Document:

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,

 

 

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.

 

2

 

“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

 

3

 

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,

 

4

 

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

 

5

 

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,

 

6

 

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

 

7

 

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

 

8

 

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.

 

9

 

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

 

10

 

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.

 

11

 

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

 

12

 

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:

 

13

 

(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.

 

14

 

(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:

 

15

 

(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.

 

16

 

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.

 

17

 

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

 

18

 

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

 

19

 

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

 

20

 

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

 

21

 

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

 

22

 

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]

 

23

 

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

  

 

24

 

[INVESTORS’ SIGNATURE PAGE]

 

25

 

EXHIBIT A

WARRANT

 

26

 

EXHIBIT B

REGISTRATION RIGHTS AGREEMENT

 

27

 

DISCLOSURE SCHEDULE

 

28Exhibit 10.19

 

REGISTRATION
RIGHTS AGREEMENT

 

This Registration Rights Agreement (the “Agreement”) is made and
entered into as of this 8th day of June, 2004 by and among Primal Solutions,
Inc., a Delaware corporation (the “Company”), and the “Investors” named in that
certain Purchase Agreement by and among the Company and the Investors (the
“Purchase Agreement”).

 

The parties hereby agree as follows:

 

1.   Certain Definitions.

 

As used in this Agreement, the following terms shall have the following
meanings:

 

“Affiliate” means, with respect to any person, any other person
which directly or indirectly 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” shall mean the Company’s common stock, par value
$0.01 per share, and any securities into which such shares may hereinafter be
reclassified.

 

“Existing Holders” shall mean, collectively, John Faltys, David
Haynes, Joe Simrell and Mark Neilsen.

 

“Investors” shall mean the Investors identified in the Purchase
Agreement and any Affiliate or permitted transferee of any Investor who is a
subsequent holder of any Warrants or Registrable Securities.

 

“Other Investors” shall mean the purchasers party to the Other
Agreements (as defined in the Purchase Agreement) other than the Existing
Holders.

 

“Prospectus” shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective amendments
and all material incorporated by reference in such prospectus.

 

“Register,” “registered” and “registration” refer
to a registration made by preparing and filing a Registration Statement or
similar document in compliance with the 1933 Act (as defined below), and the
declaration or ordering of effectiveness of such Registration Statement or
document.

 

“Registrable Securities” shall mean the Shares and the shares of
Common Stock issuable (i) upon the exercise of the Warrants, if any, and (ii)
any other securities issued or issuable with respect to or in exchange for
Registrable Securities; provided, that, a security shall cease to be a
Registrable Security upon (A) sale pursuant to a Registration Statement or Rule
144 under the 1933 Act, or (B) such security becoming eligible for sale by the
Investors pursuant to Rule 144(k).

 

“Registration Statement” shall mean any registration statement
of the Company filed under the 1933 Act that covers the resale of any of the
Registrable Securities pursuant to the

 

 

provisions of this Agreement, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.

 

“Required Investors” means the Investors holding a majority of
the Registrable Securities.

 

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

 

“Shares” means the shares of Common Stock issued pursuant to the
Purchase Agreement.

 

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

 

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

 

“Warrants” means, the warrants to purchase shares of Common
Stock issued to the Investors pursuant to the Purchase Agreement, the form of
which is attached to the Purchase Agreement as Exhibit A.

 

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

 

2.   Registration.

 

(a)                                  Registration
Statements.

 

(i)                                     Promptly
following the closing of the purchase and sale of the securities contemplated
by the Purchase Agreement (the “Closing Date”) but no later than forty-five
(45) days after the Closing Date (the “Filing Deadline”), the Company shall
prepare and file with the SEC one Registration Statement on Form SB-2 (or, if
Form SB-2 is not then available to the Company, on such form of registration
statement as is then available to effect a registration for resale of the
Registrable Securities), covering the resale of the Registrable Securities in
an amount at least equal to the number of Shares plus the number of shares of
Common Stock necessary to permit the exercise in full of the Warrants.  Such Registration Statement may also include
shares of Common Stock (i) held by the Existing Holders or purchased by the
Existing Holders in the offering as contemplated by Section 6.1(i) of the
Purchase Agreement, (ii) purchased by the Other Holders in the offering as
contemplated by Section 6.1(i) of the Purchase Agreement and (iii) shares
of Common Stock issuable upon the exercise of warrants issued contemporaneously
with the Closing to the Company’s investment advisers as compensation related
to the Closing as described in Schedule 4.20 to the Purchase Agreement (collectively,
the “Other Shares”).  Such Registration
Statement shall include the plan of distribution attached hereto as Exhibit
A.  Such Registration Statement also
shall cover, to the extent allowable under the 1933 Act and the rules
promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the Registrable Securities.  The Company shall use its reasonable best
efforts to obtain from each person who now has piggyback registration rights,
other than the Existing Holders, a waiver of those rights with respect to the
Registration Statement, except with respect to the Other Shares.  The Registration Statement (and each
amendment or supplement thereto) shall be provided in accordance with
Section 3(c) to the

 

2

 

Investors and their counsel prior to its
filing or other submission.  If a
Registration Statement covering the Registrable Securities is not filed with
the SEC on or prior to the Filing Deadline, the Company will make pro rata
payments to each Investor, as liquidated damages and not as a penalty, in an
amount equal to 1.5% of the aggregate amount invested by such Investor for each
30-day period or pro rata for any portion thereof following the date by which
such Registration Statement should have been filed for which no Registration
Statement is filed with respect to the Registrable Securities.  Such payments shall be in partial
compensation to the Investors, and shall not constitute the Investors’
exclusive remedy for such events.  Such
payments shall be made to each Investor in cash.

 

(ii)                                  Additional
Registrable Securities.  Upon the
written demand of any Investor and upon any change in the Warrant Price (as
defined in the Warrant) such that additional shares of Common Stock become
issuable upon the exercise of the Warrants, the Company shall prepare and file
with the SEC one or more Registration Statements on Form SB-2 or amend the
Registration Statement filed pursuant to clause (i) above, if such Registration
Statement has not previously been declared effective (or, if Form SB-2 is not
then available to the Company, on such form of registration statement as is
then available to effect a registration for resale of such additional shares of
Common Stock (the “Additional Shares”), subject to the Required Investors’
consent) covering the resale of the Additional Shares, but only to the extent
the Additional Shares are not at the time covered by an effective Registration
Statement.  Such Registration Statement
may also include Additional Shares issuable to the Existing Holders and the
Other Investors pursuant to a change in the warrant price applicable to
warrants purchased by them in the offering as contemplated by Section 6(i)
of the Purchase Agreement. Such Registration Statement also shall cover, to the
extent allowable under the 1933 Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Additional Shares.  The
Company shall use its reasonable best efforts to obtain from each person who
now has piggyback registration rights a waiver of those rights with respect to
such Registration Statement, except with respect to the Additional Shares
issuable to the Existing Holders and the Other Investors.  The Registration Statement (and each amendment
or supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided in accordance with Section 3(c) to the
Investors and their counsel prior to its filing or other submission.  If a Registration Statement covering the
Additional Shares is required to be filed under this Section 2(a)(ii) and
is not filed with the SEC within five Business Days of the request of any
Investor or upon the occurrence of any of the events specified in this
Section 2(a)(ii), the Company will make pro rata payments to each Investor,
as liquidated damages and not as a penalty, in an amount equal to 1.5% of the
aggregate amount invested by such Investor for each 30-day period or pro rata
for any portion thereof following the date by which such Registration Statement
should have been filed for which no Registration Statement is filed with
respect to the Additional Shares.  Such
payments shall be in partial compensation to the Investors, and shall not
constitute the Investors’ exclusive remedy for such events.  Such payments shall be made to each Investor
in cash.

 

(iii)                               Promptly
following the date (the “Qualification Date”) upon which the Company becomes
eligible to use a registration statement on Form S-3 to register the
Registrable Securities or Additional Shares, as applicable, for resale, but in
no event more than

 

3

 

ten (10) days after the Qualification Date (the “Qualification
Deadline”), the Company shall file a registration statement on Form S-3
covering the Registrable Securities or Additional Shares, as applicable (or a
post-effective amendment on Form S-3 to the registration statement on Form
SB-2) (a “Shelf Registration Statement”) and shall use commercially reasonable
efforts to cause such Shelf Registration Statement to be declared effective as
promptly as practicable thereafter.  If
a Shelf Registration Statement covering the Registrable Securities is not filed
with the SEC on or prior to the Qualification Deadline, the Company will make
pro rata payments to each Investor, as liquidated damages and not as a penalty,
in an amount equal to 1.5% of the aggregate amount invested by such Investor
for each 30-day period or pro rata for any portion thereof following the date
by which such Shelf Registration Statement should have been filed for which no
such Shelf Registration Statement is filed with respect to the Registrable
Securities or Additional Shares, as applicable.  Such payments shall be in partial compensation to the Investors,
and shall not constitute the Investors’ exclusive remedy for such events.  Such payments shall be made to each Investor
in cash.

 

(b)                                 Expenses.  The Company will pay all expenses associated
with each registration, including filing and printing fees, the Company’s
counsel and accounting fees and expenses, costs associated with clearing the
Registrable Securities for sale under applicable state securities laws, listing
fees, fees and expenses of one counsel to the Investors, subject to the overall $30,000 limit in the related
Purchase Agreement, and the Investors’ reasonable expenses in
connection with the registration, but excluding discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals with respect to the Registrable Securities being sold.

 

(c)                                  Effectiveness.

 

(i)                                     The
Company shall use commercially reasonable efforts to have the Registration
Statement, any post effective amendment thereto and any Shelf Registration
Statement declared effective as soon as practicable.  The Company shall notify the Investors by facsimile or e-mail as
promptly as practicable, and in any event, within twenty-four (24) hours, after
any Registration Statement or post effective amendment is declared effective
and shall simultaneously provide the Investors with copies of any related
Prospectus to be used in connection with the sale or other disposition of the
securities covered thereby.  If (A)(x) a
Registration Statement covering the Registrable Securities is not declared effective
by the SEC within ninety (90) days after the Closing Date (120 days if the SEC
reviews the Registration Statement) (the “Effectiveness Deadline”), or (y) a
Registration Statement covering Additional Shares is not declared effective by
the SEC within ninety (90) days following the time such Registration Statement
was required to be filed pursuant to Section 2(a)(ii) (120 days if the SEC
reviews the Registration Statement), or (z) a Shelf Registration Statement is
not declared effective by the SEC within 90 days after the Qualification Deadline
(120 days if the SEC reviews the Shelf Registration Statement), or (B) after a Registration Statement has been declared effective by the
SEC, sales cannot be made pursuant to such Registration Statement for any
reason (including without limitation by reason of a stop order, or the
Company’s failure to update the Registration Statement), but excluding the
inability of any Investor to sell the Registrable Securities covered thereby
due to market conditions, its demand and receipt of material, non-public
information pursuant to Section 4 herein, and except as excused pursuant
to subparagraph (ii) below, then the Company will make pro
rata payments to each Investor, as

 

4

 

liquidated damages and not as a penalty, in
an amount equal to 1.5% of the aggregate amount invested by such Investor for
each 30-day period or pro rata for any portion thereof following the date by
which such Registration Statement should have been effective (the “Blackout
Period”).  Such payments shall be in
partial compensation to the Investors, and shall not constitute the Investors’
exclusive remedy for such events.  The
amounts payable as liquidated damages pursuant to this paragraph shall be paid
monthly within three (3) Business Days of the last day of each month following
the commencement of the Blackout Period until the termination of the Blackout
Period.  Such payments shall be made to
each Investor in cash.

 

(ii)                                  For
not more than twenty (20) consecutive days or for a total of not more than
forty-five (45) days in any twelve (12) month period, the Company may delay the
disclosure of material non-public information concerning the Company, by
suspending the use of any Prospectus included in any registration contemplated
by this Section containing such information, the disclosure of which at
the time is not, in the good faith opinion of the Company, in the best
interests of the Company (an “Allowed Delay”); provided, however, that so long
as the Registration Statement is on Form SB-2 or on any other form that does
not allow for incorporation by reference of reports and other materials filed
by the Company pursuant to Section 13(a) or 15(d) of the 1934 Act, the
Company may upon written notice to the Investors suspend sales under the Registration
Statement to the extent, but in any such case only to the extent, necessary to
allow any post-effective amendment to the Registration Statement or supplement
to the Prospectus to be prepared and filed with the SEC and, if necessary,
declared effective (and such suspension shall be deemed to be an Allowed Delay
without regard to the time periods mentioned above) for the period commencing
at the time that the Company disseminates a press release announcing its
preliminary financial results for any fiscal period or announcing a material
development and ending on the second Business Day after the earlier of (A) the
date that the related report on Form 10-KSB, 10-QSB or 8-K, as applicable, is
filed with the SEC and (B) the date on which such report is required to be
filed under the 1934 Act (without regard to Rule 12b-25 promulgated
thereunder); provided, further, that in the event the Company determines in
good faith, based on the advice of counsel, that the matters disclosed in such
press release require the filing of a post-effective amendment to the
Registration Statement, the Company shall file such post-effective amendment
promptly and in no event later than ten (10) Business Days after the date such
matters are first disclosed to the public and shall use commercially reasonable
efforts to have such post-effective amendment to the Registration Statement
declared effective as promptly as practicable and the period for which the
Company may suspend the use of the Registration Statement shall be extended to
the earliest to occur of (W) the date the post-effective amendment to the
Registration Statement is withdrawn by the Company, (X) the date such
post-effective amendment to the Registration Statement is declared effective by
the SEC, (Y) the second Business Day after the SEC has notified the Company
that either (I) it has elected not to review the post-effective amendment to
the Registration Statement or (II) it has no further comments on the
post-effective amendment to the Registration Statement or (Z) 45 days after the
initial filing of the post-effective amendment to the Registration Statement
with the SEC.

 

(iii) The Company shall promptly (a) notify the Investors in writing of
the existence of (but in no event, without the prior written consent of an
Investor, shall the Company disclose to such Investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay, (b) advise the Investors in writing to cease all sales

 

5

 

under the Registration Statement until the
end of the Allowed Delay and (c) use commercially reasonable efforts to
terminate an Allowed Delay as promptly as practicable.

 

3.   Company Obligations.  The Company will use commercially reasonable
efforts to effect the registration of the Registrable Securities in accordance
with the terms hereof, and pursuant thereto the Company will, as expeditiously
as possible:

 

(a)                                  use commercially
reasonable efforts to cause such Registration Statement to become effective and
subject to Section 2(c)(ii) to remain continuously effective for a period
that will terminate upon the earlier of (i) the date on which all Registrable
Securities covered by such Registration Statement as amended from time to time,
have been sold, and (ii) the date on which all Registrable Securities covered
by such Registration Statement may be sold pursuant to Rule 144(k) (the
“Effectiveness Period”) and advise the Investors in writing when the
Effectiveness Period has expired;

 

(b)                                 prepare and file with
the SEC such amendments and post-effective amendments to the Registration
Statement and the Prospectus as may be necessary to keep the Registration
Statement effective for the period specified in Section 3(a);

 

(c)                                  provide copies to and
permit counsel designated by the SSF Investors (as that term is defined in the
Purchase Agreement) to review each Registration Statement and all amendments
and supplements thereto no fewer than three (3) Business Days prior to their
filing with the SEC and not file any document to which such counsel reasonably
objects;

 

(d)                                 furnish to the
Investors and counsel to the SSF Investors (i) promptly after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company (but not later than two (2) Business Days after the filing date,
receipt date or sending date, as the case may be) one (1) copy of any
Registration Statement and any amendment thereto, each preliminary prospectus
and Prospectus and each amendment or supplement thereto, and each letter
written by or on behalf of the Company to the SEC or the staff of the SEC, and
each item of correspondence from the SEC or the staff of the SEC, in each case
relating to such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential treatment),
and (ii) such number of copies of a Prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents
as each Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor that are covered by the
related Registration Statement;

 

(e)                                  use commercially
reasonable efforts to (i) prevent the issuance of any stop order or other
suspension of effectiveness and, (ii) if such order is issued, obtain the
withdrawal of any such order at the earliest possible moment;

 

(f)                                    prior to any public
offering of Registrable Securities, use commercially reasonable efforts to
register or qualify or cooperate with the Investors and counsel to the SSF
Investors in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such

 

6

 

jurisdictions listed on
Schedule 3(f) hereto and do any and all other commercially reasonable acts
or things necessary or advisable to enable the distribution in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (i) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(f), (ii) subject itself to general taxation in any jurisdiction
where it would not otherwise be so subject but for this Section 3(f), or
(iii) file a general consent to service of process in any such jurisdiction;

 

(g)                                 use commercially
reasonable efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange, interdealer
quotation system or other market on which similar securities issued by the
Company are then listed;

 

(h)                                 promptly notify the
Investors, at any time when a Prospectus relating to Registrable Securities is
required to be delivered under the 1933 Act, upon discovery that, or upon the
happening of any event as a result of which, the Prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing, and at the request of any such holder, promptly
prepare and furnish to such holder a reasonable number of copies of a
supplement to or an amendment of such Prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
and

 

(i)                                     otherwise use
commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, take such other
actions as may be reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its security holders,
as soon as reasonably practicable, but not later than the Availability Date (as
defined below), an earnings statement covering a period of at least twelve (12)
months, beginning after the effective date of each Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the 1933 Act, including Rule 158 promulgated thereunder (for the purpose of
this subsection 3(i), “Availability Date” means the 45th day following the
end of the fourth fiscal quarter that includes the effective date of such
Registration Statement, except that, if such fourth fiscal quarter is the last
quarter of the Company’s fiscal year, “Availability Date” means the 90th day
after the end of such fourth fiscal quarter).

 

(j)                                     With
a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any
time permit the Investors to sell shares of Common Stock to the public without
registration, the Company covenants and agrees to:  (i) make and keep public information available, as those terms
are understood and defined in Rule 144, until the earlier of (A) six months
after such date as all of the Registrable Securities may be resold pursuant to
Rule 144(k) or any other rule of similar effect or (B) such date as all of the
Registrable Securities shall have been resold; (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under

 

7

 

the 1934 Act; and (iii) furnish to each Investor upon request, as long
as such Investor owns any Registrable Securities, (A) a written statement by
the Company that it has complied with the reporting requirements of the 1934
Act, (B) a copy of the Company’s most recent Annual Report on Form 10-KSB or
Quarterly Report on Form 10-QSB, and (C) such other information as may be
reasonably requested in order to avail such Investor of any rule or regulation
of the SEC that permits the selling of any such Registrable Securities without
registration.

 

4.   Due Diligence Review; Information.  The Company shall make available, during
normal business hours, for inspection and review by the SSF Investors, advisors
to and representatives of the SSF Investors (who may or may not be affiliated
with the Investors and who are reasonably acceptable to the Company), all
financial and other records, all SEC Filings (as defined in the Purchase
Agreement) and other filings with the SEC, and all other corporate documents
and properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company’s officers, directors and employees, within
a reasonable time period, to supply all such information reasonably requested
by the SSF Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the SSF
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of such Registration
Statement.

 

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.

 

5.   Obligations of the Investors.

 

(a)                                  Each Investor shall
furnish to the Company upon request a completed Questionnaire in the form
attached to this Agreement as Exhibit B (a “Selling Holder
Questionnaire”).  The Company shall
advise the Investors in writing of the proposed first anticipated filing date
of any Registration Statement (the “Filing Date”) at least four (4) Business
Days prior to such Filing Date which notice shall request that the Investors
complete and return the Selling Holder Questionnaires not later than one (1)
Business Day prior to the Filing Date (the “Information Deadline Date”).  Notwithstanding any provision herein to the
contrary, the Company shall not be required to include the Registrable
Securities of an Investor in a Registration Statement if such Investor fails to
furnish to the Company a fully completed Selling Holder Questionnaire in
writing to the Company on or prior to the close of business on the Information
Deadline Date and shall not be required to pay any liquidated or other damages
under Section 2 hereof to any such Investor resulting solely from the
failure of such Investor to provide a completed Selling Holder Questionnaire to
the Company on or prior to the Information Deadline Date.

 

8

 

(b)                                 Each Investor, by its
acceptance of the Registrable Securities agrees to cooperate with the Company
as reasonably requested by the Company in connection with the preparation and
filing of a Registration Statement hereunder, unless such Investor has notified
the Company in writing of its election to exclude all of its Registrable Securities
from such Registration Statement.

 

(c)                                  Each Investor agrees
that, upon receipt of any notice from the Company of either (i) the
commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
happening of an event pursuant to Section 3(h) hereof, such Investor will
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities, until the
Investor’s receipt of the copies of the supplemented or amended prospectus filed
with the SEC and until any related post-effective amendment is declared
effective and, if so directed by the Company, the Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company
a certificate of destruction) all copies in the Investor’s possession of the
Prospectus covering the Registrable Securities current at the time of receipt
of such notice.

 

(d)                                 Each
Investor hereby acknowledges that it is aware that the United States securities
laws may prohibit a person who has material, non-public information concerning
the Company from purchasing or selling securities of the Company and agrees to
comply with all such laws.

 

(e)                                  Each Investor agrees
that in effecting sales or other dispositions of Registrable Securities, it
will comply with all applicable requirements of the 1933 Act, including any
prospectus delivery requirement applicable to such sales or dispositions.

 

6.   Indemnification.

 

(a)                                  Indemnification by
the Company.  The Company will
indemnify and hold harmless each Investor and its officers, directors, members,
employees and agents, successors and assigns, and each other person, if any,
who controls such Investor within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof; (ii) any blue sky application or other document executed by
the Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Registrable Securities under the securities laws
thereof (any such application, document or information herein called a “Blue
Sky Application”); (iii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (iv) any violation by the Company or its agents of any
rule or regulation promulgated under the 1933 Act applicable to the Company or
its agents and relating to action or inaction required of the Company in
connection with such registration; or (v) any failure to register or qualify
the Registrable Securities included in any such Registration in any state where
the Company or its

 

9

 

agents has affirmatively
undertaken or agreed in writing that the Company will undertake such
registration or qualification on an Investor’s behalf and will reimburse such
Investor, and each such officer, director or member and each such controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not
be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission (i) so made in
conformity with information furnished by such Investor or any such controlling
person in writing specifically for use in such Registration Statement or
Prospectus or (ii) in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to such Investor a reasonable period of time
before the pertinent sale or sales by such Investor; Provided further,
that in no event shall the liability of the Company exceed the greater of the
Purchase Price (as defined in the Purchase Agreement) or the fair market value
of the Securities (as defined in the Purchase Agreement) then held by such
Investor at the time of such loss, claim, damage or liability.

 

(b)                                 Indemnification by
the Investors.  Each Investor
agrees, severally but not jointly, to indemnify and hold harmless, to the
fullest extent permitted by law, the Company, its directors, officers,
employees, stockholders and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and
expense (including reasonable attorney fees) resulting from (i) any untrue
statement of a material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary prospectus or
amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or
omission is contained in any information furnished in writing by such Investor
to the Company specifically for inclusion in such Registration Statement or
Prospectus or amendment or supplement thereto or (ii) any failure of such
Investor to comply with the covenants and agreements contained in this
Agreement respecting resale of the Registrable Securities and such Investor
will reimburse the Company, each of its directors, officers, agents and
employees, and any controlling persons for any reasonable legal and other
expense incurred by the Company, its directors, officers, agents and employees,
and any controlling persons, in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action.  In no event shall
the liability of an Investor be greater in amount than the dollar amount of the
proceeds (net of all expense paid by such Investor in connection with any claim
relating to this Section 6 and the amount of any damages such Investor has
otherwise been required to pay by reason of such untrue statement or omission)
received by such Investor upon the sale of the Registrable Securities included
in the Registration Statement giving rise to such indemnification obligation.

 

(c)                                  Conduct of
Indemnification Proceedings.  Any
person entitled to indemnification hereunder shall (i) give prompt notice to
the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party; provided
that any person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such person
unless (a) the indemnifying party has agreed to pay such fees or expenses, or
(b) the indemnifying party shall have failed to assume the

 

10

 

defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and provided,
further, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim or litigation.  It is understood
that the indemnifying party shall not, in connection with any proceeding in the
same jurisdiction, be liable for fees or expenses of more than one separate
firm of attorneys at any time for all such indemnified parties.  No indemnifying party will, except with the
consent of the indemnified party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation.

 

(d)                                 Contribution.  If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations. 
No person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the 1933 Act shall be entitled to contribution from any
person not guilty of such fraudulent misrepresentation.  In no event shall the contribution
obligation of a holder of Registrable Securities be greater in amount than the
dollar amount of the proceeds (net of all expenses paid by such holder in
connection with any claim relating to this Section 6 and the amount of any
damages such holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission) received by it
upon the sale of the Registrable Securities giving rise to such contribution
obligation.

 

7.   Miscellaneous.

 

(a)                                  Amendments and
Waivers.  This Agreement may be
amended only by a writing signed by the Company and the Required
Investors.  The Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to
such amendment, action or omission to act, of the Required Investors.

 

(b)                                 Notices.  All notices and other communications
provided for or permitted hereunder shall be made as set forth in
Section 9.4 of the Purchase Agreement.

 

(c)                                  Assignments and
Transfers by Investors.  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the Investors and their respective successors and assigns.  An Investor may transfer or assign, in whole
or from time to time in part, to one or more persons its rights hereunder in
connection with the transfer of Registrable

 

11

 

Securities by such Investor to
such person, provided that such Investor complies with all laws applicable
thereto and provides written notice of assignment to the Company promptly after
such assignment is effected.

 

(d)                                 Assignments and Transfers
by the Company.  This Agreement may
not be assigned by the Company (whether by operation of law or otherwise)
without the prior written consent of the Required Investors, provided, however,
that the Company may assign its rights and delegate its duties hereunder to any
surviving or successor corporation in connection with a merger or consolidation
of the Company with another corporation, or a sale, transfer or other
disposition of all or substantially all of the Company’s assets to another
corporation, without the prior written consent of the Required Investors, after
notice duly given by the Company to each Investor.

 

(e)                                  Benefits of the
Agreement.  The terms and conditions
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.

 

(f)                                    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.

 

(g)                                 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.

 

(h)                                 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 provisions hereof prohibited or unenforceable in any respect.

 

(i)                                     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.

 

(j)                                     Entire
Agreement.  This Agreement is
intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained

 

12

 

herein.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

 

(k)                                  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.

 

13

 

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

  
					

 

14

 

[INVESTORS’ SIGNATURE PAGE]

 

15

 

Exhibit A

 

Plan of Distribution

 

The selling stockholders, which as used herein includes donees,
pledgees, transferees or other successors-in-interest selling shares of common
stock or interests in shares of common stock received after the date of this
prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of
common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. 
These dispositions may be at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market price, at
varying prices determined at the time of sale, or at negotiated prices.

 

The selling stockholders may use any one or more of the following
methods when disposing of shares or interests therein:

 

• ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

 

• block
trades in which the broker-dealer will attempt to sell the shares as agent, but
may position and resell a portion of the block as principal to facilitate the
transaction;

 

• purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

 

• an
exchange distribution in accordance with the rules of the applicable exchange;

 

• privately
negotiated transactions;

 

• short
sales effected after the date of this Prospectus;

 

• through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;

 

• broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;

 

• a
combination of any such methods of sale; and

 

• any
other method permitted pursuant to applicable law.

 

The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock, from
time to time, under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the

 

 

list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this
prospectus.  The selling stockholders
also may transfer the shares of common stock in other circumstances, in which
case the transferees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.

 

In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in
short sales of the common stock in the course of hedging the positions they
assume.  The selling stockholders may
also sell shares of our common stock short and deliver these securities to
close out their short positions, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities.  The selling stockholders may also enter into
option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).

 

The
aggregate proceeds to the selling stockholders from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any.  Each
of the selling stockholders reserves the right to accept and, together with their
agents from time to time, to reject, in whole or in part, any proposed purchase
of common stock to be made directly or through agents.  We will not receive any of the proceeds from
this offering. Upon any exercise of the warrants by payment of cash, however,
we will receive the exercise price of the warrants.

 

The selling stockholders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act
of 1933, provided that they meet the criteria and conform to the requirements
of that rule.

 

The selling stockholders and any underwriters, broker-dealers or
agents that participate in the sale of the common stock or interests therein
may be “underwriters” within the meaning of Section 2(11) of the Securities
Act.  Any discounts, commissions,
concessions or profit they earn on any resale of the shares may be underwriting
discounts and commissions under the Securities Act.  Selling stockholders who are “underwriters” within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus
delivery requirements of the Securities Act.

 

To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth
in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

 

In
order to comply with the securities laws of some states, if applicable, the
common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers.  In
addition, in some states the common stock may not be sold unless it has been
registered or

 

17

 

qualified
for sale or an exemption from registration or qualification requirements is
available and is complied with.

 

We
have advised the selling stockholders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling stockholders and their affiliates.  In addition, we will make copies of this
prospectus (as it may be supplemented or amended from time to time) available
to the selling stockholders for the purpose of satisfying the prospectus
delivery requirements of the Securities Act. 
The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act.

 

We
have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.

 

We
have agreed with the selling stockholders to keep the registration statement of
which this prospectus constitutes a part effective until the earlier of (1)
such time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or (2) the date
on which the shares may be sold pursuant to Rule 144(k) of the Securities Act.

 

Each selling stockholder has represented and warranted to us that, at
the time it acquired the securities subject to the registration statement, it
did not have any agreement or understanding, directly or indirectly, with any
person to distribute any of such securities. 
We have advised each selling stockholder that it may not use shares
registered on the registration statement to cover short sales of our common
stock made prior to the date on which the registration statement was declared
effective by the Securities and Exchange Commission.

 

18

 

Exhibit B

 

[Form of Questionnaire]

 

19

 

Schedule 3(f)

 

Blue Sky Jurisdictions

 

New York

New Jersey

Connecticut

Massachusetts

Pennsylvania

Texas

California

Nevada

 

20

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00068-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00068-of-00352.parquet"}]]