partners LP

Ironside
Ventures, L.P.

Ironside
Venture Partners II, LLC

UBS
Capital Americas II, LLC

Mayflower L.P. (formerly 3i Group, PLC)

M&M
Capital Partners

Eric
Luftig

Walter
A. Maul, Jr.

Melissa
B. Eisenstat

 

Original Stockholders

 

Mayflower L.P. (formerly 3i Group, PLC)

V-Sys,
Ltd

Avi
Hoffer

Stephen
Miles Brown

Michael
Philip Vieyra

Bharat
Patel

Stuart
Frost

Mark
O’Hare

Bruce
Grisewood

Michael
Jackson

Brian
McPhee

Jonathan
Summers

 

 

Schedule A – Cont’d

 

Prior Preferred Holders, Original Stockholders,

Original Series AA Investors, New Series AA Investors and Series BB
Investors

 

Original
Series AA Investors

 

Mayflower L.P. (formerly 3i Group, PLC)

UBS Capital Americas II, LLC

Sandler Capital Partners IV, L.P.

Sandler Capital Partners IV FTE, L.P.

Sandler Technology Partners Subsidiary, LLC

Sandler Co-Investment Partners, L.P.

Wall Street Technology Partners LP

Ironside Ventures, L.P.

Riggs
Capital Partners II, LLC

Axiom Venture Partners II, LP

 

New
Series AA Investors

 

CommerceQuest, Inc.

CommerceQuest
UK Limited

 

Series BB
Investors

 

ICG
Holdings, Inc.

Mayflower
L.P.

Wall
Street Technology Partners LP

 

 

Exhibit A

 

NOTICE REGARDING EUROPEAN DIRECTIVE

ON DATA PROTECTION

 

This
Notice of Article Sixteenth of the Fifth Articles of Amendment and
Restatement of Metastorm Inc. (the “Company”)
is being delivered to you pursuant to Section 5.5 of that certain Fourth
Amended and Restated Stockholders Agreement, dated October 4, 2005 (the “Stockholders
Agreement”) by and among the Company and the Stockholders (as defined in
the Stockholders Agreement).

 

3i Group, plc, a holding company of one of the
Company’s Preferred Stock holders (collectively, the “3i Entities”), is
incorporated in Europe and is subject to a European Directive on data
protection (as enshrined by UK Act of Parliament in The Data Protection Act of
1998) (the “Directive”).  The
primary effect of the Directive is to prohibit the processing of personal data
without notification and consent. 
Because it is possible that the 3i Entities may be deemed to have
processed personal data within the meaning of the Directive in connection with
their investments in portfolio companies, the 3i Entities require each of their
portfolio companies to insert certain standard language regarding the Directive
into such portfolio company’s certificate of incorporation.  The language regarding the Directive
contained in the Company’s Fifth Articles of Amendment and Restatement is set
forth below:

 

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

 

 

EXHIBIT D

 

Form of
Third Amended and Restated Registration Rights Agreement

 

See
Attached

 

 

THIRD AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

 

THIS THIRD AMENDED
AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered
into as of October 4, 2005, by and among (i) Metastorm Inc., a
Maryland corporation (the “Company”), (ii) the Purchasers (the “Series BB
Investors”) of the Company’s Series BB Convertible Preferred Stock,
par value $0.01 per share (the “Series BB Preferred Stock”), listed
on Schedule 1 to the Stock Purchase Agreement dated as of the date
hereof (the “Stock Purchase Agreement”), and (iii) the Series AA
Holders (as defined below) of the Company’s Series AA Convertible
Preferred Stock, par value $0.01 per share (the “Series AA Preferred
Stock”).

 

WITNESSETH:

 

WHEREAS, the
Company has entered into the Stock Purchase Agreement with the Series BB
Investors pursuant to which the Company has agreed to issue and sell to the Series BB
Investors shares of the Company’s Series BB Preferred Stock; and

 

WHEREAS, the
Company has agreed to grant certain registration rights with respect to the
shares of the Company’s Common Stock issuable upon conversion of the Series BB
Preferred Stock sold to the Series BB Investors pursuant to the Stock
Purchase Agreement; and

 

WHEREAS, the
Company has issued Fifteen Million Four Hundred Thousand (15,400,000) shares of
Series AA Preferred Stock to CommerceQuest, Inc., a Florida
corporation (“CQ”) pursuant to that certain Asset Purchase Agreement, by
and among the Company, CQ and CommerceQuest UK Limited, a corporation
registered in the United Kingdom and a wholly-owned subsidiary of CQ, dated September 22,
2005 ; and

 

WHEREAS, the
Company, the Original Series AA Investors, the Prior Preferred Holders and
the Original Stockholders previously entered into that certain Second Amended
and Restated Registration Rights Agreement, dated as of September 1, 2004
(the “Prior Registration Rights Agreement”), which Prior Registration
Rights Agreement is being amended, restated and superseded in its entirety by
this Agreement; and

 

WHEREAS, pursuant
to Section 11.8 of the Prior Registration Rights Agreement, the Company
and the holders of at least two-thirds (2/3) of the Registrable Securities (as that term was defined
in the Prior Registration Rights Agreement), including Mayflower L.P. and Wall
Street Technology Partners LP, have approved such amendment, which approval is
evidenced by such holder’s signature hereon;

 

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

 

 

ARTICLE 1

CERTAIN DEFINITIONS

 

As used herein, the
following terms shall have the following respective meanings:

 

1.1                                 “Commission”
shall mean the Securities and Exchange Commission, or any other successor
federal agency at the time administering the Securities Act.

 

1.2                                 “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

 

1.3                                 “Holders”
shall mean and include each of the Stockholders and any person or entity that
shall have executed this Agreement and whose name appears on the Schedule of
Registration Rights Holders attached hereto as Exhibit A or who
shall, pursuant to Section 11.2 hereof, become a party hereto, and any
permitted transferee under Article 9 hereof who holds Registrable
Securities.

 

1.4                                 “Initial
Public Offering” shall mean the first closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of Common Stock to the
public.

 

1.5                                 “Initiating
Holders” shall mean Holders of Registrable Securities representing at least
10% of the total Registrable Securities then outstanding.

 

1.6                                 “New
Series AA Investors” means CQ and CommerceQuest UK Limited, a
corporation organized under the laws of England and Wales.

 

1.7                                 “Original Series AA Investors”
means the holders of Series AA Preferred Stock, as listed on Exhibit A
attached hereto, who converted outstanding note obligations into shares of Series AA
Preferred Stock on September 1, 2004.

 

1.8                                 “Original
Stockholders” shall mean the holders of Series AA Preferred Stock, as
listed on Exhibit A attached hereto, who were among the holders of
the Company’s previously outstanding Common Stock prior to the conversion
thereof to Series AA Preferred Stock on September 1, 2004.

 

1.9                                 “Original
Stockholder Shares” shall mean, collectively, the shares of Series AA
Preferred Stock held by the Original Stockholders, if any, including shares of
Common Stock issuable upon conversion of any option, warrant or other
convertible security granted or issued by the Company, whether outstanding as
of the date of this Agreement or granted or issued thereafter.

 

1.10                           “Preferred
Holders” shall mean the Holders consisting solely of the Original Series AA
Investors, Prior Preferred Stockholders, the Series BB Investors and the
New Series AA Investors and any such Permitted Transferees.

 

 

1.11                           “Preferred
Stock” shall mean the Series AA Preferred Stock and the Series BB
Preferred Stock treated together as one class.

 

1.12                           “Prior
Preferred Holders” shall mean the holders of Series AA Preferred Stock
who were holders of the Company’s previously existing and outstanding Series A
Preferred Stock and Series B Preferred Stock prior to the conversion
thereof to Series AA Preferred Stock on September 1, 2004, as listed
on Exhibit A attached hereto.

 

1.13                           “Qualified
Initial Public Offering” shall mean an Initial Public Offering that raises
gross proceeds for the Company of at least $35,000,000 at an initial per share
price to the public of not less than $4.157716 (such price subject to
appropriate adjustment for Recapitalization Events).

 

1.14                           “Recapitalization
Events” shall mean stock splits, stock dividends, combinations,
recapitalizations, reorganizations, reclassifications, mergers, consolidations
and other similar events which affect the number of outstanding shares of the Series AA
Preferred Stock or the Series BB Preferred Stock.

 

1.15                           The
terms “register,” “registered” and “registration” refer to
a registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act, and the
declaration or ordering by the Commission of the effectiveness of such registration
statement.

 

1.16                           “Registrable
Preferred Securities” shall mean the Registrable Securities, excluding the
Original Stockholder Shares.

 

1.17                           “Registrable
Securities” shall mean (a) the Original Stockholder Shares, (b) any
and all shares of Common Stock (i) issued or issuable upon conversion of
the Series AA Preferred Stock held by the Prior Preferred Holders,
Original Series AA Investors and New Series AA Investors and any of
their respective Permitted Transferees, and (ii) issued or issuable with respect
to the Series AA Preferred Stock held by the Prior Preferred Holders,
Original Series AA Investors and New Series AA Investors and any of
their respective Permitted Transferees upon any stock split, stock dividend,
recapitalization, reclassification or similar event, and (c) any and all
shares of Common Stock (i) issued or issuable upon conversion of the Series BB
Preferred Stock held by the Series BB Investors, and (ii) issued or
issuable with respect to the Series BB Preferred Stock held by the Series BB
Investors upon any stock split, stock dividend, recapitalization,
reclassification or similar event, excluding in all cases, however, Registrable
Securities sold by a Holder to the public or pursuant to Rule 144
promulgated under the Securities Act.

 

1.18                           “Registration
Expenses” shall mean all expenses incurred by the Company in complying with
Articles 2 and 3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of legal counsel for the Company, fees and disbursements of one
legal counsel for the selling Holders, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company). 
Such fees and disbursement of a single legal counsel for the selling
Holders, to be paid for by the Company hereunder shall in no event exceed
$15,000 in the case of any single registration effected under Article 2
hereof.

 

 

1.19                           “S-3
Registration Expenses” shall mean all expenses incurred by the Company in
complying with Article 4 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of legal counsel for the Company, fees and disbursements
of one legal counsel for the selling Holders, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company). Such fees and disbursement of a
single legal counsel for the selling Holders to be paid for by the Company
hereunder shall in no event exceed $15,000 in the case of any single
registration effected under Article 4 hereof.

 

1.20                           “Series AA
Holders” shall mean, collectively, the Original Stockholders, the Original Series AA
Investors, the New Series AA Investors and the Prior Preferred Holders, as
listed on Exhibit A attached hereto, and any of their respective
Permitted Transferees.

 

1.21                           “Securities
Act” shall mean the Securities Act of 1933, as amended, or any similar
federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

 

1.22                           “Selling
Expenses” shall mean all underwriting fees, discounts, selling commissions
and stock transfer taxes applicable to the Registrable Securities registered by
the Holders.

 

1.23                           The
terms “Stockholders,” collectively, and a “Stockholder,”
individually, means the Series AA Holders and the Series BB
Investors.

 

ARTICLE 2

REQUESTED
REGISTRATION

 

2.1                                 Request
for Registration.  At the earlier of (i) the
six month anniversary of the effective date of the Initial Public Offering, or (ii) October 4,
2007, the Initiating Holders may request registration in accordance with this Article 2.  In the event the Company shall receive from
the Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to Registrable
Securities, the Company will:

 

(a)                                  promptly
give written notice of the proposed registration, qualification or compliance
to all other Holders; and

 

(b)                                 use
its best efforts to effect such registration, qualification or compliance as
soon as practicable (including, without limitation, undertaking to file
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws, and appropriate compliance with applicable
regulations issued under the Securities Act, and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within 15 days
after the receipt of the written notice from the Company described in Section 2.1(a);
provided, however, that 

 

 

the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Article 2:

 

(i)                                     in
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act;

 

(ii)                                  during
the period starting with the date immediately preceding the Company’s
anticipated date of filing of, and ending on the date 180 days immediately
following the effective date of, any registration statement pertaining to a
firmly underwritten offering of securities of the Company for its own account
(or such lesser period as the managing underwriters of such offering will
allow);

 

(iii)                               after
the Company has effected four (4) such requested registrations pursuant to
this Article 2 (not including registrations on Form S-3) on behalf of
the Initiating Holders, with such registrations having been declared or ordered
effective, and the Registrable Securities offered pursuant to each of such
registrations having been sold, or if the Company has effected any requested
registration (other than a registration for the Company’s Initial Public
Offering) pursuant to this Agreement during the previous six-month period (or
such shorter period as the managing underwriter of the Company’s most recent
public offering will allow); or

 

(iv)                              if
the Company then meets the eligibility requirements applicable to the use of Form S-3
in connection with such registration and is able to effect such requested
registration pursuant to Article 4 hereof.

 

(c)                                  Subject
to the foregoing clauses (i) through (iv), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request of the
Initiating Holders; provided, however, that if the Company shall
furnish to such Holders a certificate signed by the Chairman or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, the registration and distribution of the Registrable
Securities covered or to be covered by such registration statement, or the
disclosure required by such registration statement, would materially interfere
with any pending material financing, acquisition or corporate reorganization,
or other material corporate development involving the Company or its
subsidiaries, or would require premature disclosure thereof, and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more than
90 days, but in no event for a period longer than 105 days after receipt of the
request of the Initiating Holders; and provided, further, that
the Company shall not be permitted to exercise such deferral right under this Section 2.1(c) or
Section 4.1(c) hereof more than once in any 360-day period.

 

 

2.2                                 Underwriting.

 

(a)                                  The
distribution of the Registrable Securities covered by the request of the
Initiating Holders shall be effected by means of the method of distribution
selected by the Holders holding at least two-thirds (2/3) of the Registrable Securities covered by such
registration.  If such distribution is
effected by means of an underwriting, the right of any Holder to registration
pursuant to this Article 2 shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting (unless otherwise agreed by the
Initiating Holders) to the extent provided herein.

 

(b)                                 If
such distribution is effected by means of an underwriting, the Company
(together with all Holders proposing to distribute their securities through
such underwriting) shall enter into an underwriting agreement in customary form
with a managing underwriter of nationally recognized standing selected for such
underwriting by the Company and approved by a majority in interest of the
Initiating Holders, which approval shall not be unreasonably withheld.
Notwithstanding any other provision of this Article 2, if the managing
underwriter, if any, advises the Initiating Holders in writing that marketing
factors (including pricing) require a limitation of the number of shares to be
underwritten, then the Preferred Holders who have requested registration of
Registrable Preferred Securities together shall share pro  rata in
the available portion of the registration in question, such sharing to be based
upon the number of shares of Registrable Preferred Securities then held by such
Preferred Holders.  If after inclusion of
such Registrable Preferred Securities, it is possible to include additional
shares in such registration, the Original Stockholders who have requested
registration together shall share pro  rata in the remaining
available portion of the registration in question, such sharing to be based
upon the number of shares of Original Stockholder Shares then held by such
Original Stockholders.  No Registrable
Securities excluded from the underwriting by reason of the managing underwriter’s
marketing limitation shall be included in such registration.

 

(c)                                  If
any Holder disapproves of the terms of the underwriting, such person may elect
to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. 
The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration; provided, however, that if
by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included (or requested to
include) Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion used in determining
the underwriter limitation in this Section 2.2.

 

2.3                                 Inclusion
of Shares by Company.  If the
distribution of Registrable Securities is being effected by means of an
underwriting and if the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or for the account of others in such registration if the
managing underwriter so agrees.  The
inclusion of such shares shall be on the same terms as the registration of
shares held by the Initiating Holders, as applicable.  In the event that the underwriters exclude
some of the securities to be registered, the securities to be sold for the
account of the Company and any other holders shall be excluded in their
entirety prior to the exclusion of any Registrable Securities.

 

 

2.4                                 Cancellation
of Registration.  A majority in
interest of the Initiating Holders, as applicable, shall have the right to
cancel a proposed registration of Registrable Securities pursuant to Article 2
when, in their discretion, market conditions are so unfavorable as to be
seriously detrimental to an offering pursuant to such registration.  Such cancellation of a registration shall not
be counted as one of the four (4) such requested registrations pursuant to
Section 2.1(b)(iii) for the Initiating Holders so long as the
Initiating Holders agree to pay the reasonable expenses associated with such
cancelled registrations.

 

ARTICLE 3

COMPANY REGISTRATION

 

3.1                                 Notice
of Registration to Holders.  If at
any time or from time to time the Company shall determine to register any of
its securities, either for its own account or the account of a security holder
or holders (including pursuant to Article 4), other than (i) a
registration relating solely to employee benefit plans on Form S-8 (or any
successor form) or (ii) a registration relating solely to a Commission Rule 145
transaction on Form S-4 (or any successor form), the Company will:

 

(a)                                  promptly
give to each Holder written notice thereof, and

 

(b)                                 include
in such registration (and any related qualification under blue sky laws or
other compliance), and in any underwriting involved therein, all the
Registrable Securities specified in a written request or requests, made within
15 days after delivery of such written notice from the Company described in Section 3.1(a),
by any Holder or Holders.

 

3.2                                 Underwriting.  If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1(a).  In such
event, the right of any Holder to registration pursuant to this Article 3
shall be conditioned upon such Holder’s participation in such underwriting and
the inclusion of such Holder’s Registrable Securities in the underwriting to
the extent provided herein.  All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company.

 

(a)                                  Notwithstanding
any other provision of this Article 3, if the managing underwriter
determines that marketing factors (including pricing) require a limitation of
the number of shares to be underwritten, the Holders of Registrable Securities
shall have priority as to sales over the other holders of the Company’s
securities, and the Company shall cause such other holders to withdraw their
shares from such offering to the extent necessary to allow all requesting
Holders of Registrable Securities to include all shares so requested to be
included in such registration.  Whenever
the number of shares which may be registered pursuant to Article 3 is
still limited by this Section 3.2(a), the Company shall have priority as
to sales over the Holders of Registrable Securities, and each Holder of
Registrable Securities hereby agrees that it shall withdraw its Registrable
Securities from such registration to the extent necessary to allow the Company
to include all the shares which the Company desires to sell for its own account
to be included within such registration. The Holders of Registrable Preferred
Securities given rights by this Article 3 and participating in an offering
pursuant to Section 3.1 together shall share pro  rata in the
available portion of the 

 

 

registration in question,
such sharing to be based upon the number of shares of Registrable Preferred
Securities then held by such participating Holders.  If after the inclusion of such Registrable
Preferred Securities, it is possible to include additional shares in such
registration, the Original Stockholders given rights by this Article 3 and
participating in an offering pursuant to Section 3.1 together shall share pro
rata in the remaining available portion of the registration in question,
such sharing based upon the number of shares of Original Stockholder Shares
then held by such participating Original Stockholders.  No Registrable Securities excluded from the
underwriting by reason of the underwriters’ marketing limitation shall be
included in such registration.

 

(b)                                 The
Company shall so advise all Holders and the other holders distributing their
securities through such underwriting of any such limitation, and the number of
shares of Registrable Securities held by Holders that may be included in the
registration.  If any Holder disapproves
of the terms of any such underwriting, such Holder may elect to withdraw therefrom
by written notice to the Company and the managing underwriter.  Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, but the Holder
shall continue to be bound by Section 11.10 hereof.  If by the withdrawal of such securities a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
(or requested to include) Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used in
determining the underwriter limitation in this Section 3.2.

 

(c)                                  The
Company shall have the right to terminate or withdraw any registration initiated
by it under this Article 3 prior to the effectiveness of such
registration, whether or not a Holder has elected to include Registrable
Securities in such registration.

 

ARTICLE 4

REGISTRATION ON FORM S-3

 

4.1                                 Request
for Registration.

 

(a)                                  In
addition to the rights set forth in Articles 2 and 3 hereof, if a Holder or
Holders request that the Company file a registration statement on Form S-3
(or any successor to Form S-3) for a public offering of shares of
Registrable Securities having an aggregate offering price of at least
$1,000,000 (based on the closing market price as of the trading day immediately
preceding the date of the request) and the Company is a registrant entitled to
use Form S-3 (or any successor form to Form S-3) to register such
shares for such an offering, the Company shall use its best efforts to cause
such shares to be registered for the offering as soon as practicable on Form S-3
(or any such successor form to Form S-3); provided, however,
that the Company shall not be required to effect more that two such
registrations on behalf of the Holders pursuant to this Article 4.1(a) during
any consecutive 12 month period.

 

(b)                                 Notwithstanding
the foregoing, the Company shall not be obligated to take any action pursuant
to this Article 4:

 

 

(i)                                     in
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act;

 

(ii)                                  if
the Company, within ten (10) days of the receipt of the request of the
Holder or Holders, gives notice of its bona  fide intention to
effect the filing of a registration statement with the Commission within
forty-five (45) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction or an offering
solely to employees);

 

(iii)                               during
the period starting with the date of filing of, and ending on a date which is
180 days immediately following the effective date of, a registration statement
described in (ii) above or filed pursuant to this Article 4 or
Articles 2 or 3 hereof (or such shorter period as the managing underwriter of
the Company’s most recent public offering may agree), provided that the Company
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and provided, further, that no other
person or entity could require the Company to file a registration statement in
such period;

 

(c)                                  Subject
to the foregoing clauses (b) (i) through (iii), the Company shall
file a registration statement on Form S-3 covering the Registrable
Securities so requested to be registered within 90 days after receipt of the
request of the Holders; provided, however, that if the Company
shall furnish to such Holders a certificate signed by the Chairman or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, the registration and distribution of the
Registrable Securities covered or to be covered by such registration, or the
disclosure required by such registration statement, would materially interfere
with any pending material financing, acquisition or corporate reorganization,
or other material corporate development of the Company or its subsidiaries, or
would require premature disclosure thereof, and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer such filing for a period of not more than 90 days, but in no
event for a period longer than 105 days after receipt of the request of the
Initiating Holders; and provided, further that the Company shall
not be permitted to exercise such deferral right under this Section 4.1(c) or
Section 2.1(c) hereof more than once in any 360-day period.

 

4.2                                 Underwriting.

 

(a)                                  The
distribution of the Registrable Securities covered by the registration on Form S-3
shall be effected by means of the method of distribution selected by the
Holders holding two-thirds (2/3) of the Registrable Securities
covered by such registration.  If such
distribution is effected by means of an underwriting, the right of any Holder
to registration pursuant to this Article 4 shall be conditioned upon such
Holder’s participation in such underwriting, if any, and the inclusion of such
Holder’s Registrable Securities in such underwriting.

 

(b)                                 If
the distribution of the Registrable Securities pursuant to this Section 4.2
is effected by means of an underwriting, the Company (together with all Holders
proposing to distribute their securities through such underwriting) shall enter
into an underwriting agreement in customary form with a managing underwriter of
nationally recognized standing selected for such 

 

 

underwriting by a
majority in interest of the Holders requesting registration on Form S-3
and approved by the Company, which approval shall not be unreasonably
withheld.  Notwithstanding any other
provision of this Article 4, if the managing underwriter advises the
Holders in writing that marketing factors (including pricing) require a
limitation of the number of shares to be underwritten, then the Holders of
Registrable Preferred Securities participating in an offering pursuant to Section 4.1
together shall share pro  rata in the available portion of the
registration in question, such sharing to be based upon the number of shares of
Registrable Preferred Securities then held by such Holders.  If after the inclusion of such Registrable
Preferred Securities, it is possible to include additional shares in such
registration, the Original Stockholders participating in an offering pursuant
to Section 4.1 together shall share pro  rata in the
remaining available portion of the registration in question, such sharing based
upon the number of shares of Original Stockholder Shares then held by such
participating Original Stockholders.  No
Registrable Securities excluded from the underwriting by reason of the managing
underwriter’s marketing limitation shall be included in such registration.

 

(c)                                  If
the distribution of the Registrable Securities pursuant to this Section 4.2
is effected by means of an underwriting and if any Holder disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and  the Holders. 
The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration; provided, however, that if
by the withdrawal of such securities a greater number of Registrable Securities
held by other Holders may be included in such registration (up to the maximum
of any limitation imposed by the underwriters), then the Company shall offer to
all Holders who have included (or requested to include) Registrable Securities
in the registration the right to include additional Registrable Securities in
the same proportion used in determining the underwriter limitation in this Section 4.2.

 

4.3                                 Inclusion
of Shares by Company.  If the
distribution of the Registrable Securities pursuant to this Article 4 is
effected by means of an underwriting and if the managing underwriter has not
limited the number of Registrable Securities to be underwritten, the Company
may include securities for its own account or for the account of others in such
registration if the managing underwriter so agrees and if the number of
Registrable Securities held by Holders requesting registration on Form S-3
which would otherwise have been included in such registration and underwriting
will not thereby be limited.  The
inclusion of such shares shall be on the same terms as the registration of
shares held by the Holders requesting such registration.  In the event that the underwriters exclude
some of the securities to be registered on Form S-3, the securities to be
sold for the account of the Company and any other holders shall be excluded in
their entirety prior to the exclusion of any Registrable Securities.

 

ARTICLE 5

EXPENSES OF REGISTRATION

 

All Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to Article 2, Article 3 and Article 4 hereof
and all S-3 Registration Expenses shall be borne by the Company.  All Selling Expenses relating to Registrable
Securities registered by the Holders shall be borne by the Holders of such
Registrable Securities pro  rata on the basis of the number of
shares so registered.

 

 

ARTICLE 6

REGISTRATION
PROCEDURES

 

(a)                                  In
the case of each registration effected by the Company pursuant to this
Agreement, the Company will keep each Holder advised in writing as to the
initiation of each registration and as to the completion thereof.  The Company agrees to use its best efforts to
effect or cause such registration to permit the sale of the Registrable
Securities covered thereby by the Holders thereof in accordance with the
intended method or methods of distribution thereof described in such
registration statement.  In connection
with any registration of any Registrable Securities pursuant to Article 2,
3 or 4 hereof, the Company shall, as soon as reasonably possible:

 

(i)                                     use
its best efforts to cause the registration statement filed for purposes of such
registration to become effective as soon as reasonably possible thereafter;

 

(ii)                                  prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus included therein as may be necessary
to effect and maintain the effectiveness of such registration statement as may
be required by the applicable rules and regulations of the Commission and
the instructions applicable to the form of such registration statement, and
furnish to the holders of the Registrable Securities covered thereby copies of
any such supplement or amendment prior to its being used and/or filed with the
Commission; and comply with the provisions of the Securities Act with respect
to the disposition of all the Registrable Securities to be included in such
registration statement;

 

(iii)                               provide
(A) the Holders of the Registrable Securities to be included in such
registration statement, (B) the underwriters (which term, for purposes of
this Agreement, shall include a person deemed to be an underwriter within the
meaning of Section 2(11) of the Securities Act), if any, thereof, (C) the
sales or placement agent, if any, therefor, (D) one counsel for such
underwriters or agent, and (E) not more than one counsel for all the
Holders of such Registrable Securities, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment or supplement thereto;

 

(iv)                              for
a reasonable period prior to the filing of such registration statement, and
throughout the period specified above, make available for inspection by the
parties referred to in Section 6(a)(iii) above such financial and
other information and books and records of the Company, and cause the officers,
directors, employees, counsel and independent certified public accountants of
the Company to respond to such inquiries, as shall be reasonably necessary, in
the judgment of the respective counsel referred to in such Section 6(a)(iii),
to conduct a reasonable investigation within the meaning of the Securities Act;
provided, however, that each such party shall be required to
maintain in confidence and not disclose to any other person or entity any
information or records reasonably designated by the Company in writing as being
confidential, until such time as (a) such information becomes a matter of
public record (whether by virtue of its inclusion in such registration
statement or otherwise), or (b) such party shall be required so to
disclose such information pursuant to the subpoena or order of any court or
other governmental agency or body having jurisdiction over the matter, or (c) such
information is required to be set forth in such registration statement or the
prospectus included therein or in an amendment to such registration 

 

 

statement or an amendment
or supplement to such prospectus in order that such registration statement,
prospectus, amendment or supplement, as the case may be, does not include an
untrue statement of a material fact or omit to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and provided, further, that the Company need not make
such information available, nor need it cause any officer, director or employee
to respond to such inquiry, unless each such Holder of Registrable Securities
to be included in a registration statement hereunder and such counsel, upon the
Company’s request, execute and deliver to the Company an undertaking to
substantially the same effect contained in the preceding proviso;

 

(v)                                 promptly
notify the Holders of Registrable Securities to be included in a registration
statement hereunder, the sales or placement agent, if any, therefor and the
managing underwriter of the securities being sold and confirm such advice in
writing, (A) when such registration statement or the prospectus included
therein or any prospectus amendment or supplement or post-effective amendment
has been filed, and, with respect to such registration statement or any
post-effective amendment, when the same has become effective, (B) of any
comments by the Commission and by the blue sky or securities commissioner or
regulator of any state with respect thereto or any request by the Commission
for amendments or supplements to such registration statement or the prospectus
or for additional information, (C) of the issuance by the Commission of
any stop order suspending the effectiveness of such registration statement or
the initiation of any proceedings for that purpose, (D) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, or (E) if it
shall be the case, at any time when a prospectus is required to be delivered
under the Securities Act, that such registration statement, prospectus, or any
document incorporated by reference, in any of the foregoing contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;

 

(vi)                              use
its best efforts to obtain the withdrawal of any order suspending the effectiveness
of such registration statement or any post-effective amendment thereto at the
earliest practicable date;

 

(vii)                           if
requested by any managing underwriter or underwriter, any placement or sales
agent or any Holder of Registrable Securities to be included in a registration
statement, promptly incorporate in a prospectus, prospectus supplement or
post-effective amendment such information as is required by the applicable rules and
regulations of the Commission and as such managing underwriter or underwriters,
such agent or such Holder may reasonably specify should be included therein
relating to the terms of the sale of the Registrable Securities included
thereunder, including, without limitation, information with respect to the
number of Registrable Securities being sold by such Holder or agent or to such
underwriters, the name and description of such Holder, the offering price of
such Registrable Securities and any discount, commission or other compensation
payable in respect thereof, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such prospectus; prospectus supplement or post-effective amendment
promptly after notification of the matters to be incorporated in such
prospectus, prospectus supplement or post-effective amendment;

 

 

(viii)                        furnish to
each Holder of Registrable Securities to be included in such registration
statement hereunder, each placement or sales agent, if any, therefor, each
underwriter, if any, thereof and the counsel referred to in Section 6(a)(iii) an
executed copy of such registration statement, each such amendment and
supplement thereto (in each case excluding all exhibits and documents
incorporated by reference) and such number of copies of the registration
statement (excluding exhibits thereto and documents incorporated by reference
therein unless specifically so requested by such holder, agent or underwriter,
as the case may be) of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, as such Holder, agent,
if any, and underwriter, if any, may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Holder sold by such
agent or underwritten by such underwriter and to permit such Holder, agent and
underwriter to satisfy the prospectus delivery requirements of the Securities
Act; and the Company hereby consents to the use of such prospectus and any
amendment or supplement thereto by each such Holder and by any such agent and
underwriter, in each case in the form most recently provided to such party by
the Company, in connection with the offering and sale of the Registrable
Securities covered by the prospectus (including such preliminary and summary
prospectus) or any supplement or amendment thereto;

 

(ix)                                use
its best efforts to (A) register or qualify the Registrable Securities to
be included in such registration statement under such other securities laws or
blue sky laws of such jurisdictions to be designated by the Holders of a
majority of such Registrable Securities participating in such registration and
each placement or sales agent, if any, therefor and underwriter, if any,
thereof, as any Holder and each underwriter, if any, of the securities being
sold shall reasonably request, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions for so
long as may be necessary to enable such Holder, agent or underwriter to
complete its distribution of the Registrable Securities pursuant to such
registration statement and (C) take any and all such actions as may be
reasonably necessary or advisable to enable such Holder, agent, if any, and
underwriter to consummate the disposition in such jurisdictions of such
Registrable Securities; provided, however, that the Company shall
not be required for any such purpose to (1) qualify generally to do
business as a foreign company or a broker-dealer in any jurisdiction wherein it
would not otherwise be required to qualify but for the requirements of this Section 6(a)(ix),
or (2) subject itself to taxation in any such jurisdiction;

 

(x)                                   cooperate
with the Holders of the Registrable Securities to be included in a registration
statement hereunder and the managing underwriters to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, which certificates shall be printed, lithographed or engraved, or
produced by any combination of such methods, on steel engraved borders and
which shall not bear any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters may request at least two business days prior to any sale
of the Registrable Securities;

 

(xi)                                provide
a CUSIP number for all Registrable Securities, not later than the effective
date of the registration statement;

 

(xii)                             enter
into one or more underwriting agreements, engagement letters, agency
agreements, “best efforts” underwriting agreements or similar agreements, as
appropriate, 

 

 

and take such other
actions in connection therewith as the Holders of at least a majority of the
Registrable Securities being sold shall reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;

 

(xiii)                          whether
or not an agreement of the type referred to in the preceding subsection is
entered into and whether or not any portion of the offering contemplated by
such registration statement is an underwritten offering or is made though a
placement or sales agent or any other entity, (A) make such
representations and warranties to the Holders of such Registrable Securities
and the placement or sales agent, if any, therefor and the underwriters, if
any, thereof in form, substance and scope as are customarily made in connection
with any offering of equity securities pursuant to any appropriate agreement
and/or to a registration statement filed on the form applicable to such
registration statement; (B) obtain an opinion of counsel to the Company in
customary form and covering such matters, of the type customarily covered by
such an opinion, as the managing underwriters, if any, and as the Holders of at
least a majority of such Registrable Securities may reasonably request,
addressed to such Holders and the placement or sales agent, if any, therefor
and the underwriters, if any, thereof and dated the effective date of such
registration statement (and if such registration statement contemplates an
underwritten offering of a party or of all of the Registrable Securities, dated
the date of the closing under the underwriting agreement relating thereto) (it
being agreed that the matters to be covered by such opinion shall include,
without limitation, the due organization of the Company, and its subsidiaries,
if any; the qualification of the Company, and its subsidiaries, if any, to
transact business as foreign companies; the due authorization, execution and
delivery of this agreement and of any agreement of the typed referred to in Section 6(a)(xii)
hereof; the due authorization, valid issuance, and the fully paid status of the
capital stock of the Company; the absence of pending or, to such counsel’s
knowledge, threatened material legal or governmental proceedings involving the
Company; the absence to the knowledge of such counsel of a breach by the
Company or its subsidiaries of, or a default under, material agreements binding
the Company or any subsidiary; the absence of governmental approvals required
to be obtained in connection with the registration statement, the offering and sale
of the Registrable Securities, this Agreement or any agreement of the type
referred to in Section 6(a)(xii) hereof; the compliance as to form of such
registration statement and any documents incorporated by reference therein with
the requirements of the Securities Act; the effectiveness of such registration
statement under the Securities Act; and, as of the date of the opinion and of
the registration statement or most recent post-effective amendment thereto, as
the case may be, the absence, to the knowledge of such counsel, from such
registration statement and the prospectus included therein, as then amended or
supplemented, and from the documents incorporated by reference therein of an
untrue statement of a material fact or the omission to state therein a material
fact necessary to make the statements therein not misleading (in case of such
documents, in the light of the circumstances existing at the time that such
documents were filed with the Commission under the Exchange Act)); (C) obtain
a “cold” comfort letter or letters from the independent certified public
accountants of the Company addressed to the Holders and the placement or sales
agent,  if any, therefor and the
underwriters, if any, thereof, dated (I) the effective date of such
registration statement and (II) the effective date of any prospectus
supplement to the prospectus included in such registration statement or
post-effective amendment to such registration statement which includes
unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such prospectus
(and, if such registration statement contemplates an underwritten offering
pursuant to any prospectus supplement to the prospectus included in such
registration statement or post-effective amendment to such registration
statement which includes unaudited or audited financial statements as of a date
or for a 

 

 

period subsequent to that
of the latest such statements included in such prospectus, dated the date of
the closing under the underwriting agreement relating thereto), such letter or
letters to be in customary form and covering such matters of the type
customarily covered by letters of such type; (D) deliver such documents
and certificates, including officers’ certificates, as may be customary and
reasonably requested by Holders of at least a majority of the Registrable
Securities being sold and the placement or sales agent, if any, therefor and
the managing underwriters, if any, thereof to evidence the accuracy of the
representations and warranties made pursuant to clause (A) above and the
compliance with or satisfaction of any agreements or conditions contained in
the underwriting agreement or other agreement entered into by the Company; and (E) undertake
such obligations relating to expense reimbursement, indemnification and
contribution as are provided in Articles 5 and 7 hereof;

 

(xiv)                         notify in
writing each Holder of Registrable Securities of any proposal by the Company to
amend or waive any provision of this Agreement and of any amendment or waiver
effected pursuant thereto, each of which notices shall contain the text of the
amendment or waiver proposed or effected, as the case may be;

 

(xv)                            engage
to act on behalf of the Company with respect to the Registrable Securities to
be so registered a registrar and transfer agent having such duties and
responsibilities (including, without limitation, registration of transfers and
maintenance of stock registers) as are customarily discharged by such an agent,
and to enter into such agreements and to offer such indemnities as are
customary in respect thereof;

 

(xvi)                         cause all
such Registrable Securities to be listed on each securities exchange or other
securities trading markets, if any, on which similar securities issued by the
Company are then listed (or if not then listed, on such exchanges or other
securities trading markets requested by the holders of a majority of the
Registrable Securities to be so registered); and

 

(xvii)                      otherwise
use its best efforts to comply with all applicable rules and regulations
of the Commission, and make available to its Holders, as soon as practicable,
but in any event not later than 18 months after the effective date of such
registration statement, an earnings statement covering a period of at least
twelve months which shall satisfy the provisions of Section 6(a) of
the Securities Act (including, at the option of the Company, pursuant to Rule 158
thereunder).

 

(b)                                 In
the event that the Company would be required, pursuant to Section 6(a)(v)(E) above,
to notify the Holders of Registrable Securities included in a registration
statement hereunder, the sales or placement agent, if any, and the managing
underwriters, if any, of the securities being sold, the Company shall promptly
prepare and furnish to each such Holder, to each such agent, if any, and to
each underwriter, if any, a reasonable number of copies of a prospectus
supplement or amendment so that, as thereafter delivered to the purchasers of
Registrable Securities, such prospectus shall not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.  Each
Holder agrees that upon receipt of any notice from the Company pursuant to Section 6(a)(v)(E) hereof,
such Holder shall forthwith discontinue the distribution of Registrable
Securities until such Holder shall have received copies of such amended or
supplemented registration statement or prospectus, and if so directed by the
Company, such 

 

 

Holder shall deliver to
the Company (at the Company’s expense) all copies, other than permanent file
copies, then in such Holder’s possession of the prospectus covering such
Registrable Securities at the time of receipt of such notice.

 

(c)                                  The
Company may require each Holder of Registrable Securities as to which any
registration is being effected to furnish to the Company such information
regarding such Holder and such Holder’s method of distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing but only to the extent that such information is required in order to
comply with the Securities Act.  Each
such Holder agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such Holder to the
Company or of the occurrence of any event in either case as a result of which
any prospectus relating to such registration contains or would contain an
untrue statement of a material fact regarding such Holder or the distribution
of such Registrable Securities or omits to state any material fact regarding
such Holder or the distribution of such Registrable Securities required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and promptly to furnish to the
Company any additional information required to correct and update any
previously furnished information or required so that such prospectus shall not
contain, with respect to such Holder or the distribution of such Registrable
Securities, an untrue statement or a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.

 

ARTICLE 7

INDEMNIFICATION

 

7.1                                 The
Company will indemnify each Holder, each of its officers and directors and
partners, and such Holder’s legal counsel and independent accountants, if any,
and each person controlling any such persons within the meaning of Section 15
of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter within the meaning of Section 15
of the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein, a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
or any state securities laws applicable to the Company and relating to action
or inaction by the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers and directors and partners and such Holder’s legal counsel and
independent accountants, and each person controlling any such persons, each
such underwriter and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any 

 

 

untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by such Holder or
underwriter and expressly intended for use in such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereof.

 

7.2                                 Each
Holder will, if Registrable Securities held by such Holder are included in the securities
as to which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers and its legal counsel
and independent accountants, each underwriter, if any, of the Company’s
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors,
partners, legal counsel and independent accountants, if any, and each person
controlling such Holder within the meaning of Section 15 of the Securities
Act, against all expenses, claims, losses, damages and liabilities (or actions
in respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other document,
or any amendment or supplement thereto, incident to any such registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company,
such Holders, such directors, officers, partners, legal counsel, independent
accountants, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, other document or
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Holder and expressly intended for
use in such registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereof; provided, however,
that the obligations of each Holder hereunder shall be limited to an amount
equal to the proceeds to such Holder of Registrable Securities sold as
contemplated herein.

 

7.3                                 Each
party entitled to indemnification under this Section 7 (the “Indemnified
Party”) shall give notice to the party required to provide indemnification (the
“Indemnifying Party”) promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and shall permit
the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld).  The Indemnified Party may
participate in such defense at such party’s expense; provided, however,
that the Indemnifying Party shall bear the expense of such defense of the
Indemnified Party if representation of both parties by the same counsel would
be inappropriate due to actual or potential conflicts of interest.  The failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, unless such failure is prejudicial to the
ability of the Indemnifying Party to defend the action.  No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or litigation.

 

 

7.4                                 If
the indemnification provided for in Section 7.1 or 7.2 is unavailable or
insufficient to hold harmless an Indemnified Party, then each Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of the expenses, claims, losses, damages or liabilities (or actions
or proceedings in respect thereof) referred to in Section 7.1 or 7.2, in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and such sellers of Registrable Securities on the other hand in
connection with statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses, as well as any other relevant equitable considerations.  The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or such sellers of
Registrable Securities and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.  The Company and the Holders
agree that it would not be just and equitable if contributions pursuant to this
Section 7.4 were to be determined by pro rata allocation (even if all
Sellers of Registrable Securities were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in the first sentence of this Section 7.4.  The amount paid by an Indemnified Party as a
result of the expenses, claims, losses, damages or liabilities (or actions or
proceedings in respect thereof) referred to in the first sentence of this Section 7.4
shall be deemed to include any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any claim,
action or proceeding which is the subject of this Section 7.4. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.  The obligations of sellers of Registrable
Securities to contribute pursuant to this Section 7.4 shall be several in
proportion to the respective amount of Registrable Securities sold by them
pursuant to a registration statement.

 

ARTICLE 8

RULE 144 REPORTING

 

With a view to
making available the benefits of certain rules and regulations of the
Commission which may at any time permit the sale of securities of the Company
to the public without registration, after such time as a public market exists
for the Common Stock of the Company, the Company agrees to:

 

8.1                                 Make
and keep public information available as those terms are understood and defined
in Rule 144 under the Securities Act, at all times after the effective
date of the first registration under the Securities Act filed by the Company
for an offering of its securities to the general public; and

 

8.2                                 Use
its best efforts to then file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements); and

 

 

8.3                                 So
long as a Holder owns any Registrable Securities, furnish to the Holder
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of said Rule 144 (at any time after ninety
(90) days following the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.

 

ARTICLE 9

TRANSFER OF
REGISTRATION RIGHTS

 

The rights to cause the
Company to register Registrable Securities granted Holders under
Articles 2, 3 and 4 hereof may be assigned in connection with any
permitted transfer or assignment of the Holder’s Registrable Securities.  All transferees and assignees of the rights
to cause the Company to register Registrable Securities granted Holders under
Articles 2, 3 and 4 hereof, as a condition to the transfer of such rights,
shall agree in writing to be bound by the agreements set forth herein.

 

ARTICLE 10

LIMITATIONS ON
REGISTRATION RIGHTS

GRANTED TO OTHER
SECURITIES

 

The parties hereto agree
that additional holders may, with the consent of the Company and the Holders of
at least two-thirds (2/3) of the Registrable Securities
then outstanding, be added as parties to this Agreement with respect to any or
all securities of the Company held by them; provided, however,
that from and after the date of this Agreement, the Company shall not without
the prior written consent of the Holders of at least two-thirds (2/3) of the Registrable Securities then outstanding, enter
into any agreement with any holder or prospective holder of any securities of
the Company providing for the grant to such holder of registration rights
superior to, or pari  passu with, those granted herein.  Any additional parties shall execute a
counterpart of this Agreement, and upon execution by such additional parties
and by the Company, shall be considered Holders for purposes of this Agreement,
and shall be added to the Schedule of Registration Rights Holders.

 

ARTICLE 11

MISCELLANEOUS

 

11.1                           GOVERNING
LAW.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

 

11.2                           Successors
and Assigns.  Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.

 

11.3                           Entire
Agreement.  This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subject matter hereof.

 

11.4                           Notices.
All notices, requests, consents, and other communications hereunder shall be in
writing and shall be deemed effectively given and received upon delivery in
person, or upon receipt after delivery by national overnight courier service or
by telecopier transmission with acknowledgment of transmission receipt, or
three business days after deposit via certified or registered mail, return
receipt requested, in each case addressed as follows:

 

	
  if to the Company:

  
	
   

  
	
  Metastorm Inc.

  
	
  8825 Stanford Boulevard

  
	
  Suite 200

  
	
  Columbia, MD 20145-4757

  
	
  Attention: Robert J.
  Farrell

  
	
  Telecopier: (410)
  290-1172

  
	
   

  
	
  with a copy to:

  
	
   

  
	
  Venable LLP

  
	
  Two Hopkins Plaza,
  Suite 1800

  
	
  Baltimore, MD 21201

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

  
	
  Telecopier: (410)
  244-7742

  
	
   

  
	
  if to any Holder:

  

 

The address
reflected on the records of the Company or, in any such case, at such other
address or address as shall have been furnished in writing by such party to the
others.

 

11.5                           Severability.  In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.

 

11.6                           Titles
and Subtitles.  The titles of the
sections and subsections of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.

 

11.7                           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
constitute one instrument.

 

11.8                           Waivers
and Amendments.  With the written
consent of the Company and the Holders holding at least two-thirds (2/3) of the Registrable Securities held by all the Holders,
the obligations 

 

 

and rights of the Company
and the Holders under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely) or amended; provided, however,
that no such waiver or amendment shall reduce the aforesaid number of shares
the Holders of which are required to consent to any waiver or amendment,
without the consent of all the Holders. 
Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to any Holders who have not
previously consented thereto in writing. 
Notwithstanding the foregoing, any party hereto may waive any of its
rights hereunder by a statement in writing signed by such party.  Such waiver shall only be effective with
respect to the rights specifically set forth in such writing and shall not
waive, amend or prejudice any other rights the party may have hereunder.

 

11.9                           Termination.                             The
right of any Holder under this Agreement to request registration or inclusion
in any registration shall not be exercisable by a Holder at such time when (i) after
the closing of the Initial Public Offering of the Common Stock of the Company,
all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold without limitation pursuant
to Rule 144(k) under the Securities Act and (ii) the Company’s
Common Stock is traded on a national exchange or the Nasdaq National
Market.  The termination provision set
forth in clause (ii) of this Section 11.9 shall only apply to Holders
who hold less than 5% of the capital stock (on a fully-diluted basis) of the
Company.

 

11.10                     Lock-Up
Agreement.                                 Each
Holder agrees, in connection with the Company’s Initial Public Offering of the
Company’s securities, upon request of the underwriters managing any
underwritten offering of the Company’s securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of
any Registrable Securities (other than those included in the registration)
without the prior written consent of such underwriters, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the underwriters; provided, however, that the officers and
directors of the Company who own stock of the Company, together with all
holders of one percent (1%) or more of the Company’s outstanding stock, also
agree to such restrictions. 
Notwithstanding the foregoing, Holders shall only be bound to the
provisions of this Section 11.10 if the underwriters agree that any early
release from any lock-up agreement for any person in connection with a public
offering shall be pro rata among such person and the Holders.

 

[signatures on next page]

 

 

Exhibit A

Schedule
of Registration Rights Holders

 

Prior Preferred Holders

 

Sandler Internet Partners, L.P.

Sandler Capital Partners IV, L.P.

Sandler Capital Partners IV FTE, L.P.

Sandler Co-Investment Partners, L.P.

Axiom
Venture Partners II, LP

J.
Allen Dougherty, Trustee FBO Peter Wetherill

Pennstone,
LLC

Riggs
Capital Partners, LLC

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

Gail
Dougherty

Mark
T. Cannon

Nancy
Walker

Paul
E. Ambrose and Paula J. Ambrose

Michael
Savage

David
R. Schaeffer

Stephen
Todd Walker

Mark
O’Neill

Wall
Street Technology Partners LP

Ironside
Ventures, L.P.

Ironside
Venture Partners II, LLC

UBS
Capital Americas II, LLC

Mayflower L.P. (formerly 3i Group, PLC)

M&M
Capital Partners

Eric
Luftig

Walter
A. Maul, Jr.

Melissa
B. Eisenstat

 

Original Stockholders

 

Mayflower L.P. (formerly 3i Group, PLC)

V-Sys,
Ltd

Avi
Hoffer

Stephen
Miles Brown

Michael
Philip Vieyra

Bharat
Patel

Stuart
Frost

Mark
O’Hare

Bruce
Grisewood

Michael
Jackson

Brian
McPhee

Jonathan
Summers

 

 

Exhibit A (Cont’d)

Schedule
of Registration Rights Holders

 

Original
Series AA Investors

 

Mayflower L.P. (formerly 3i Group, PLC)

UBS Capital Americas II, LLC

Sandler Capital Partners IV, L.P.

Sandler Capital Partners IV FTE, L.P.

Sandler Technology Partners Subsidiary, LLC

Sandler Co-Investment Partners, L.P.

Wall Street Technology Partners LP

Ironside Ventures, L.P.

Riggs
Capital Partners II, LLC

Axiom Venture Partners II, LP

 

New
Series AA Investors

 

CommerceQuest, Inc.

CommerceQuest
UK Limited

 

Series BB
Investors

 

ICG
Holdings, Inc.

Mayflower
L.P.

Wall
Street Technology Partners LP

 

 

EXHIBIT E

 

Form of
Opinion of Venable LLP

 

See
Attached

 

 

September 30,
2005

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated September 30,
2005

 

Re:                             Metastorm
Inc.

 

Ladies and Gentlemen:

 

We
have acted as counsel to Metastorm Inc., a Maryland corporation (the “Company”),
in connection with the transactions contemplated by the Stock Purchase
Agreement, dated as of September 30, 2005 (the “Stock Purchase Agreement”),
by and among the Company and you (the “Purchasers”).  Capitalized terms used herein, and not
otherwise defined herein, shall have the respective meanings ascribed to such
terms in the Stock Purchase Agreement.

 

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

 

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

 

(i)                                     fully
executed copies of (a) the Stock Purchase Agreement, (b) the Third
Amended and Restated Registration Rights Agreement dated as of September 30,
2005, by and among the Company, the Purchasers and certain holders of the
Company’s Series AA Convertible Preferred Stock, $0.01 par value per share
(the “Series AA Preferred Stock”) listed on Exhibit A thereto
(the “Registration Rights Agreement”), and (c) the Fourth Amended and
Restated Stockholders Agreement dated as of September 30, 2005, by and
among the Company, the Purchasers, the holders of the Company’s Series AA
Preferred Stock listed on Schedule A thereto (the “Stockholders
Agreement” and, together with the Stock Purchase Agreement and the Registration
Rights Agreement, the “Principal Agreements”);

 

(ii)                                  the
Fifth Articles of Amendment and Restatement of the Company (the “Restated
Articles”), filed with the Maryland State Department of Assessments and
Taxation (the “SDAT”) on September 30, 2005, and a copy of the Bylaws of
the Company (the “Bylaws”), as certified by the Secretary of the Company as
being complete, accurate and in effect;

 

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated September 30,
2005

 

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

 

(iv)                              a
certificate of the SDAT dated September 27, 2005 with respect to the
existence and good standing of the Company as of such date;

 

(v)                                 a
certificate dated September 30, 2005 from the Secretary of the Company (a
copy of which is delivered herewith) certifying that the records of the
proceedings and actions of the stockholders and the Board of Directors of the
Company attached thereto constitute a true and complete copy of all of the
records of the proceedings and actions of the stockholders and the Board of
Directors related to the transactions contemplated by the Principal Agreements;
and

 

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

 

In
basing the opinions and other matters set forth herein on “our knowledge,” the
words “our knowledge” signify that, in the course of our representation of the
Company in matters with respect to which we have been engaged by the Company as
counsel, no information has come to our attention that would give us actual
knowledge or actual notice that any such opinions or other matters are not
accurate or that any of the foregoing documents, certificates, reports, and
information identified in Paragraphs (i) through (vi) above on which
we have relied are not accurate and complete. 
Except as otherwise stated herein, we have undertaken no independent
investigation or verification of such matters. 
The phrase “our knowledge” and similar language used herein are intended
to be limited to the knowledge of the lawyers within 

 

2

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated September 30,
2005

 

our
firm who have worked on matters on behalf of the Company.  While we have represented the Company in
matters involving the Principal Agreements, we do not represent the Company as
to all its matters requiring legal services and did not represent the Company
in connection with general corporate matters prior to May 1999 and may
therefore be unaware of certain facts.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated September 30,
2005

 

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

 

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

 

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

 

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

 

6.                                       Based
solely upon our  review of the Restated
Articles and the Bylaws of the Company, the corporate minute books and the
corporate stock ledger of the Company in the form certified to us by the
Company as being true and complete, and the Officer’s Certificate, upon filing
the Restated Articles with the SDAT and immediately after the Closing, (i) the
authorized capital stock of the Company consists of 55,179,000 shares of Common
Stock, $0.01 par value per share and 46,800,000 shares of preferred stock,
$0.01 par value per share, of which 40,000,000 shares have been designated Series AA
Preferred Stock and 6,800,000 shares
have been designated Series BB Preferred Stock (collectively, the “Authorized
Stock”); (ii) there are currently no shares of Common Stock,
37,156,965.65 shares of Series AA Preferred Stock and 3,608,232.54 shares
of Series BB Preferred Stock which are issued and outstanding as of the
date hereof; (iii) no shares of stock are held in treasury; and (iv) except
(x) for the warrants to purchase an aggregate of
                    
shares of Common Stock and (y) for the outstanding warrants to purchase an
aggregate of
                    
shares of Series BB Preferred Stock (each of such warrants being set forth
on Section 2.2 of the Disclosure Schedule to the Stock Purchase 

 

4

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated September 30,
2005

 

Agreement)
and (z) as set forth in the Restated Articles, there are no outstanding
options, conversion rights, warrants or other rights in existence to acquire
any Authorized Stock.

 

7.                                       The
Series BB Preferred Stock issued to the Purchasers, when issued in
compliance with the provisions of the Stock Purchase Agreement, will be validly
issued, fully paid and nonassessable.

 

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

 

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

 

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

 

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

 

5

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated September 30,
2005

 

securities laws filings pursuant to Regulation D
promulgated under the Securities Act and except as set forth in the disclosure
schedules to  the Principal Agreements.

 

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

 

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

 

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

 

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

 

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

 

6

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated September 30,
2005

 

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

 

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

 

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

 

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

 

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

 

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

 

Very truly yours,

 

 

7

 

EXHIBIT F

 

Form of
Management Letter

 

See
Attached

 

 

ICG Holdings, Inc.

Pencader Corporate Center

100 Lake Drive, Suite 4

Newark, DE 19702

 

October 5, 2005

 

Metastorm, Inc.

8825 Stanford Boulevard

Suite 200

Columbia, Maryland 21045

Attention:  Robert Farrell

 

Re:  Information Rights and Sarbanes Oxley
Compliance

 

Dear Bob:

 

Reference is made to the Stock Purchase Agreement
(the “Purchase Agreement”), dated as of the date hereof, by and among
Metastorm Inc., a Maryland corporation (the “Company”), ICG Holdings, Inc.,
a Delaware corporation (“ICG”) and the other purchasers named in
Schedule 1 thereto.  ICG is a wholly
owned subsidiary of Internet Capital Group, Inc. (“ICGE”).  This letter agreement is entered into in
order to induce ICG to enter into the Purchase Agreement.  “Securities” means securities ICG owns or may
hereafter acquire (directly or indirectly) in the Company

 

I.                                        In connection with ICG’s ownership of Securities,
ICG will require the Company, at the Company’s expense, to deliver the following
to ICG or its designee:

 

(1)                                  for
the fiscal year immediately preceding ICG’s acquisition of the Company’s
Securities, historical audited annual consolidated financial statements;

 

(2)                                  as
soon as practicable after the end of each fiscal year, and in any event within
thirty (30) days thereafter, consolidated balance sheets of the Company and its
subsidiaries, as of the end of such fiscal year, and consolidated statements of
income, stockholders’ equity and cash flows of the Company and its
subsidiaries, for such year, and a comparison between the actual figures for
such year, the comparable figures for the prior year and the comparable figures
included in the Budget (as defined below) for such year, with an explanation of
any material differences between the actual figures versus prior year and
versus Budget, such year-end financial reports to be in reasonable detail, all
prepared in accordance with generally accepted accounting principles (and in
accordance with the rules and regulations of the SEC set forth in
Regulation S-X promulgated under the Securities and Exchange Act (“Regulation
S-X”)).  These financial

 

 

statements shall
be audited and certified by independent public accountants of nationally
recognized standing which shall be the same auditor as is used by ICGE for so
long as (i) ICGE consolidates the financial statements of the Company or (ii) ICG’s
equity ownership in the Company is material to ICGE for financial reporting
purposes (which ICGE acknowledges is currently not the case).  The Company shall deliver to ICGE such
audited financial statements as soon as practicable after the end of each
fiscal year, and in any event, for the fiscal year ended December 31, 2005
by June 15, 2006 and for subsequent fiscal years within sixty (60) days
after the end of each fiscal year.  In
2006, the Company shall obtain a quote from Ernst & Young, or another
public accountant reasonably acceptable to ICGE (the “Specified Accountant”),
to perform the audit of the Company’s 2006 financial statements according to
the same timeline as the 2005 audit (the “Initial Quote”).  The Company shall thereafter obtain a quote
from the Specified Accountant to perform the audit of the Company’s 2006
financial statements by March 1, 2007 (the “Second Quote”).  ICG shall reimburse the Company for the
amount by which the Second Quote exceeds the Initial Quote.  Notwithstanding the foregoing, in lieu of
providing such reimbursement, ICG may require the Company to engage ICGE’s
public accountant for its audit and reimburse the Company for difference
between the Initial Quote and the cost of using ICGE’s public accountant for
the audit.  After 2007, ICG will
reimburse the Company for the incremental cost associated with the acceleration
of audits provided that the Company follows a similar process with respect to
obtaining quotations.

 

(3)                                  as
soon as practicable after the end of each month and fiscal quarter, and in any
event within fifteen (15) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, as of the end of each such period, consolidated
statements of income, stockholders’ equity and cash flows of the Company and
its subsidiaries for such period and for the current fiscal year to date and a
comparison (prepared for quarterly information only) between the actual figures
for such period and year to date, the comparable figures for the prior year’s
period and year to date and the comparable figures included in the Budget (as
defined below) for such period and year to date, with an explanation of any material
differences between the actual figures versus prior year and versus Budget,
prepared in accordance with generally accepted accounting principles (other
than for accompanying notes) (and with the rules and regulations of
Regulation S-X), subject to changes resulting from year-end audit adjustments,
all in reasonable detail and signed by the principal financial or accounting
officer of the Company;

 

(4)                                  as
soon as practicable, but in any event with fifteen (15) days after the end of
each quarter of each fiscal year of the Company, a statement showing the number
of shares of each class and series of capital stock and securities convertible
into or exercisable for shares of capital stock outstanding at the end of the
period, the number of common shares issuable upon conversion or exercise of any
outstanding securities convertible or exercisable for common shares and the
exchange ratio or exercise price applicable thereto and number of shares of
issued stock options and stock options not yet issued but reserved for
issuance, if any, all in sufficient detail as to permit ICG to calculate its
percentage equity ownership in the Company and the Subsidiary and certified by
the Chief Financial Officer or Chief Executive Officer of the Company as being
true, complete and correct;

 

 

(5)                                  as
soon as practicable, but in any event no later than fifteen (15) days prior to
the end of each fiscal year, a projected operating budget and business plan for
the next fiscal year (collectively, the “Budget”), prepared on a monthly
basis, consolidated balance sheets of the Company and its subsidiaries and
consolidated statements of income, stockholders’ equity and cash flows of the
Company and its subsidiaries, and, as soon as prepared, any other budgets or
revised budgets prepared by the Company;

 

(6)                                  as
soon as practicable, such other information, consents and financial data
relating to the financial condition, business, prospects or corporate affairs
of the Company as ICG may from time to time reasonably request;

 

(7)                                  notices
describing in reasonable detail any claim, action, suit, proceeding,
arbitration, complaint, charge or investigation pending or to the knowledge of
the Company threatened against the Company or any officer or director of the
Company involving the Company or any default or breach by any party under any
agreement of the Company as soon as practicable, but in any event within five (5) days
after the Company becomes aware of such litigation or contract default.

 

(8)                                  So
long as ICG beneficially owns any of the Securities, in the event the Company
proposes to change its fiscal year end, ICG must approve such change and if
approved the Company agrees to give ICG at least 90 days prior notice of such
proposed change and to cooperate with ICG to make reasonable changes to the
above timing requirements in order to provide ICG sufficient time to prepare
its financials and to comply with its reporting requirements under applicable
federal or state laws or regulations.

 

(9)                                  In
event of any amendments to any applicable federal or state laws or regulations
or the rules of NASDAQ in effect on the date hereof, the Company agrees to
cooperate with ICGE, at ICGE’s expense to make reasonable changes to the above
timing requirements in order to provide ICGE sufficient time to prepare its
financials and to comply with such laws, regulations or rules.

 

(10)                            The
Company shall permit ICG or its designee, at ICG’s or its designee’s expense,
to visit and inspect the Company’s properties, to examine its books of account
and records and to discuss the Company’s affairs, finances and accounts with
its officers, all at such reasonable times as may be reasonably requested by
ICG or its designee.

 

II.                                    ICGE
is currently not required to consolidate the Company’s financial statements.

 

So long as ICGE beneficially owns any of the
Securities, the Company will provide ICG or its designee with such assistance
and cooperation, as ICG or its designee may, from time to time, reasonably
request in making any governmental filings or obtaining any governmental
approvals in connection with ICGE’s ownership of Securities, including but not
limited to the following:

 

(1)                                  The
Company hereby agrees to grant ICGE the right to disclose the Company’s
financial information to third parties, including public disclosure.

 

 

(2)                                  In
the event that ICGE is required to consolidate the Company’s financial
statements, (i) with respect to periods for which such consolidation is
required, the Company agrees to deliver and prepare its financial statements in
accordance with U.S. GAAP (and in accordance with the rules and
regulations of Regulation S-X) and will deliver such financial statements to
ICGE within 15 days of the end of each quarter and (ii) the Company will
comply in all material respects with Section 404 of the Sarbanes Oxley Act
of 2002, as amended (the “Sarbanes Act”) and provide to ICGE with each
submission of financial statements, a certificate executed by the chief
financial officer of the Company disclosing the information required by Items
307 and 308 of Regulation S-K promulgated under the Securities and Exchange
Act.

 

(3)                                  If
the Company is required to comply in all material respects with Section 404
of the Sarbanes Act, ICGE will bear the Company’s cost of evaluating compliance
including but not limited to (i) ICGE’s management report on ICGE’s
internal control over financial reporting as it relates to the Company; (ii) ICGE’s
independent registered public accountant’s audit of ICGE’s internal control
over financial reporting as it relates to the Company and (iii) the
development and implementation of a code of ethics and whistleblower policy
substantially in the form of such policies adopted by ICGE and satisfactory to
ICGE.  The Company hereby agrees to
provide necessary assistance in completing these items.

 

(4)                                  To
the extent ICGE or an officer or director of ICGE is required by any applicable
federal or state law or regulation or the rules of NASDAQ, to certify as
to its regulatory filings, financial statements or internal controls and
procedures, the Company, if requested by ICG or its designee, agrees to cause
the appropriate officers of the Company to provide to ICGE a certification (in
substantially the same form as required to be delivered by ICGE or an officer
or director of ICGE with respect to ICGE’s regulatory filings, financial
statements and internal controls and procedures) with respect to the Company’s
financial statements and internal controls and procedures.  The Company acknowledges that ICGE, its
officers and its directors, as applicable, will rely on the certifications of
the Company’s officers when ICGE, its officers or its directors certify as to
ICGE’s regulatory filings, financial statements or internal controls and
procedures.

 

(5)                                  The
Company hereby agrees to furnish ICG or its designee with such information and
consents regarding the Company as ICG or its designee requires in order for
ICGE to fulfill its obligations as an accelerated filer with the Securities and
Exchange Commission and under all applicable laws and regulations, including,
without limitation, federal securities laws, the Sarbanes Act, NASDAQ
requirements and anti-trust laws, and the Company shall cooperate with ICG or
its designee with respect to fulfilling ICGE’s reasonable requests for
information.

 

III.                                In
the course of its business, ICG has in the past entered into agreements with
lenders under which ICG would be required to (i) make a pledge of the
Securities and (ii) collaterally assign ICG’s rights under the agreements
between ICG and the Company, either to the lenders themselves, or to agents of
the lenders for the benefit of such lenders. 
ICG may enter into similar agreements with the same or other lenders in 

 

 

the future, each of which will likely require such a
pledge of the Securities and assignment of rights.  In order to facilitate this process, please
evidence the Company’s (1) consent to ICG’s pledge of the Securities to
its current and future lenders and/or their agents; and (2) consent to the
collateral assignment to such lenders or their agents of any rights relating to
registration, first refusal, co-sale, tag-along, drag-along or similar rights
that may have been granted to ICG under the agreements between ICG and the
Company (the foregoing matters referred to in clauses 1 and 2 are hereinafter
referred to collectively as the “Company Consent”).

 

Please be advised, however, that the Company Consent
is subject to the obligations of the lenders or their agents, as applicable, to
comply with and be bound by the requirements, restrictions, and limitations set
forth in the agreements between ICG and the Company to the same extent ICG is
so bound in the event that such agents and/or lenders foreclose upon or dispose
of the Securities pledged as collateral under their related credit or loan
agreements with ICG; provided, however, that in no event shall any agent or
lender be obligated under the agreements between ICG and the Company or
otherwise to provide any additional financing for or make any additional
investments thereunder.

 

Thank you for your cooperation in these matters.  Please sign where indicated below.

 

 

Very truly yours,

 

	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
  AGREED TO and ACKNOWLEDGED BY:

  	
   

  
	
   

  	
   

  
	
  METASTORM, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
  Date:   October 5,2005

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