Exhibit 10.18

 

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 8th day of June, 2004 by
and among Primal Solutions, Inc., a Delaware corporation (the “Company”), and
the Investors set forth on the signature pages affixed hereto (each, an
“Investor” and, collectively, the “Investors”).

 

Recitals

 

A.                                   The Company and the Investors are executing
and delivering this Agreement in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D (“Regulation D”), as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended; and

 

B.                                     The Investors wish to purchase from the
Company, and the Company wishes to sell and issue to the Investors, upon the
terms and conditions stated in this Agreement, (i) an aggregate of 13,739,129
shares of the Company’s Common Stock, par value $0.01 per share (together with
any securities into which such shares may be reclassified the “Common Stock”),
and (ii) warrants to purchase an aggregate of 6,869,565 shares of Common Stock
in the form attached hereto as Exhibit A (the “Warrants”); and

 

C.                                     Contemporaneous with the sale of the
Common Stock and Warrants, the parties hereto will execute and deliver a
Registration Rights Agreement, in the form attached hereto as Exhibit B (the
“Registration Rights Agreement”), pursuant to which the Company will agree to
provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and applicable
state securities laws.

 

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.                                       Definitions.   In addition to those
terms defined above and elsewhere in this Agreement, for the purposes of this
Agreement, the following terms shall have the meanings set forth below:

 

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock,

 

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including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

“Company’s Knowledge” means the actual knowledge of the executive officers (as
the term “executive officer” is defined in Rule 405 under the 1933 Act) of the
Company, after due inquiry.

 

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

 

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).

 

“Material Adverse Effect” means a material adverse effect on (i) the assets,
results of operations, condition (financial or otherwise), business, or
prospects of the Company and its Subsidiaries taken as a whole, or (ii) the
ability of the Company to perform its obligations under the Transaction
Documents.

 

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“Purchase Price” means Three Million One Hundred and Sixty Thousand Dollars
($3,160,000), in United States of America dollars and in immediately available
funds.

 

“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.

 

“Required Investors” means (i) the SSF Investors and (ii) the other Investors
agreeing hereunder to purchase a majority of the Shares and Warrants.

 

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“SEC Filings” has the meaning set forth in Section 4.6.

 

“Securities” means the Shares, the Warrants and the Warrant Shares.

 

“Shares” means the shares of Common Stock being purchased by the Investors
hereunder.

 

“SSF Investors” means Special Situations Private Equity Fund, L.P., Special
Situations Technology Fund, L.P., Special Situations Technology Fund II, L.P.

 

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

 

“Transaction Documents” means this Agreement, the Warrants and the Registration
Rights Agreement.

 

“Warrant Shares” means the shares of Common Stock issuable upon the exercise of
the Warrants.

 

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

 

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

 

2.                                       Purchase and Sale of the Shares and
Warrants.  Subject to the terms and conditions of this Agreement, on the Closing
Date, each of the Investors shall severally, and not jointly, purchase, and the
Company shall sell and issue to the Investors, the Shares and Warrants in the
respective amounts set forth opposite the Investors’ names on the signature
pages attached hereto in exchange for the Purchase Price as specified in
Section 3 below.

 

3.                                       Closing.  Upon confirmation that the
other conditions to closing specified herein have been satisfied or duly waived
by the Investors, the Company shall deliver to Lowenstein Sandler PC, in trust,
a certificate or certificates, registered in the name of each Investor (or such
Investor’s nominee), representing the Shares and Warrants, with instructions
that such certificates are to be held for release to the Investors only upon
receipt by the Company of the Purchase Price by all the Investors.  Upon such
receipt by Lowenstein Sandler PC of the certificates, each Investor shall
promptly, but no more than one Business Day thereafter, cause a wire transfer in
same day funds to be sent to the account of the Company as instructed in writing
by the Company, in an amount representing such Investor’s pro rata portion of
the Purchase Price as set forth on the signature pages to this Agreement.  On
the date (the “Closing Date”) the Company receives the Purchase Price, the
certificates evidencing the Shares and Warrants shall be released to the
Investors (the “Closing”).  The Closing of the purchase and sale of the Shares

 

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and Warrants shall take place at the offices of Lowenstein Sandler PC, 1330
Avenue of the Americas, 21st Floor, New York, New York, or at such other
location and on such other date as the Company and the Investors shall mutually
agree.  Upon request, Lowenstein Sandler will advise the Company and its counsel
of its receipt of such certificates.

 

4.                                       Representations and Warranties of the
Company.  The Company hereby represents and warrants to the Investors that,
except as set forth in the schedules delivered herewith (collectively, the
“Disclosure Schedules”):

 

4. 1                              Organization, Good Standing and
Qualification.  Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and to own its properties. 
Each of the Company and its Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property makes such
qualification or leasing necessary, unless the failure to so qualify has not and
could not reasonably be expected to have a Material Adverse Effect.  The
Company’s sole Subsidiary is Wireless Billing Systems, a California corporation
and wholly-owned Subsidiary of the Company.

 

4.2                                 Authorization.  The Company has full power
and authority and has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of the Transaction Documents, (ii) authorization of the
performance of all obligations of the Company hereunder or thereunder, and (iii)
the authorization, issuance and delivery of the Shares and the Warrants and the
reservation for issuance of the Warrant Shares.  When delivered in accordance
with the terms hereof, the Transaction Documents will constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.

 

4.3                                 Capitalization.  Schedule 4.3 sets forth (a)
the authorized capital stock of the Company on the date hereof; (b) the number
of shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company’s stock plans; and (d) the number
of shares of capital stock issuable and reserved for issuance pursuant to
securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock of the
Company.  All of the issued and outstanding shares of the Company’s capital
stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of pre-emptive rights and to the Company’s Knowledge were
issued in full compliance with applicable state and federal securities law and
any rights of third parties, except for the failure to file requisite securities
notice filings with applicable state and federal securities agencies.  Except as
described on Schedule 4.3, all of the issued and outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights, and to the Company’s
Knowledge were issued in full compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien,

 

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encumbrance or other adverse claim.  Except as described on Schedule 4.3, no
Person is entitled to pre-emptive or similar statutory or contractual rights
with respect to any securities of the Company.  Except as described on
Schedule 4.3, there are no outstanding warrants, options, convertible securities
or other rights, agreements or arrangements of any character under which the
Company or any of its Subsidiaries is or may be obligated to issue any equity
securities of any kind and except as contemplated by this Agreement, neither the
Company nor any of its Subsidiaries is currently in negotiations for the
issuance of any equity securities of any kind.  Except as described on
Schedule 4.3 and except for the Registration Rights Agreement, there are no
voting agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company and any of the
securityholders of the Company relating to the securities of the Company held by
them.  Except as described on Schedule 4.3 and except as provided in the
Registration Rights Agreement, no Person has the right to require the Company to
register any securities of the Company under the 1933 Act, whether on a demand
basis or in connection with the registration of securities of the Company for
its own account or for the account of any other Person.

 

Except as described on Schedule 4.3, the issuance and sale of the Securities
hereunder will not obligate the Company to issue shares of Common Stock or other
securities to any other Person (other than the Investors) and will not result in
the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.

 

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.

 

4.4                                 Valid Issuance.  The Shares have been duly
and validly authorized and, when issued and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable, and free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws.  The Warrants have been duly and validly
authorized.  Upon the due exercise of the Warrants (including the full payment
to the Company of the applicable exercise price), the Warrant Shares will be
validly issued, fully paid and non-assessable free and clear of all encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws and except for
those created by the Investors.  The Company has reserved a sufficient number of
shares of Common Stock for issuance upon the exercise of the Warrants.

 

4.5                                 Consents.  The execution, delivery and
performance by the Company of the Transaction Documents and the offer, issuance
and sale of the Securities require no consent of, action by or in respect of, or
filing with, any Person, governmental body, agency, or official other than
filings that have been or will be made pursuant to applicable state securities
laws and post-sale filings pursuant to applicable state and federal securities
laws which the Company undertakes to file within the applicable time periods. 
Subject to the accuracy of the representations and warranties of each Investor
set forth in Section 5 hereof, the Company has taken all action necessary to
exempt (i) the issuance and sale of the Securities, (ii) the issuance of

 

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the Warrant Shares upon due exercise of the Warrants, and (iii) the other
transactions contemplated by the Transaction Documents from the provisions of
any shareholder rights plan or other “poison pill” arrangement, any
anti-takeover, business combination or control share law or statute binding on
the Company or to which the Company or any of its assets and properties may be
subject and any provision of the Company’s Certificate of Incorporation or
By-laws that is or could reasonably be expected to become applicable to the
Investors as a result of the transactions contemplated hereby, including without
limitation, the issuance of the Securities and the ownership, disposition or
voting of the Securities by the Investors or the exercise of any right granted
to the Investors pursuant to this Agreement or the other Transaction Documents.

 

4.6                                 Delivery of SEC Filings; Business.  The
Company has made available to the Investors through the EDGAR system, true and
complete copies of the Company’s most recent Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2003 (the “10-KSB”), and all other reports
filed by the Company pursuant to the 1934 Act since the filing of the 10-KSB and
prior to the date hereof (collectively, the “SEC Filings”).  The SEC Filings are
the only filings required of the Company pursuant to the 1934 Act for such
period.  The Company and its Subsidiaries are engaged in all material respects
only in the business described in the SEC Filings and the SEC Filings contain a
complete and accurate description in all material respects of the business of
the Company and its Subsidiaries, taken as a whole.

 

4.7                                 Use of Proceeds.  The net proceeds of the
sale of the Shares and the Warrants hereunder shall be used by the Company for
working capital and general corporate purposes.

 

4.8                                 No Material Adverse Change.  Since
December 31, 2003, except as identified and described in the SEC Filings or as
described on Schedule 4.8, there has not been:

 

(i)                                     any change in the consolidated assets,
liabilities, financial condition or operating results of the Company from that
reflected in the financial statements included in the 10-KSB, except for changes
in the ordinary course of business which have not and could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;

 

(ii)                                  any declaration or payment of any
dividend, or any authorization or payment of any distribution, on any of the
capital stock of the Company, or any redemption or repurchase of any securities
of the Company;

 

(iii)                               any material damage, destruction or loss,
whether or not covered by insurance to any assets or properties of the Company
or its Subsidiaries;

 

(iv)                              any waiver, not in the ordinary course of
business, by the Company or any Subsidiary of a material right or of a material
debt owed to it;

 

(v)                                 any satisfaction or discharge of any lien,
claim or encumbrance or payment of any material obligation by the Company or a
Subsidiary, except in the ordinary course of business and which is not material
to the assets, properties, financial condition,

 

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operating results or business of the Company and its Subsidiaries taken as a
whole (as such business is presently conducted and as it is proposed to be
conducted);

 

(vi)                              any change or amendment to the Company’s
Certificate of Incorporation or by-laws, or material change to any material
contract or arrangement by which the Company or any Subsidiary is bound or to
which any of their respective assets or properties is subject;

 

(vii)                           any material labor difficulties or labor union
organizing activities with respect to employees of the Company or any
Subsidiary;

 

(viii)                        any material transaction entered into by the
Company or a Subsidiary other than in the ordinary course of business;

 

(ix)                                the loss of the services of any key
employee, or material change in the composition or duties of the senior
management of the Company or any Subsidiary;

 

(x)                                   the loss or threatened loss of any
customer which has had or could reasonably be expected to have a Material
Adverse Effect; or

 

(xi)                                to the Company’s Knowledge, any other event
or condition of any character that has had or could reasonably be expected to
have a Material Adverse Effect.

 

4.9                                 SEC Filings.  At the time of filing thereof,
the SEC Filings complied as to form in all material respects with the
requirements of the 1934 Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.

 

4.10                           No Conflict, Breach, Violation or Default.  The
execution, delivery and performance of the Transaction Documents by the Company
and the issuance and sale of the Securities will not conflict with or result in
a breach or violation of any of the terms and provisions of, or constitute a
default under (i) the Company’s Certificate of Incorporation or the Company’s
Bylaws, both as in effect on the date hereof (true and complete copies of which
have been made available to the Investors through the EDGAR system), or (ii)(a)
to the Company’s knowledge, any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company, any Subsidiary or any of their respective assets
or properties, or (b) any agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or a Subsidiary is bound or to
which any of their respective assets or properties is subject.

 

4.11                           Tax Matters.  The Company and each Subsidiary has
timely prepared and filed all tax returns required to have been filed by the
Company or such Subsidiary with all appropriate governmental agencies and timely
paid all taxes shown thereon or otherwise owed by it.  The charges, accruals and
reserves on the books of the Company in respect of taxes for all fiscal periods
are adequate in all material respects, and there are no material unpaid
assessments

 

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against the Company or any Subsidiary nor, to the Company’s Knowledge, any basis
for the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole.  All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due.  There are no tax liens or claims pending or, to the Company’s
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property.  Except as described on Schedule 4.11, there are
no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity.

 

4.12                           Title to Properties.  Except as disclosed in the
SEC Filings or as described on Schedule 4.12, the Company and each Subsidiary
has good and marketable title to all real properties and all other material
properties and assets owned by it, in each case free from liens, encumbrances
and defects that would materially affect the value thereof or materially
interfere with the use made or currently planned to be made thereof by them; and
except as disclosed in the SEC Filings, the Company and each Subsidiary holds
any leased material real or personal property under valid and enforceable leases
with no exceptions that would materially interfere with the use made or
currently planned to be made thereof by them.

 

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

 

4.14                           No Labor Disputes.  No material labor dispute
with the employees of the Company or any Subsidiary exists or, to the Company’s
Knowledge, is imminent.

 

4.15                           Intellectual Property.  The Company and the
Subsidiaries have, or have rights to use, all Intellectual Property that is
necessary or material for use in connection with their respective business as
described in the SEC Filings.  Neither the Company nor any Subsidiary has
received a written, or to the Company’s Knowledge oral, notice that the
Intellectual Property used by the Company or any Subsidiary violates or
infringes upon the rights of any Person where such infringement has had, or
would reasonable be expected to have, a Material Adverse Effect, individually or
in the aggregate.  Except as described in the SEC Filings, to the Company’s
Knowledge, all such Intellectual Property is enforceable and there is no
existing infringement by another Person of such Intellectual Property.

 

4.16                           Environmental Matters.  Neither the Company nor
any Subsidiary (i) is in violation of any statute, rule, regulation, decision or
order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic

 

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substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “Environmental
Laws”), (ii) owns or operates any real property contaminated with any substance
that is subject to any Environmental Laws, (iii) is liable for any off-site
disposal or contamination pursuant to any Environmental Laws, and (iv) is
subject to any claim relating to any Environmental Laws, which violation,
contamination, liability or claim has had or could reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate; and there is
no pending or, to the Company’s Knowledge, threatened investigation by any
governmental authority that might lead to such a claim.

 

4.17                           Litigation.  Except as described on
Schedule 4.17, there are no pending actions, suits or proceedings against or
affecting the Company, its Subsidiaries or any of its or their properties; and
to the Company’s Knowledge, no such actions, suits or proceedings are threatened
or contemplated.

 

4.18                           Financial Statements.  The financial statements
included in each SEC Filing present fairly, in all material respects, the
consolidated financial position of the Company as of the dates shown and its
consolidated results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with United States
generally accepted accounting principles applied on a consistent basis (“GAAP”)
(except as may be disclosed therein or in the notes thereto, and, in the case of
quarterly financial statements, as permitted by Form 10-QSB under the 1934
Act).  Except as set forth in the financial statements of the Company included
in the SEC Filings filed prior to the date hereof or as described on
Schedule 4.18, neither the Company nor any of its Subsidiaries has incurred any
liabilities, contingent or otherwise, except those incurred in the ordinary
course of business, consistent (as to amount and nature) with past practices
since the date of such financial statements, none of which, individually or in
the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect.

 

4.19                           Insurance Coverage.  The Company and each
Subsidiary maintains insurance policies that are customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all material liabilities, claims
and risks against which it is customary for comparably situated companies to
insure.

 

4.20                           Brokers and Finders.  No Person will have, as a
result of the transactions contemplated by the Transaction Documents, any valid
right, interest or claim against or upon the Company, any Subsidiary or an
Investor for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of the
Company, other than as described in Schedule 4.20. other than any agreement
entered into by an Investor

 

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

 

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4.22                           No Integrated Offering.  Neither the Company nor
any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any Company security or
solicited any offers to buy any security, under circumstances that would
adversely affect reliance by the Company on Section 4(2) for the exemption from
registration for the transactions contemplated hereby or would require
registration of the Securities under the 1933 Act.

 

4.23                           Private Placement.  Assuming the accuracy of the
representations and warranties of each Investor set forth in Section 5 hereof
and the satisfaction by each Investor of its obligation hereunder, the offer and
sale of the Securities to each Investor as contemplated hereby is exempt from
the registration requirements of the 1933 Act.

 

4.24                           Questionable Payments.  Neither the Company nor
any of its Subsidiaries nor, to the Company’s Knowledge, any of their respective
current or former stockholders, directors, officers, employees, agents or other
Persons acting on behalf of the Company or any Subsidiary, has on behalf of the
Company or any Subsidiary or in connection with their respective businesses: (a)
used any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.

 

4.25                           Transactions with Affiliates.  Except as
disclosed in the SEC Filings or as disclosed on Schedule 4.25, none of the
officers or directors of the Company and, to the Company’s Knowledge, none of
the employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than as holders of stock options and/or
warrants, and for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the Company’s Knowledge, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.

 

4.26                           Internal Controls.  The Company is in material
compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently
applicable to the Company.  The Company and the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as

 

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defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company, including the Subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company’s most recently filed period report under the 1934
Act, as the case may be, is being prepared.  The Company’s certifying officers
have evaluated the effectiveness of the Company’s controls and procedures as of
the end of the period covered by the most recently filed periodic report under
the 1934 Act (such date, the “Evaluation Date”).  The Company presented in its
most recently filed periodic report under the 1934 Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.  Since the
Evaluation Date, there have been no significant changes in the Company’s
internal controls (as such term is defined in Item 308(c) of Regulation S-B) or,
to the Company’s Knowledge, in other factors that could significantly affect the
Company’s internal controls.  The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP and the applicable requirements of the 1934 Act.

 

4.27                           Disclosures.  Except for the existence of the
Transaction Documents and the transactions contemplated thereby, neither the
Company nor any Person acting on its behalf has provided the Investors or their
agents or counsel with any information that constitutes or might constitute
material, non-public information.  The written materials delivered to the
Investors in connection with the transactions contemplated by the Transaction
Documents do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.

 

5.                                       Representations and Warranties of the
Investors.  Each of the Investors hereby severally, and not jointly, represents
and warrants to the Company that:

 

5.1                                 Organization and Existence.  If the Investor
is an entity, such Investor is an entity duly organized, validly existing and in
good standing (to the extent relevant) under the laws of its jurisdiction of
organization with the requisite corporate, partnership or limited liability
company power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations thereunder.  Such Investor has provided the Company with its
jurisdiction of organization and the location of its principal place of
business.  If the Investor is an individual, such individual is of an age
twenty-one (21) years or older and has the full capacity, power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder. 
The address of the Investor set forth on the signature page hereof is the
principal residence of the Investor.

 

5.2                                 Authorization.  The execution, delivery and
performance by such Investor of the Transaction Documents to which such Investor
is a party have been duly authorized and, when executed and delivered, will each
constitute the valid and legally binding obligation of such Investor,
enforceable against such Investor in accordance with their respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors’ rights generally.

 

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5.3                                 Purchase Entirely for Own Account.  The
Securities to be received by such Investor hereunder will be acquired for such
Investor’s own account, not as nominee or agent, for investment purposes only
and not with a view to the resale or distribution of any part thereof in
violation of the 1933 Act, such Investor will not have any agreement or
understanding, directly or indirectly, with any person to distribute any of the
Securities at the time the Securities are acquired and such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act without prejudice, however,
to such Investor’s right at all times to sell or otherwise dispose of all or any
part of such Securities in compliance with applicable federal and state
securities laws.  Nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time.  Such
Investor is not a registered broker-dealer under the 1934 Act or an entity
engaged in a business that would require it to be so registered.

 

5.4                                 Investment Experience.  Such Investor
acknowledges that it can bear the economic risk and complete loss of its
investment in the Securities and has such knowledge and experience in financial
or business matters that it is capable of evaluating the merits and risks of the
investment contemplated hereby.

 

5.5                                 Disclosure of Information.  Such Investor
has had an opportunity to receive all additional information related to the
Company requested by it and to ask questions of and receive answers from the
Company regarding the Company, its business and the terms and conditions of the
offering of the Securities.  Such Investor acknowledges receipt of copies of the
SEC Filings.  Neither such inquiries nor any other due diligence investigation
conducted by such Investor shall modify, amend or affect such Investor’s right
to rely on the Company’s representations and warranties contained in this
Agreement.  Such Investor has independently evaluated the merits of its decision
to purchase Securities pursuant to this Agreement, such decision has been
independently made by such Investor, and such Investor confirms that it has not
relied on the advice of any other Person in making such decision.

 

5.6                                 Restricted Securities.  Such Investor
understands that the Securities are characterized as “restricted securities”
under the U.S. federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the 1933 Act only in certain limited circumstances.

 

5.7                                 Legends.  It is understood that, except as
provided below, certificates evidencing the Securities may bear the following or
any similar legend:

 

(a)                                  “[NEITHER THESE SECURITIES NOR THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED]
[THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD UNLESS (I) SUCH
SECURITIES HAVE BEEN

 

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REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE
144(K), OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS.”

 

(b)                                 If required by the authorities of any state
in connection with the issuance of sale of the Securities, the legend required
by such state authority.

 

5.8                                 Accredited Investor.  At the time such
Investor was offered the Securities, it was, and at the date hereof it is, an
“accredited investor” as defined in Rule 501(a) of Regulation D, as amended,
under the 1933 Act.

 

5.9                                 No General Solicitation.  Such Investor is
not purchasing the Securities as a result of any advertisement, article, notice
or other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

 

5.10                           Brokers and Finders.  No Person will have, as a
result of the transactions contemplated by the Transaction Documents, any valid
right, interest or claim against or upon the Company, any Subsidiary or an
Investor for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of such
Investor.

 

5.11                           Prohibited Transactions.  During the last ninety
(90) days prior to the date hereof, such Investor has not, directly or
indirectly, effected or agreed to effect any short sale, whether or not against
the box, established any “put equivalent position” (as defined in Rule 16a-1(h)
under the 1934 Act) with respect to the Common Stock, granted any other right
(including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
traded in the securities of the Company (each, a “Prohibited Transaction”). 
Prior to the earlier of (i) the termination of this Agreement, or (ii) the
Effectiveness Deadline (as defined in the Registration Rights Agreement), such
Investor shall not engage, directly or indirectly, in a Prohibited Transaction. 
Such Investor acknowledges that the representations and warranties contained in
this Section 5.11 are being made for the benefit of the Investors as well as the
Company and that each of the other Investors shall have an independent the right
to assert any claims against such Investor arising out of any breach or
violation of the provisions of this Section 5.11.

 

6.  Conditions to Closing.

 

6.1                                 Conditions to the Investors’ Obligations.
The obligation of each Investor to purchase the Shares and the Warrants at the
Closing is subject to the fulfillment to such Investor’s satisfaction, on or
prior to the Closing Date, of the following conditions, as applicable, any of
which may be waived by such Investor (as to itself only), as applicable:

 

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(a)                                  The representations and warranties made by
the Company in Section 4 hereof qualified as to materiality shall be true and
correct at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct as of such
earlier date, and, the representations and warranties made by the Company in
Section 4 hereof not qualified as to materiality shall be true and correct in
all material respects at all times prior to and on the Closing Date, except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct in
all material respects as of such earlier date.  The Company shall have performed
in all material respects all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.

 

(b)                                 The Company shall have obtained any and all
consents, permits, approvals, registrations and waivers necessary or appropriate
for consummation of the purchase and sale of the Securities and the consummation
of the other transactions contemplated by the Transaction Documents, all of
which shall be in full force and effect.

 

(c)                                  The Company shall have executed and
delivered the Registration Rights Agreement.

 

(d)                                 No judgment, writ, order, injunction, award
or decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority,
shall have been issued, and no action or proceeding shall have been instituted
by any governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.

 

(e)                                  The Company shall have delivered to the SSF
Investors a Certificate, executed on behalf of the Company by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b), (d), (h), (i) and (j) of this Section 6.1.

 

(f)                                    The Company shall have delivered to the
SSF Investors a Certificate, executed on behalf of the Company by its Secretary,
dated as of the Closing Date, certifying the resolutions adopted by the Board of
Directors of the Company approving the transactions contemplated by this
Agreement (including the transactions specified in subsections (i) and (j) of
this Section 6.1) and the other Transaction Documents and the issuance of the
Shares and Warrants and the reservation for issuance of the Warrant Shares,
certifying the current versions of the Certificate of Incorporation and Bylaws
of the Company and certifying as to the signatures and authority of persons
signing the Transaction Documents and related documents on behalf of the
Company.

 

(g)                                 The SSF Investors shall have received an
opinion from Bryan Cave LLP, the Company’s counsel, dated as of the Closing
Date, in form and substance reasonably acceptable to the SSF Investors and
addressing such legal matters as the SSF Investors may reasonably request.

 

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(h)                                 No stop order or suspension of trading shall
have been imposed by the SEC or any other governmental or regulatory body with
respect to public trading in the Common Stock.

 

(i)                                     The Company shall have entered into one
or more agreements with accredited investors reasonably satisfactory to the
Investors that contain terms no more favorable to such investors than the terms
of this Agreement, which accredited investors shall include, but not be limited
to, each member of the Company’s Board of Directors, its Chief Executive
Officer, and its Chief Financial Officer (the “Other Agreements”).

 

(j)                                     The Company shall have received gross
proceeds from the sale of the Shares and Warrants as contemplated hereby and
under the Other Agreements of at least Two Hundred Fifth Thousand Dollars
($250,000).

 

(k)                                  Each of Joseph R. Simrell, Todd Taylor,
John Faltys, David Haynes, John Rehfeld and Louis Delmonico shall have executed
and delivered the Lock-up Agreement in the form attached hereto as Exhibit C.

 

6.2                                 Conditions to Obligations of the Company.
The Company’s obligation to sell and issue the Shares and the Warrants at the
Closing is subject to the fulfillment to the satisfaction of the Company on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:

 

(a)                                  The representations and warranties made by
the Investors in Section 5 hereof, other than the representations and warranties
contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment
Representations”), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date.  The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date.  The Investors
shall have performed in all material respects all obligations and conditions
herein required to be performed or observed by them on or prior to the Closing
Date.

 

(b)                                 The Investors shall have executed and
delivered the Registration Rights Agreement.

 

(c)                                  The Investors shall have delivered the
Purchase Price to the Company.

 

6.3                                 Termination of Obligations to Effect
Closing; Effects.

 

(a)                                  The obligations of the Company, on the one
hand, and the Investors, on the other hand, to effect the Closing shall
terminate as follows:

 

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(i)                                     Upon the mutual written consent of the
Company and the Required Investors;

 

(ii)                                  By the Company if any of the conditions
set forth in Section 6.2 shall have become incapable of fulfillment, and shall
not have been waived by the Company;

 

(iii)                               By an Investor (with respect to itself only)
if any of the conditions set forth in Section 6.1 as applicable to such Investor
shall have become incapable of fulfillment, and shall not have been waived by
the Investor; or

 

(iv)                              By either the Company or any Investor (with
respect to itself only) if the Closing has not occurred on or prior to June 15,
2004; provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

 

(b)                                 In the event of termination by the Company
or any Investor of its obligations to effect the Closing pursuant to this
Section 6.3, written notice thereof shall forthwith be given to the other
Investors and the other Investors shall have the right to terminate their
obligations to effect the Closing upon written notice to the Company and the
other Investors.  Nothing in this Section 6.3 shall be deemed to release any
party from any liability for any breach by such party of the terms and
provisions of this Agreement or the other Transaction Documents or to impair the
right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.

 

7.                                       Covenants and Agreements of the
Company.

 

7.1                                 Reservation of Common Stock.  The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of providing for the exercise of
the Warrants, such number of shares of Common Stock as shall from time to time
equal the number of shares sufficient to permit the exercise of the Warrants
issued pursuant to this Agreement in accordance with their respective terms.

 

7.2                                 Reports.  The Company will furnish to the
SSF Investors and/or their assignees such information relating to the Company
and its Subsidiaries as from time to time may reasonably be requested by the SSF
Investors and/or their assignees; provided, however, that the Company shall not
disclose material nonpublic information to the Investors, or to advisors to or
representatives of the Investors, unless prior to disclosure of such information
the Company identifies such information as being material nonpublic information
and provides the Investors, such advisors and representatives with the
opportunity to accept or refuse to accept such material nonpublic information
for review and any Investor wishing to obtain such information enters into an
appropriate confidentiality agreement with the Company with respect thereto.

 

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7.3                                 No Conflicting Agreements.  The Company will
not take any action, enter into any agreement or make any commitment that would
conflict or interfere in any material respect with the Company’s obligations to
the Investors under the Transaction Documents.

 

7.4                                 Insurance.  The Company shall not materially
reduce the insurance coverages described in Section 4.19; provided, however,
that the Company shall have the right to reduce such insurance coverages as
cover its directors and officers to the extent determined by the Board of
Directors of the Company in the good faith exercise of its business judgment.

 

7.5                                 Compliance with Laws.  The Company will
comply in all material respects with all applicable laws, rules, regulations,
orders and decrees of all governmental authorities.

 

7.6                                 Listing of Shares and Related Matters.  If
the Company applies to have its Common Stock or other securities traded on any
stock exchange or market, it shall include in such application the Shares and
the Warrant Shares and will take such other action as is necessary to cause such
Common Stock to be so listed.

 

7.7                                 Termination of Covenants.  The provisions of
Sections 7.2 through 7.5 shall terminate and be of no further force and effect
on the date on which the Company’s obligations under the Registration Rights
Agreement to register or maintain the effectiveness of any registration covering
the Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.

 

7.8                                 Removal of Legends.  Upon the earlier of (i)
registration for resale pursuant to the Registration Rights Agreement under an
effective Registration Statement or (ii) Rule 144(k) becoming available the
Company shall promptly cause certificates evidencing the Investor’s Securities
to be replaced with certificates which do not bear such restrictive legends, and
Warrant Shares subsequently issued upon due exercise of the Warrants shall not
bear such restrictive legends provided the provisions of either clause (i) or
clause (ii) above, as applicable, are satisfied with respect to such Warrant
Shares; provided, however, that the Company shall not be required to remove such
restrictive legends except upon the request of the Investor upon a sale of the
Securities, which request will be deemed to be a representation and warranty by
the Investor that the shares have been sold either (i) pursuant to Rule 144(k)
or (ii) pursuant to the Plan of Distribution specified in the Registration
Statement and in connection with which the Investor or the Investor’s broker has
delivered or will, prior to the time the sale is confirmed, deliver to the buyer
the most recent version of the prospectus provided to it by the Company.  When
the Company is required to cause unlegended certificates to replace previously
issued legended certificates, if unlegended certificates are not delivered to an
Investor within five (5) Business Days of submission by that Investor of
legended certificate(s) to the Company’s transfer agent together with a
representation letter in customary form, the Company shall be liable to the
Investor for liquidated damages in an amount equal to 1% of the aggregate
purchase price of the Securities evidenced by such certificate(s) for each
thirty (30) day period (or portion thereof) beyond such five (5) Business Day
that the unlegended certificates have not been so delivered.

 

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7.9                                 Right of First Offer on Future Financings. 
So long as the SSF Investors continue to be the beneficial owners (as defined
pursuant to Rule 13d-3 promulgated under the 1934 Act) of at least 50% of the
aggregate Shares and Warrant Shares issuable hereunder, from the date hereof
until one year after the Closing Date, if the Company desires to issue and sell
its Common Stock or Common Stock Equivalents resulting in cash proceeds to the
Company (a “Subsequent Financing”), each SSF Investor shall have the right to
participate in up to 100% of such Subsequent Financing. The Company shall first
make an offer to each SSF Investor pursuant to this Section 7.9 with respect to
such Subsequent Financing, such offer (a “Subsequent Financing Notice”) shall be
made in writing at least five (5) Business Days prior to the closing of the
Subsequent Financing and shall ask such SSF Investor if it wants to review the
details of such financing (such additional notice, a “Subsequent Financing
Invitation”).  Upon the request of an SSF Investor, and only upon a request by
such SSF Investor, for a Subsequent Financing Invitation, the Company shall
promptly, but no later than one Business Day after such request, deliver a
Subsequent Financing Invitation to such SSF Investor.  Such Subsequent Financing
Invitation shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating thereto. 
Each SSF Investor shall notify the Company by 6:30 p.m. (New York City time) on
the fifth (5th) Business Day after their receipt of the Subsequent Financing
Invitation of its willingness to provide the Subsequent Financing on the terms
described in the Subsequent Financing Invitation, subject to completion of
mutually acceptable documentation.  If one or more SSF Investors shall fail to
so notify the Company of their willingness to participate in the Subsequent
Financing, the SSF Investors agreeing to participate in the Subsequent Financing
(the “Participating Investors”) shall have the right to provide all of the
Subsequent Financing.  If one or more SSF Investors fail to notify the Company
of their willingness to provide all of the Subsequent Financing and the
Participating Investors do not agree to provide all of the Subsequent Financing,
the Company may effect the remaining portion of such Subsequent Financing with
any other Person(s) on terms no less favorable to the Company than as set forth
in the Subsequent Financing Invitation; provided that the Company must provide
the SSF Investors with a second Subsequent Financing Invitation, if the
Subsequent Financing subject to the initial Subsequent Financing Invitation is
not consummated for any reason on the terms set forth in such Subsequent
Financing Invitation within 60 Business Days after the date of the initial
Subsequent Financing Invitation.  In the event the Company receives responses to
Subsequent Financing Invitations from SSF Investors seeking to purchase more
than the financing sought by the Company in the Subsequent Financing such SSF
Investors shall have the right to purchase their Pro Rata Portion (as defined
below) of the Common Stock or Common Stock Equivalents to be issued in such
Subsequent Financing.  “Pro Rata Portion” is the ratio of (x) the amount
invested by such SSF Investor pursuant to this Agreement (the “Subscription
Amount”) and (y) the aggregate sum of all of the Subscription Amounts. 
Notwithstanding the foregoing, this Section 7.9 shall not apply to any Excluded
Issuance (as such term is defined in the Warrants).

 

7.10                           Disposition of Securities.  Securities may only
be disposed of in compliance with applicable state and federal securities laws. 
In connection with any transfer of Securities, other than pursuant to an
effective registration statement, to the Company or to an

 

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Affiliate of an Investor, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor,
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the 1933 Act.

 

8.                                       Survival and Indemnification.

 

8.1  Survival.  The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement.

 

8.2  Indemnification.  The Company agrees to indemnify and hold harmless each
Investor and its Affiliates and their respective directors, officers, employees
and agents from and against any and all losses, claims, damages, liabilities and
expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person up to the greater of the Purchase
Price or the fair market value of the Securities then held by such Investor at
the time such Losses, as applicable, occur.

 

8.3  Conduct of Indemnification Proceedings.  Promptly after receipt by any
Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify.  In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them.  The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment.  Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is a party,
unless

 

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such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding.

 

9.                                       Miscellaneous.

 

9.1                                 Successors and Assigns.  This Agreement may
not be assigned by a party hereto without the prior written consent of the
Company or the Investors, as applicable, provided, however, that an Investor may
assign its rights and delegate its duties hereunder in whole or in part to an
Affiliate or to a third party acquiring some or all of its Securities in a
private transaction without the prior written consent of the Company or the
other Investors, after notice duly given by such Investor to the Company and the
other Investors, provided, that no such assignment or obligation shall affect
the obligations of such Investor hereunder and provided, further, that any such
assignment shall comply with the requirements of applicable securities laws. 
The provisions of this Agreement shall inure to the benefit of and be binding
upon the respective permitted 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.

 

9.2                                 Counterparts; Faxes.  This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.  This
Agreement may also be executed via facsimile, which shall be deemed an original.

 

9.3                                 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.

 

9.4                                 Notices.  Unless otherwise provided, any
notice required or permitted under this Agreement shall be given in writing and
shall be deemed effectively given as hereinafter described (i) if given by
personal delivery, then such notice shall be deemed given upon such delivery,
(ii) if given by telex or telecopier, then such notice shall be deemed given
upon receipt of confirmation of complete transmittal, (iii) if given by mail,
then such notice shall be deemed given upon the earlier of (A) receipt of such
notice by the recipient or (B) three days after such notice is deposited in
first class mail, postage prepaid, and (iv) if given by an internationally
recognized overnight air courier, then such notice shall be deemed given one
business day after delivery to such carrier.  All notices shall be addressed to
the party to be notified at the address as follows, or at such other address as
such party may designate by ten days’ advance written notice to the other party:

 

If to the Company:

 

Primal Solutions, Inc.

18881 Von Karman Avenue

Suite 500

Irvine, California 92612

Attention:  Chief Financial Officer

Fax:  (949) 221-8590

 

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With a copy to:

(which shall not constitute notice)

 

Bryan Cave LLP

2020 Main Street, Suite 600

Irving, California 92614

Attention:  Brett J. Souza, Esq.

Fax:  (949) 223-7100

 

If to the Investors:

 

to the addresses set forth on the signature pages hereto.

 

9.5                                 Expenses.  The parties hereto shall pay
their own costs and expenses in connection herewith, except that the Company
shall pay the reasonable fees and expenses of counsel to the SSF Investors, not
to exceed $30,000.  Such expenses shall be paid not later than the Closing.  The
Company shall reimburse the SSF Investors upon demand for all reasonable
out-of-pocket expenses incurred by the Investors, including without limitation
reimbursement of attorneys’ fees and disbursements, in connection with any
amendment, modification or waiver of this Agreement or the other Transaction
Documents requested by the Company.  In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the other Transaction Documents, the party
or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys’ fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.

 

9.6                                 Amendments and Waivers.  Any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Investors.  Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Securities purchased under this
Agreement at the time outstanding, each future holder of all such Securities,
and the Company.

 

9.7                                 Publicity.  Except as set forth below, no
public release or announcement concerning the transactions contemplated hereby
shall be issued by the Company or the Investors without the prior consent of the
Company (in the case of a release or announcement by the Investors) or the SSF
Investors (in the case of a release or announcement by the Company) (which
consents shall not be unreasonably withheld), except as such release or
announcement may be required by law or the applicable rules or regulations of
any securities exchange or securities market, in which case the Company or the
Investors, as the case may be, shall allow the SSF Investors or the Company, as
applicable, to the extent reasonably practicable in the circumstances,
reasonable time to comment on such release or announcement in advance of such
issuance.  By 8:30 a.m. (New York City time) on the trading day immediately
following the

 

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Closing Date, the Company shall issue a press release disclosing the
consummation of the transactions contemplated by this Agreement.  No later than
the third trading day following the Closing Date, the Company will file a
Current Report on Form 8-K attaching the press release described in the
foregoing sentence as well as copies of the Transaction Documents.  In addition,
the Company will make such other filings and notices in the manner and time
required by the SEC.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Investor, or include the name of any Investor
in any filing with the SEC (other than the Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the 1934 Act) or any regulatory agency,
without the prior written consent of such Investor, except to the extent such
disclosure is required by law or trading market regulations.

 

9.8                                 Severability.  Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof but shall
be interpreted as if it were written so as to be enforceable to the maximum
extent permitted by applicable law, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.  To the extent permitted by applicable law, the
parties hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.

 

9.9                                 Entire Agreement.  This Agreement, including
the Exhibits and the Disclosure Schedules, and the other Transaction Documents
constitute the entire agreement among the parties hereof with respect to the
subject matter hereof and thereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof and thereof.

 

9.10                           Further Assurances.  The parties shall execute
and deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions contemplated
hereby and to evidence the fulfillment of the agreements herein contained.

 

9.11                           Governing Law; Consent to Jurisdiction; Waiver of
Jury Trial.  This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New York without regard to the choice of
law principles thereof.  Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby. 
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement.  Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court.  Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.  EACH OF THE PARTIES HERETO WAIVES

 

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ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.

 

9.12                           Independent Nature of Investors’ Obligations and
Rights.  The obligations of each Investor under any Transaction Document are
several and not joint with the obligations of any other Investor, and no
Investor shall be responsible in any way for the performance of the obligations
of any other Investor under any Transaction Document.  Each Investor confirms
that its decision to purchase Securities pursuant to the Transaction Documents
has been made by such Investor independently of any other Investor.  Nothing
contained herein or in any Transaction Document, and no action taken by any
Investor pursuant thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Investor acknowledges that no other Investor has
acted as agent for such Investor in connection with making its investment
hereunder and that no Investor will be acting as agent of such Investor in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents.  Each Investor shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose.  The Company acknowledges
that each of the Investors has been provided with the same Transaction Documents
for the purpose of closing a transaction with multiple Investors and not because
it was required or requested to do so by any Investor.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

 

The Company:

PRIMAL SOLUTIONS, INC.

 

 

 

 

 

By:

 

 

 

 

Name:

Joseph R. Simrell

 

Title:

President and Chief Executive Officer

 

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[INVESTORS’ SIGNATURE PAGE]

 

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EXHIBIT A

WARRANT

 

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EXHIBIT B

REGISTRATION RIGHTS AGREEMENT

 

27

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DISCLOSURE SCHEDULE

 

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