Exhibit 10.1


PURCHASE
AGREEMENT


 


THIS PURCHASE
AGREEMENT (“Agreement”) is made as of the 31st day of March, 2006 by
and among Primal Solutions, Inc., a Delaware corporation (the “Company”),
Wireless Billing Systems, a California corporation (“WBS”), and the Investors
set forth on the signature pages affixed hereto (each an “Investor” and
collectively the “Investors”).


 


Recitals


 


A.            The Company, WBS 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 WBS, and the Company and WBS wishes to sell and issue to the
Investors, upon the terms and conditions stated in this Agreement, (i)
$1,500,000 in aggregate principal amount of the 5% Senior Secured Convertible
Notes in the form attached hereto as Exhibit A (the “Notes”), which
Notes are convertible into 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”), at a conversion price of $0.10 per share
(subject to adjustment as provided therein), and (ii) warrants to purchase an
aggregate of 7,500,000 shares of Common Stock (subject to adjustment as
provided therein) at an exercise price of $0.15 per share (subject to
adjustment as provided therein) in the form attached hereto as Exhibit B
(the “Warrants”); and


 


C.            Contemporaneous with the sale of the
Notes and the Warrants, the Company and the Investors will execute and deliver
a Registration Rights Agreement, in the form attached hereto as Exhibit C
(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,
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 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.


 


“Conversion
Shares” means the shares of Common Stock issuable upon conversion of the
Notes.


 


“Effective
Date” means the date on which the initial Registration Statement is
declared effective by the SEC.


 


“Effectiveness
Deadline” means the date by which the initial Registration Statement is
required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.


 


“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.


 


2

















 


“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 One Million Five Hundred Thousand Dollars ($1,500,000).


 


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


 


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


 


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


 


“Security
Agreement” means the Pledge and Security Agreement in the form attached
hereto as Exhibit D.


 


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


 


“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 Notes, the Security Agreement, the
Subordination 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 Notes
and the 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 and WBS shall sell and issue to the Investors, the
Notes and the 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

















 


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, the Notes and the Warrants, registered in such name or names as
the Investors may designate prior to the Closing Date (as defined below), with
instructions that such Notes and Warrants are to be held for release to the
Investors only upon payment in full of the Purchase Price to the Company by all
the Investors. Upon such receipt by Lowenstein Sandler PC of the Notes and the
Warrants, 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. The Company shall allocate the Purchase
Price between itself and WBS as the Company may determine in its sole
discretion. On the date (the “Closing Date”) the Company receives the Purchase
Price, the Notes and the Warrants shall be released to the Investors (the
“Closing”). The Closing of the purchase and sale of the Notes and the Warrants
shall take place at the offices of Lowenstein Sandler PC, 1251 Avenue of the
Americas, 18th Floor, New York, New York 10020, or at such other location and
on such other date as the Company and the Investors shall mutually agree.


 


4.             Representations and Warranties
of the Company andWBS. The Company and WBS hereby jointly and severally
represent and warrant 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 had and could not reasonably be expected to have a Material
Adverse Effect. The Company’s Subsidiaries are listed on Schedule 4.1
hereto.


 


4.2           Authorization.
Each of the Company and WBS has full power and authority and has taken all
requisite action on its part, its officers, directors and stockholders
necessary for (i) the authorization, execution and delivery of the Transaction
Documents, (ii) the authorization of the performance of all obligations of the
Company and WBS hereunder or thereunder, and (iii) the authorization, issuance
(or reservation for issuance) and delivery of the Securities. When delivered in
accordance with the terms hereof, the Transaction Documents will constitute the
legal, valid and binding obligations of the Company and WBS, to the extent it
is a party thereto, enforceable against each of the Company and WBS 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 


 


4

















 


plans; and (d) the number of shares of capital stock issuable and
reserved for issuance pursuant to securities (other than the Notes and the
Warrants) exercisable for, or convertible into or exchangeable for any shares
of capital stock of the Company. Except as described in Schedule 4.3,
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 were issued in full compliance with applicable
state and federal securities law and any rights of third parties. Except as
described on Schedule 4.3, 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, 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, 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 Conversion
Shares have been duly and validly authorized and, when issued upon the due
conversion of the Notes, will be validly issued, fully paid and nonassessable,
and shall be 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, 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 conversion of the Notes and the exercise of the Warrants.


 


5

















 


4.5           Consents. The
execution, delivery and performance by the Company WBS 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 consents which have been obtained and which are
in full force and effect and filings that have been made or will be made within
applicable time periods 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 the
Conversion Shares upon the due conversion of the Notes and the issuance of the
Warrant Shares upon due exercise of the Warrants, and (iii) the other
transactions contemplated by the Transaction Documents from the provisions of
any stockholder 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
Bylaws 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, 2004 (the “10-K”), and all other reports
filed by the Company pursuant to the 1934 Act since the filing of the 10-K 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, other than filings required by Form 8-K which the failure of the
Company to file does not make the Company untimely in its filings under the
1934 Act. Except as described on Schedule 4.6, 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 Notes and the Warrants hereunder shall be used by the
Company and WBS for working capital, debt service, advisory fees and general
corporate purposes.


 


4.8           No Material Adverse Change. Since
December 31, 2004, 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 Company’s
Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005,
except for changes in the ordinary course of business which have not had and
could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;


 


6

















 


(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 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, 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 Bylaws, 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)           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.


 


(a)           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.


 


7

















 


(b)           Each registration statement and any
amendment thereto filed by the Company since January 1, 2003 pursuant to the
1933 Act and the rules and regulations thereunder, as of the date such statement
or amendment became effective, complied as to form in all material respects
with the 1933 Act and (except for information provided by any selling
securityholders as to which this representation does not apply) did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein not misleading; and each prospectus filed pursuant to Rule 424(b) under
the 1933 Act, as of its issue date and as of the closing of any sale of
securities pursuant thereto (except for information provided by any selling
securityholders as to which this representation does not apply) did not contain
any untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.


 


4.10         No Conflict, Breach, Violation or
Default. The execution, delivery and performance of the Transaction
Documents by the Company and WBS 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 or WBS’s
Certificate of Incorporation or Bylaws, both as in effect on the date hereof,
or (ii)(a) 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, except for such
breaches, violations or defaults as have not had and could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate,
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 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.


 


8

















 


4.12         Title to Properties. Except as
disclosed in the SEC Filings or as described in Schedule 4.12, the
Company and each Subsidiary has good and marketable title to all real
properties and all other 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 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 certificates, authorities or permits has not and could 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, could reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.


 


4.14         Labor Matters.


 


(a)           Except as set forth on Schedule 4.14,
the Company is not a party to or bound by any collective bargaining agreements
or other agreements with labor organizations. The Company is not in violation
in any material respect of any laws, regulations, orders or contract terms,
affecting the collective bargaining rights of employees, labor organizations or
any laws, regulations or orders affecting employment discrimination, equal
opportunity employment, or employees’ health, safety, welfare, wages and hours.


 


(b)           (i) There are no labor disputes
existing, or to the Company’s Knowledge, threatened, involving strikes,
slow-downs, work stoppages, job actions, disputes, lockouts or any other
disruptions of or by the Company’s employees, (ii) there are no unfair labor
practices or petitions for election pending or, to the Company’s Knowledge,
threatened before the National Labor Relations Board or any other federal,
state or local labor commission relating to the Company’s employees, (iii) no
demand for recognition or certification heretofore made by any labor
organization or group of employees is pending with respect to the Company and
(iv) to the Company’s Knowledge, the Company enjoys good labor and employee
relations with its employees and labor organizations.


 


(c)           The Company is in compliance in all
material respects with all applicable laws respecting employment (including
laws relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization. There are no claims pending against the Company
before the Equal Employment Opportunity Commission or any other administrative
body or in any court asserting any violation of Title VII of the Civil Rights
Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or
any other federal, state or local Law, statute or ordinance barring
discrimination in employment.


 


9

















 


(d)           Except as disclosed in the SEC Filings
or as described on Schedule 4.14, the Company is not a party to, or bound by,
any employment or other contract or agreement that contains any severance,
termination pay or change of control liability or obligation, including,
without limitation, any “excess parachute payment,” as defined in Section
2806(b) of the Internal Revenue Code.


 


(e)           Except as specified in Schedule 4.14,
each of the Company’s employees is a Person who is either a United States
citizen or a permanent resident or alien authorized to work in the United
States. To the Company’s Knowledge, the Company has no liability for the
improper classification by the Company of such employees as independent
contractors or leased employees prior to the Closing.


 


4.15         Intellectual Property.


 


(a)           To the Company’s Knowledge, all
Intellectual Property of the Company and its Subsidiaries is currently in
compliance in all material respects with all legal requirements, if any,
applicable thereto (including timely filings, proofs and payments of fees) and is
valid and enforceable. No Intellectual Property of the Company or its
Subsidiaries which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted has been or is now involved in any cancellation,
dispute or litigation to which the Company is a party, and, to the Company’s
Knowledge, no such action is threatened. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.


 


(b)           All of the licenses and sublicenses
and consent, royalty or other agreements concerning Intellectual Property which
are necessary for the conduct of the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted to which the Company or any Subsidiary is a party or by which any of
their assets are bound (other than  generally commercially available, off-the-shelf
software application programs) (collectively, “License Agreements”) are valid
and binding obligations of the Company or its Subsidiaries that are parties
thereto and, to the Company’s Knowledge, the other parties thereto, enforceable
in accordance with their terms, except to the extent that enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting the enforcement of
creditors’ rights generally, and to the Company’s Knowledge, there exists no
event or condition which will result in a material violation or breach of or
constitute (with or without due notice or lapse of time or both) a default by
the Company or any of its Subsidiaries under any such License Agreement.


 


(c)           Except as described in Schedule
4.15, the Company and its Subsidiaries own or have the valid right to use
all of the Intellectual Property that is necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted and for the ownership,
maintenance and operation of the Company’s and its Subsidiaries’ properties and
assets, free and clear of all liens, encumbrances, adverse claims or
obligations to license all such owned Intellectual Property and Confidential
Information, other than licenses entered into in the ordinary course of the


 


10

















 


Company’s and its Subsidiaries’ businesses. To the Company’s Knowledge,
the Company and its Subsidiaries have a valid and enforceable right to use all
material third party Intellectual Property and Confidential Information used or
held for use in the respective businesses of the Company and its Subsidiaries
as currently conducted or as currently proposed to be conducted.


 


(d)           The conduct of the Company’s and its
Subsidiaries’ businesses as currently conducted does not infringe or
misappropriate or conflict with (collectively, “Infringe”) any Intellectual
Property rights of any third party or conflict with any confidentiality
obligation owed to a third party, and, to the Company’s Knowledge, the
Intellectual Property and Confidential Information of the Company and its
Subsidiaries which are necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted are not being Infringed by any third party. There is
no litigation or order pending or outstanding to the which the Company or any
Subsidiary is a party or, to the Company’s Knowledge, threatened or imminent,
that seeks to limit or challenge or that concerns the ownership, use, validity
or enforceability of any Intellectual Property or Confidential Information of
the Company and its Subsidiaries and the Company’s and its Subsidiaries’ use of
any Intellectual Property or Confidential Information owned by a third party,
and, to the Company’s Knowledge, there is no valid basis for the same.


 


(e)           The consummation of the transactions
contemplated hereby and by the other Transaction Documents will not result in
the alteration, loss, impairment of or restriction on the Company’s or any of
its Subsidiaries’ ownership or right to use any of the Intellectual Property or
Confidential Information which is necessary for the conduct of Company’s and each
of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted.


 


(f)            The Company and its Subsidiaries
have taken reasonable steps to protect the Company’s and its Subsidiaries’
rights in their Intellectual Property and Confidential Information. Each
employee, consultant and contractor who has had access to Confidential
Information which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted has executed an agreement to maintain the
confidentiality of such Confidential Information and has executed appropriate
agreements that are substantially consistent with the Company’s standard forms
thereof. Except under confidentiality obligations, to the Company’s Knowledge
there has been no material disclosure of any of the Company’s or its
Subsidiaries’ Confidential Information to any third party.


 


(g)           The Investors acknowledge that the
Company is using and will continue to use certain “open source” or “free”
software products (collectively, “OS Products”) in its products. The Company
makes no representations with respect to the OS Products or their use.


 


4.16         Environmental Matters. Neither
the Company nor any Subsidiary 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 substances or relating to the protection or restoration of the environment
or human exposure to


 


11

















 


hazardous or toxic substances (collectively, “Environmental Laws”),
owns or operates any real property contaminated with any substance that is
subject to any Environmental Laws, is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or 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 agency or
body 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 in full force and effect insurance coverage that
is 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.


 


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.


 


12

















 


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
herein, the offer and sale of the Securities to the Investors 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 GAAP 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
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


 


13

















 


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 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 as described
in Schedule 4.27, 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 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.


 


14

















 


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, and not with a view to the resale or distribution of any part thereof in
violation of the 1933 Act, such Investor does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities 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 broker-dealer registered with the
SEC 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
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. Such Investor has
independently evaluated the merits of an investment in the Securities, such
Investor has independently made its decision to invest in the Securities and
such Investor confirms that it has not relied on the advice of any other Person
in connection therewith. 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.


 


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)           “The
securities represented hereby may not be transferred unless (i) such securities
have been registered for sale pursuant to the Securities Act of 1933, as
amended, (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.


 


15

















 


5.8           Accredited Investor. Such
Investor 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 did not learn of the investment in the Securities as a result of any
general solicitation or general advertising.


 


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 thirty (30) days prior to the date hereof, neither such Investor nor
any Affiliate of such Investor which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to such Investor’s
investments or trading or information concerning such Investor’s investments,
including in respect of the Securities, or (z) is subject to such Investor’s
review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”) has, 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 sought to hedge its
position in the Securities (each, a “Prohibited Transaction”). Prior to the
earliest to occur of (i) the termination of this Agreement, (ii) the Effective
Date or (iii) the Effectiveness Deadline, such Investor shall not, and shall
cause its Trading Affiliates not to, engage, directly or indirectly, in a
Prohibited Transaction. Such Investor acknowledges that the representations,
warranties and covenants 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 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 Notes and 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, any of which may
be waived by such Investor (as to itself only):


 


(a)           The representations and warranties
made by the Company and WBS 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 and WBS 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


 


16

















 


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 and WBS shall have performed in all
material respects all obligations and covenants herein required to be performed
by them on or prior to the Closing Date.


 


(b)           The Company and WBS 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 and the Company and WBS shall have
executed and delivered the Security Agreement and the Subordination Agreement.


 


(d)           Lightbridge shall have executed and
delivered the Subordination Agreement.


 


(e)           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.


 


(f)            The Company shall have delivered to
the 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), (e) and (i) of this Section 6.1.


 


(g)           The Company shall have delivered to
the 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 and the other Transaction Documents and the issuance of the
Securities, 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.


 


(h)           The 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 Investors and
addressing such legal matters as the Investors may reasonably request.


 


(i)            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.


 


17

















 


6.2           Conditions to Obligations of the
Company and WBS. The obligation of the Company and WBS to sell and issue
the Notes 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 covenants herein required to be performed 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 and
WBS, on the one hand, and the Investors, on the other hand, to effect the
Closing shall terminate as follows:


 


(i)            Upon the mutual written consent of
the Company and the 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 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
April 15, 2006;


 


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.


 


18

















 


(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
conversion of the Notes and the exercise of the Warrants, such number of shares
of Common Stock as shall from time to time equal the Conversion Shares issuable
upon the due conversion of the Notes and the Warrant Shares issuable upon the
due exercise of the Warrants in accordance with their respective terms.


 


7.2           Reports. The Company will
furnish to the 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 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.


 


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.


 


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 Underlying 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 Conversion Shares and the Warrant Shares and will take such
other action as is necessary to cause such Common Stock to be so listed. Following
any such listing, the Company will use commercially reasonable efforts to
continue the listing and trading of its Common Stock on such stock exchange or
market and, in accordance, therewith,will use commercially reasonable efforts
to comply in all respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of such stock exchange or market, as applicable.


 


19

















 


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 or (ii) Rule 144(k) becoming available the Company shall (A) deliver
to the transfer agent for the Common Stock (the “Transfer Agent”) irrevocable
instructions that the Transfer Agent shall issue certificates representing the
Conversion Shares and the Warrant Shares without legends upon receipt by such
Transfer Agent of the Notes and/or the Warrants or any legended certificates
previously issued for such shares, together with either (1) a customary
representation by the Investor that Rule 144(k) applies to the shares of Common
Stock to be represented thereby or (2) a statement by the Investor that such
Investor has sold the shares of Common Stock represented thereby in accordance
with the Plan of Distribution contained in the Registration Statement, and (B)
cause its counsel to deliver to the Transfer Agent one or more blanket opinions
to the effect that the issuance of such unlegended certificates in such
circumstances may be effected under the 1933 Act. From and after the earlier of
such dates, upon an Investor’s written request, the Company shall promptly
cause replacement Securities to be issued without restrictive legends and/or
legended certificates representing previously issued Conversion Shares or
Warrant Shares to be replaced with certificates which do not bear such
restrictive legends, and Conversion Shares subsequently issued upon due
conversion of the Notes 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 Conversion Shares and/or Warrant Shares. When
the Company is required to cause unlegended Securities to replace previously
issued legended Securities, if unlegended Securities are not delivered to an
Investor within three (3) Business Days of submission by that Investor of
legended Securities to the Transfer Agent as provided above (or to the Company,
in the case of the Notes and the Warrants), the Company shall be liable to the
Investor for liquidated damages in an amount equal to 1.5% of the aggregate
purchase price of the Securities evidenced thereby for each thirty (30) day
period (or portion thereof) beyond such three (3) Business Day that the
unlegended Securities have not been so delivered.


 


7.9           Director Designee.


 


(a)           So long as any Notes are outstanding,
Special Situations Fund III (QP), L.P. (“SSF”) shall have the right to
designate one person for election to the board of directors of the Company (the
“SSF Designee”). The Company shall use its commercially reasonable efforts to
cause the SSF Designee to be elected to the Company’s board of directors. SSF
shall have the right to direct the removal or replacement of any SSF Designee
by giving notice to such SSF Designee and the Company. The Company shall use
its commercially reasonable efforts to effect the removal or replacement of any
such SSF Designee.


 


20

















 


(b)           Subject to any limitations imposed by
applicable law, the SSF Designee shall be entitled to the same perquisites,
including stock options, reimbursement of expenses and other similar rights in
connection with such person’s membership on the Board of Directors of the
Company, as every other non-employee member of the Board of Directors of the
Company.


 


7.10         Restrictions on Issuance of Common
Stock and Equivalents. Prior to the six-month anniversary of the Closing
Date, (i) the Company shall not issue or agree to issue or become obligated to
issue any Common Stock at an effective per share price of less than $0.15 per
share (appropriately adjusted for any stock split, reverse stock split, stock
dividend or other reclassification or combination of the Common Stock occurring
after the date hereof) and (ii) the Company shall not, and shall cause its
Subsidiaries not to, issue or agree to issue or become obligated to issue any
Common Stock Equivalents at an effective per share price of less than $0.15 per
share (appropriately adjusted for any stock split, reverse stock split, stock
dividend or other reclassification or combination of the Common Stock occurring
after the date hereof); provided, however that the provisions of this Section
7.10 shall not apply to any “Excluded Issuance” (as such term is defined in the
Warrants).


 


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 and WBS shall jointly and severally 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 or WBS under the Transaction Documents, and will reimburse any such
Person for all such amounts as they are incurred by such Person.


 


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


 


21

















 


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 or could have been a party and indemnity could have been sought hereunder
by such Indemnified Party, unless 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 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


 


22

















 


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 or WBS:


 


Primal
Solutions, Inc.


18881 Von
Karman Avenue, Suite 500


Irvine,
California 92612


Attention:  Joseph R. Simrell


Fax:  (949) 221-8594


 


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
Lowenstein Sandler PC not to exceed $40,000; it being understood that
Lowenstein Sandler PC has only rendered legal advice to the Special Situations
Funds participating in this transaction and not to the Company or any other
Investor in connection with the transactions contemplated hereby, and that each
of the Company and each Investor has relied for such matters on the advice of
its own respective counsel. Such expenses shall be paid not later than the
Closing. The Company shall reimburse the 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.


 


23

















 


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 (on its own behalf and on behalf of WBS) and the
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,
the Company and WBS.


 


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 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 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 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,
in which case the Company shall provide the Investors with prior notice of such
disclosure.


 


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.


 


24

















 


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 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. The decision of each Investor 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]


 


25

















 


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:

  	
  /s/ Joseph
  R. Simrell

  	
   

  
	
   

  	
  Name:

  	
  Joseph R.
  Simrell

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
  WBS:

  	
  WIRELESS
  BILLING SYSTEMS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph
  R. Simrell

  	
   

  
	
   

  	
  Name:

  	
  Joseph R.
  Simrell

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
								



 


26

















 


	
  The Investors:

  	
  SPECIAL
  SITUATIONS FUND III QP, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin
  W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  
	
  Aggregate
  Purchase Price: $126,000

  	
   

  
	
  Principal
  Amount of Notes: $126,000

  	
   

  
	
  Number of
  Warrants: 630,000

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address for
  Notice:

  	
   

  
	
   

  	
   

  
	
   

  	
  527 Madison
  Avenue

  
	
   

  	
  Suite 2600

  
	
   

  	
  New York, NY
  10022

  
	
   

  	
   

  
	
   

  	
  with a copy
  to:

  
	
   

  	
   

  
	
   

  	
  Lowenstein
  Sandler PC

  
	
   

  	
  65
  Livingston Avenue

  
	
   

  	
  Roseland, NJ
  07068

  
	
   

  	
  Attn: John
  D. Hogoboom, Esq.

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
	
   

  	
   

  
	
   

  
	
   

  	
  SPECIAL SITUATIONS
  FUND III, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin
  W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  
	
  Aggregate
  Purchase Price: $11,000

  	
   

  
	
  Principal
  Amount of Notes: $11,000

  	
   

  
	
  Number of
  Warrants: 55,000

  	
   

  
	
   

  	
   

  
	
  Address for
  Notice:

  	
   

  
	
   

  	
   

  
	
   

  	
  527 Madison
  Avenue

  
	
   

  	
  Suite 2600

  
	
   

  	
  New York, NY
  10022

  
									



 


27

















 


	
   

  	
  with a copy
  to:

  
	
   

  	
   

  
	
   

  	
  Lowenstein
  Sandler PC

  
	
   

  	
  65
  Livingston Avenue

  
	
   

  	
  Roseland, NJ
  07068

  
	
   

  	
  Attn: John
  D. Hogoboom, Esq.

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
	
   

  	
   

  
	
   

  
	
   

  	
  SPECIAL
  SITUATIONS PRIVATE EQUITY FUND, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin
  W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  
	
  Aggregate
  Purchase Price: $681,000

  	
   

  
	
  Principal
  Amount of Notes: $681,000

  	
   

  
	
  Number of
  Warrants: 3,405,000

  	
   

  
	
   

  	
   

  
	
   

  	
  527 Madison
  Avenue

  
	
   

  	
  Suite 2600

  
	
   

  	
  New York, NY
  10022

  
	
   

  	
   

  
	
   

  	
  with a copy
  to:

  
	
   

  	
   

  
	
   

  	
  Lowenstein
  Sandler PC

  
	
   

  	
  65
  Livingston Avenue

  
	
   

  	
  Roseland, NJ
  07068

  
	
   

  	
  Attn: John
  D. Hogoboom, Esq.

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
	
   

  	
   

  
	
   

  
	
   

  	
  SPECIAL
  SITUATIONS TECHNOLOGY FUND, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin
  W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  
	
  Aggregate
  Purchase Price: $109,000

  	
   

  
	
  Principal
  Amount of Notes: $109,000

  	
   

  
									



 


28

















 


	
  Number of
  Warrants: 545,000

  	
   

  
	
   

  	
   

  
	
  Address for
  Notice:

  	
   

  
	
   

  	
   

  
	
   

  	
  527 Madison
  Avenue

  
	
   

  	
  Suite 2600

  
	
   

  	
  New York, NY
  10022

  
	
   

  	
   

  
	
   

  	
  with a copy
  to:

  
	
   

  	
   

  
	
   

  	
  Lowenstein
  Sandler PC

  
	
   

  	
  65
  Livingston Avenue

  
	
   

  	
  Roseland, NJ
  07068

  
	
   

  	
  Attn: John
  D. Hogoboom, Esq.

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
	
   

  
	
   

  	
  SPECIAL
  SITUATIONS TECHNOLOGY FUND II, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin
  W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  
	
  Aggregate
  Purchase Price: $573,000

  	
   

  
	
  Principal
  Amount of Notes: $573,000

  	
   

  
	
  Number of
  Warrants: 2,865,000

  	
   

  
	
   

  	
   

  
	
  Address for
  Notice:

  	
   

  
	
   

  	
  527 Madison
  Avenue

  
	
   

  	
  Suite 2600

  
	
   

  	
  New York, NY
  10022

  
	
   

  	
   

  
	
   

  	
  with a copy
  to:

  
	
   

  	
   

  
	
   

  	
  Lowenstein
  Sandler PC

  
	
   

  	
  65
  Livingston Avenue

  
	
   

  	
  Roseland, NJ
  07068

  
	
   

  	
  Attn: John
  D. Hogoboom, Esq.

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
						



 


29