Document:

Exhibit 10.3

 

THE SECURITIES
REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN
REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II)
SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III) THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER
MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

 

SUBJECT TO THE
PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M.
EASTERN TIME ON MARCH 31, 2011 (THE “EXPIRATION DATE”).

 

No.                     

 

PRIMAL
SOLUTIONS, INC.

 

WARRANT TO
PURCHASE            SHARES OF

COMMON
STOCK, PAR VALUE $0.01 PER SHARE

 

For VALUE RECEIVED,
                                  
(“Warrantholder”), is entitled to purchase, subject to the provisions of this
Warrant, from Primal Solutions, Inc., a Delaware corporation (“Company”), at
any time not later than 5:00 P.M., Eastern time, on the Expiration Date (as
defined above), at an exercise price per share equal to $0.15 (the exercise
price in effect being herein called the “Warrant Price”),                
shares (“Warrant Shares”) of the Company’s Common Stock, par value $0.01 per
share (“Common Stock”). The number of Warrant Shares purchasable upon exercise
of this Warrant and the Warrant Price shall be subject to adjustment from time
to time as described herein.

 

Section 1.               Registration.
The Company shall maintain books for the transfer and registration of the
Warrant. Upon the initial issuance of this Warrant, the Company shall issue and
register the Warrant in the name of the Warrantholder.

 

Section 2.               Transfers.
As provided herein, this Warrant may be transferred only pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the “Securities
Act”), or an exemption from such registration. Subject to such restrictions,
the Company shall transfer this Warrant from time to time upon the books to be
maintained by the Company for that purpose, upon surrender hereof for transfer,
properly endorsed or accompanied by appropriate instructions for transfer and
such other documents as may be reasonably required by the Company, including,
if required by the Company, an opinion of its counsel to the effect that such
transfer is exempt from the registration requirements of the Securities Act, to
establish that such transfer is being made in accordance with the terms hereof,
and a new Warrant shall be issued to the transferee and the surrendered Warrant
shall be canceled by the Company.

 

 

Section 3.               Exercise
of Warrant. Subject to the provisions hereof, the Warrantholder may
exercise this Warrant, in whole or in part, at any time prior to its expiration
upon surrender of the Warrant, together with delivery of a duly executed
Warrant exercise form, in the form attached hereto as Appendix A (the “Exercise
Agreement”) and payment by cash, certified check or wire transfer of funds (or,
in certain circumstances, by cashless exercise as provided below) of the
aggregate Warrant Price for that number of Warrant Shares then being purchased,
to the Company during normal business hours on any business day at the
Company’s principal executive offices (or such other office or agency of the Company
as it may designate by notice to the Warrantholder). The Warrant Shares so
purchased shall be deemed to be issued to the Warrantholder or the
Warrantholder’s designee, as the record owner of such shares, as of the close
of business on the date on which this Warrant shall have been surrendered (or
the date evidence of loss, theft or destruction thereof and security or
indemnity satisfactory to the Company has been provided to the Company), the
Warrant Price shall have been paid and the completed Exercise Agreement shall
have been delivered. Certificates for the Warrant Shares so purchased shall be
delivered to the Warrantholder within a reasonable time, not exceeding three
(3) business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the Warrantholder and shall be registered in the name of the Warrantholder or
such other name as shall be designated by the Warrantholder, as specified in
the Exercise Agreement. If this Warrant shall have been exercised only in part,
then, unless this Warrant has expired, the Company shall, at its expense, at
the time of delivery of such certificates, deliver to the Warrantholder a new
Warrant representing the right to purchase the number of shares with respect to
which this Warrant shall not then have been exercised. As used herein,
“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. Each exercise
hereof shall constitute the re-affirmation by the Warrantholder that the
representations and warranties contained in Section 5 of the Purchase Agreement
(as defined below) are true and correct in all material respects with respect
to the Warrantholder as of the time of such exercise.

 

Section 4.               Compliance
with the Securities Act of 1933. Except as provided in the Purchase
Agreement (as defined below), the Company may cause the legend set forth on the
first page of this Warrant to be set forth on each Warrant, and a similar
legend on any security issued or issuable upon exercise of this Warrant, unless
counsel for the Company is of the opinion as to any such security that such
legend is unnecessary.

 

Section 5.               Payment
of Taxes. The Company will pay any documentary stamp taxes attributable to
the initial issuance of Warrant Shares issuable upon the exercise of the
Warrant; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates for Warrant Shares in a name other
than that of the Warrantholder in respect of which such shares are issued, and
in such case, the Company shall not be required to issue or deliver any
certificate for Warrant Shares or any Warrant until the person requesting the
same has paid to the Company the amount of such tax or has established to the
Company’s reasonable satisfaction that such tax has been paid. The
Warrantholder shall be responsible for income taxes due under federal, state or
other law, if any such tax is due.

 

Section 6.               Mutilated
or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen,
or destroyed, the Company shall issue in exchange and substitution of and upon
surrender and cancellation of the mutilated Warrant, or in lieu of and
substitution for the Warrant 

 

2

 

lost, stolen or destroyed, a new Warrant of like tenor and for the
purchase of a like number of Warrant Shares, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction of
the Warrant, and with respect to a lost, stolen or destroyed Warrant,
reasonable indemnity or bond with respect thereto, if requested by the Company.

 

Section 7.               Reservation
of Common Stock. The Company hereby represents and warrants that there have
been reserved, and the Company shall at all applicable times keep reserved
until issued (if necessary) as contemplated by this Section 7, out of the
authorized and unissued shares of Common Stock, sufficient shares to provide
for the exercise of the rights of purchase represented by this Warrant. The
Company agrees that all Warrant Shares issued upon due exercise of the Warrant
shall be, at the time of delivery of the certificates for such Warrant Shares,
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock of the Company.

 

Section 8.               Adjustments. Subject and
pursuant to the provisions of this Section 8, the Warrant Price and number of
Warrant Shares subject to this Warrant shall be subject to adjustment from time
to time as set forth hereinafter.

 

(a)           If the Company shall, at any time or
from time to time while this Warrant is outstanding, pay a dividend or make a
distribution on its Common Stock in shares of Common Stock, subdivide its
outstanding shares of Common Stock into a greater number of shares or combine
its outstanding shares of Common Stock into a smaller number of shares or issue
by reclassification of its outstanding shares of Common Stock any shares of its
capital stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then (i) the Warrant Price in effect immediately prior to the date on which
such change shall become effective shall be adjusted by multiplying such
Warrant Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such change and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after giving effect to such change and (ii) the number of Warrant
Shares purchasable upon exercise of this Warrant shall be adjusted by
multiplying the number of Warrant Shares purchasable upon exercise of this
Warrant immediately prior to the date on which such change shall become
effective by a fraction, the numerator of which is shall be the Warrant Price
in effect immediately prior to the date on which such change shall become effective
and the denominator of which shall be the Warrant Price in effect immediately
after giving effect to such change, calculated in accordance with clause (i)
above. Such adjustments shall be made successively whenever any event listed
above shall occur.

 

(b)           If any capital reorganization,
reclassification of the capital stock of the Company, consolidation or merger
of the Company with another corporation in which the Company is not the
survivor, or sale, transfer or other disposition of all or substantially all of
the Company’s assets to another corporation shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition, lawful and adequate provision shall be
made whereby each Warrantholder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions herein specified and
in lieu of the Warrant Shares immediately theretofore issuable upon exercise of
the Warrant, such 

 

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shares of stock, securities or assets as would have been issuable or
payable with respect to or in exchange for a number of Warrant Shares equal to
the number of Warrant Shares immediately theretofore issuable upon exercise of
the Warrant, had such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
each Warrantholder to the end that the provisions hereof (including, without
limitation, provision for adjustment of the Warrant Price) shall thereafter be
applicable, as nearly equivalent as may be practicable in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any such consolidation, merger, sale,
transfer or other disposition unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company) resulting
from such consolidation or merger, or the corporation purchasing or otherwise
acquiring such assets or other appropriate corporation or entity shall assume
the obligation to deliver to the Warrantholder, at the last address of the
Warrantholder appearing on the books of the Company, such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Warrantholder may be entitled to purchase, and the other obligations under this
Warrant. The provisions of this paragraph (b) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
transfers or other dispositions.

 

(c)           In case the Company shall fix a
payment date for the making of a distribution to all holders of Common Stock (including
any such distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation) of evidences of indebtedness
or assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends or distributions referred
to in Section 8(a)), or subscription rights or warrants, the Warrant Price to
be in effect after such payment date shall be determined by multiplying the
Warrant Price in effect immediately prior to such payment date by a fraction,
the numerator of which shall be the total number of shares of Common Stock
outstanding multiplied by the Market Price (as defined below) per share of
Common Stock immediately prior to such payment date, less the fair market value
(as determined by the Company’s Board of Directors in good faith) of said
assets or evidences of indebtedness so distributed, or of such subscription
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such Market Price per share of
Common Stock immediately prior to such payment date. “Market Price” as of a
particular date (the “Valuation Date”) shall mean the following: (a) if the
Common Stock is then listed on a national stock exchange, the closing sale
price of one share of Common Stock on such exchange on the last trading day
prior to the Valuation Date; (b) if the Common Stock is then quoted on The
Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of Securities
Dealers, Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar
quotation system or association, the closing sale price of one share of Common
Stock on Nasdaq, the Bulletin Board or such other quotation system or
association on the last trading day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low asked
price quoted thereon on the last trading day prior to the Valuation Date; or
(c) if the Common Stock is not then listed on a national stock exchange or
quoted on Nasdaq, the Bulletin Board or such other quotation system or
association, the fair market value of one share of Common Stock as of the
Valuation Date, as determined in good faith by the Board of Directors of the
Company and the Warrantholder. If the Common Stock is not then listed on a
national securities exchange, 

 

4

 

Nasdaq, the Bulletin Board or such other quotation system or
association, the Board of Directors of the Company shall respond promptly, in
writing, to an inquiry by the Warrantholder prior to the exercise hereunder as
to the fair market value of a share of Common Stock as determined by the Board
of Directors of the Company. In the event that the Board of Directors of the
Company and the Warrantholder are unable to agree upon the fair market value in
respect of subpart (c) of this paragraph, the Company and the Warrantholder
shall jointly select an appraiser, who is experienced in such matters. The
decision of such appraiser shall be final and conclusive, and the cost of such
appraiser shall be borne equally by the Company and the Warrantholder. Such
adjustment shall be made successively whenever such a payment date is fixed.

 

(d)           An adjustment to the Warrant Price shall
become effective immediately after the payment date in the case of each
dividend or distribution and immediately after the effective date of each other
event which requires an adjustment.

 

(e)           In the event that, as a result of an
adjustment made pursuant to this Section 8, the Warrantholder shall become
entitled to receive any shares of capital stock of the Company other than
shares of Common Stock, the number of such other shares so receivable upon
exercise of this Warrant shall be subject thereafter to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in this Warrant.

 

(f)            Except as provided in subsection (g)
hereof, if and whenever the Company shall issue or sell, or is, in accordance
with any of subsections (f)(l) through (f)(7) hereof, deemed to have issued or
sold, any Additional Shares of Common Stock for no consideration or for a
consideration per share less than the Warrant Price in effect immediately prior
to the time of such issue or sale, then and in each such case (a “Trigger
Issuance”) the then-existing Warrant Price, shall be reduced, as of the
close of business on the effective date of the Trigger Issuance, to (i) the
lowest price per share at which any share of Common Stock was issued or sold or
deemed to be issued or sold if the Trigger Issuance occurs on or after
September      , 2006 (the “Full-Ratchet Date”)
or (ii) if the Trigger Issuance occurs prior to the Full-Ratchet Date, a price
determined as follows:

 

	
  Adjusted
  Warrant Price = (A x B) + D

  
	
  A+C

  

 

where

 

“A” equals the
number of shares of Common Stock outstanding, including Additional Shares of
Common Stock (as defined below) deemed to be issued hereunder, immediately
preceding such Trigger Issuance;

 

“B” equals the
Warrant Price in effect immediately preceding such Trigger Issuance;

 

“C” equals the
number of Additional Shares of Common Stock issued or deemed issued hereunder
as a result of the Trigger Issuance; and

 

5

 

“D” equals the
aggregate consideration, if any, received or deemed to be received by the
Company upon such Trigger Issuance;

 

provided, however, that in no event shall the
Warrant Price after giving effect to such Trigger Issuance be greater than the
Warrant Price in effect prior to such Trigger Issuance.

 

For purposes
of this subsection (f), “Additional Shares of Common Stock” shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this subsection (f), other than Excluded Issuances (as defined in subsection
(g) hereof).

 

For purposes
of this subsection (f), the following subsections (f)(l) to (f)(7) shall also
be applicable:

 

(f)(1)  Issuance of Rights or
Options. In case at any time the Company shall in any manner grant (directly
and not by assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of, Common Stock
or any stock or security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called “Options” and such convertible
or exchangeable stock or securities being called “Convertible Securities”)
whether or not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the sum (which sum shall constitute the applicable consideration) of (x)
the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus (y) the aggregate amount
of additional consideration payable to the Company upon the exercise of all
such Options, plus (z), in the case of such Options which relate to Convertible
Securities, the aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange
of all such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Warrant Price in effect immediately prior to the time of
the granting of such Options, then the total number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of
the total amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for such price per share as of
the date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Warrant Price. Except as otherwise provided in subsection
8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issue
of such Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.

 

6

 

(f)(2)  Issuance of Convertible
Securities. In case the Company shall in any manner issue (directly and not by
assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the sum (which sum shall constitute the applicable consideration)
of (x) the total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus (y) the aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Warrant Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as of
the date of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Warrant Price,
provided that (a) except as otherwise provided in subsection 8(f)(3), no
adjustment of the Warrant Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
no further adjustment of the Warrant Price shall be made by reason of the issue
or sale of Convertible Securities upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Warrant Price have
been made pursuant to the other provisions of subsection 8(f).

 

(f)(3) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in any
Option referred to in subsection 8(f)(l) hereof, the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Securities
referred to in subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible
Securities referred to in subsections 8(f)(l) or 8(f)(2) are convertible into
or exchangeable for Common Stock shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect
against dilution), the Warrant Price in effect at the time of such event shall
forthwith be readjusted to the Warrant Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or sold. On the
termination of any Option for which any adjustment was made pursuant to this
subsection 8(f) or any right to convert or exchange Convertible Securities for
which any adjustment was made pursuant to this subsection 8(f) (including
without limitation upon the redemption or purchase for consideration of such
Convertible Securities by the Company), the Warrant Price then in effect
hereunder shall forthwith be changed to the Warrant Price which would have been
in effect at the time of such termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such termination,
never been issued.

 

7

 

(f)(4) Stock Dividends. Subject to the provisions of this Section 8(f),
in case the Company shall declare or pay a dividend or make any other distribution
upon any stock of the Company (other than the Common Stock) payable in Common
Stock, Options or Convertible Securities (other than a dividend or distribution
for which an adjustment has been made pursuant to Section 8(a)), then any
Common Stock, Options or Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be deemed to have been issued
or sold without consideration.

 

(f)(5) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the net amount received
by the Company therefor, after deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Company, after deduction of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any Options shall be
issued in connection with the issue and sale of other securities of the
Company, together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, such Options
shall be deemed to have been issued for such consideration as determined in
good faith by the Board of Directors of the Company. If Common Stock, Options
or Convertible Securities shall be issued or sold by the Company and, in
connection therewith, other Options or Convertible Securities (the “Additional
Rights”) are issued, then the consideration received or deemed to be received
by the Company shall be reduced by the fair market value of the Additional
Rights (as determined using the Black-Scholes option pricing model or another
method mutually agreed to by the Company and the Warrantholder). The Board of
Directors of the Company shall respond promptly, in writing, to an inquiry by
the Warrantholder as to the fair market value of the Additional Rights. In the
event that the Board of Directors of the Company and the Warrantholder are
unable to agree upon the fair market value of the Additional Rights, the
Company and the Warrantholder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall be final and
conclusive, and the cost of such appraiser shall be borne evenly by the Company
and the Warrantholder.

 

(f)(6) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

8

 

(f)(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any of its wholly-owned subsidiaries, and the
disposition of any such shares (other than the cancellation or retirement
thereof) shall be considered an issue or sale of Common Stock for the purpose
of this subsection (f).

 

(g)           Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of
the Warrant Price in the case of the issuance of (A) capital stock, Options or
Convertible Securities issued to (i) directors, officers, employees, advisers
or consultants of the Company in connection with their service as directors of
the Company, their employment by the Company or their retention as advisers or
consultants by the Company pursuant to an equity compensation program approved
by the Board of Directors of the Company or the compensation committee of the
Board of Directors of the Company or (ii) landlords and/or commercial lenders;
provided, that in the case of any issuance pursuant to this clause (A), the
exercise or conversion price of any such Options or Convertible Securities
shall be at least equal to the Market Price on the date of grant, (B) shares of
Common Stock issued upon the conversion or exercise of Options or Convertible
Securities issued prior to the date hereof, provided such securities are not
amended after the date hereof to increase the number of shares of Common Stock
issuable thereunder or to lower the exercise or conversion price thereof, (C)
securities issued pursuant to that certain Purchase Agreement dated March 31,
2006, among the Company, Wireless Billing Systems and the Investors named
therein (the “Purchase Agreement”) and securities issued upon the exercise or
conversion of those securities, and (D) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares
of Common Stock (but only to the extent that such a dividend, split or
distribution results in an adjustment in the Warrant Price pursuant to the
other provisions of this Warrant) (collectively, “Excluded Issuances”).

 

(h)           Upon any adjustment to the Warrant Price pursuant to
Section 8(f) above, the number of Warrant Shares purchasable hereunder shall be
adjusted by multiplying such number by a fraction, the numerator of which shall
be the Warrant Price in effect immediately prior to such adjustment and the
denominator of which shall be the Warrant Price in effect immediately
thereafter.

 

(i)            To the extent permitted by
applicable law and the listing requirements of any stock market or exchange on
which the Common Stock is then listed, the Company from time to time may
decrease the Warrant Price by any amount for any period of time if the period
is at least twenty (20) days, the decrease is irrevocable during the period and
the Board shall have made a determination that such decrease would be in the
best interests of the Company, which determination shall be conclusive. Whenever
the Warrant Price is decreased pursuant to the preceding sentence, the Company
shall provide written notice thereof to the Warrantholder at least five (5)
days prior to the date the decreased Warrant Price takes effect, and such
notice shall state the decreased Warrant Price and the period during which it
will be in effect.

 

9

 

Section 9.               Fractional Interest. The
Company shall not be required to issue fractions of Warrant Shares upon the
exercise of this Warrant. If any fractional share of Common Stock would, except
for the provisions of the first sentence of this Section 9, be deliverable upon
such exercise, the Company, in lieu of delivering such fractional share, shall
pay to the exercising Warrantholder an amount in cash equal to the Market Price
of such fractional share of Common Stock on the date of exercise.

 

Section 10.             Extension of Expiration Date.
If the Company fails to cause any Registration Statement covering Registrable
Securities (unless otherwise defined herein, capitalized terms are as defined
in the Registration Rights Agreement relating to the Warrant Shares (the
“Registration Rights Agreement”)) to be declared effective prior to the
applicable dates set forth therein, or if any of the events specified in
Section 2(c)(ii) of the Registration Rights Agreement occurs, and the Blackout
Period (whether alone, or in combination with any other Blackout Period) continues
for more than 60 days in any 12 month period, or for more than a total of 90
days, then the Expiration Date of this Warrant shall be extended one day for
each day beyond the 60-day or 90-day limits, as the case may be, that the
Blackout Period continues.

 

Section 11.             Benefits. Nothing in this
Warrant shall be construed to give any person, firm or corporation (other than
the Company and the Warrantholder) any legal or equitable right, remedy or
claim, it being agreed that this Warrant shall be for the sole and exclusive
benefit of the Company and the Warrantholder.

 

Section 12.             Notices to Warrantholder. Upon
the happening of any event requiring an adjustment of the Warrant Price, the
Company shall promptly give written notice thereof to the Warrantholder at the
address appearing in the records of the Company, stating the adjusted Warrant
Price and the adjusted number of Warrant Shares resulting from such event and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. Failure to give such notice to the
Warrantholder or any defect therein shall not affect the legality or validity
of the subject adjustment.

 

Section 13.             Identity of Transfer Agent. The
Transfer Agent for the Common Stock is Liberty Transfer. Upon the appointment
of any subsequent transfer agent for the Common Stock or other shares of the
Company’s capital stock issuable upon the exercise of the rights of purchase
represented by the Warrant, the Company will mail to the Warrantholder a
statement setting forth the name and address of such transfer agent.

 

Section 14.             Notices. Unless otherwise
provided, any notice required or permitted under this Warrant 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 facsimile, 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 as
follows: if to the Warrantholder, at its 

 

10

 

address as set forth in the
Company’s books and records and, if to the Company, at the address as follows,
or at such other address as the Warrantholder or the Company may designate by
ten days’ advance written notice to the other:

 

If to the
Company:

 

Primal
Solutions, Inc.

18881 Von Karman
Avenue, Suite 500

Irvine,
California 92612

Attention:  Joseph R. Simrell

Fax:  (949) 221-8594

 

With a copy
to:

(which shall
not constitute notice)

 

Bryan Cave LLP

2020 Main
Street, Suite 600

Irving,
California 92614

Attention:  Brett J. Souza, Esq.

Fax:  (949) 223-7100

 

Section 15.             Registration Rights. The
initial Warrantholder is entitled to the benefit of certain registration rights
with respect to the shares of Common Stock issuable upon the exercise of this
Warrant as provided in the Registration Rights Agreement, and any subsequent
Warrantholder may be entitled to such rights.

 

Section 16.             Successors. All the
covenants and provisions hereof by or for the benefit of the Warrantholder
shall bind and inure to the benefit of its respective successors and assigns
hereunder.

 

Section 17.             Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial. This Warrant shall be governed by, and
construed in accordance with, the internal laws of the State of New York,
without reference to the choice of law provisions thereof. The Company and, by
accepting this Warrant, the Warrantholder, each 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 Warrant 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 Warrant. The Company and, by accepting
this Warrant, the Warrantholder, each 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. The Company and, by accepting this Warrant, the
Warrantholder, each 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
COMPANY AND, BY ITS ACCEPTANCE 

 

11

 

HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY
JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL
HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

Section 18.             Call Provision. (a)  Subject to the provisions of clauses (b) and
(c) below, in the event that the closing bid price per share of Common Stock as
reported by the Bulletin Board (or such other exchange or stock market on which
the Common Stock may then be listed or quoted) equals or exceeds $0.3375
(appropriately adjusted for any stock split, reverse stock split, stock
dividend or other reclassification or combination of the Common Stock occurring
after the date hereof) for at least twenty (20) consecutive trading days
commencing on the later of September 30, 2006 and the date on which the
Registration Statement (as defined in the Registration Rights Agreement) is
initially declared effective, the Company, upon thirty (30) days prior written
notice (the “Notice Period”) given to the Warrantholder within one business day
immediately following the end of such twenty (20) trading day period, may
demand that the Warrantholder exercise its cash exercise rights hereunder, and
the Warrantholder must exercise its rights hereunder prior to the end of the
Notice Period; provided that (i) the Company simultaneously gives a similar
notice to all holders of Company Warrants (as defined below), (ii) all of the
shares of Common Stock issuable hereunder either (A) are registered pursuant to
an effective Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order is in
effect, and pursuant to which the Warrantholder is able to sell such shares of
Common Stock at all times during the Notice Period or (B) no longer constitute
Registrable Securities (as defined in the Registration Rights Agreement) (this
clause (ii) being hereinafter referred to as the “Trading Condition”) and (iii)
this Warrant is fully exercisable for the full amount of Warrant Shares covered
hereby. If, in violation of this Section 18(a), such exercise is not made or if
only a partial exercise is made, any and all rights to further exercise the
Warrant shall cease upon the expiration of the Notice Period without prejudice
to any rights the Company may have at law or in equity.

 

(b)           In any 90-day period, no more than
the lesser of (i) 25% of the aggregate amount of Warrants initially issued to a
Warrantholder or (ii) the number of Warrants held by the Warrantholder, may be
called by the Company and the Company may not call additional Warrants in any
subsequent three-month period unless all the conditions specified in Section
18(a) are again met (including without limitation, the Trading Condition) at
the time that any subsequent call notice is given.

 

(c)           In connection with any transfer or
exchange of less than all of this Warrant, the transferring Warrantholder shall
deliver to the Company an agreement or instrument executed by the transferring
Warrantholder and the new Warrantholder allocating between them on whatever
basis they may determine in their sole discretion any subsequent call of this
Warrant by the Company, such that after giving effect to such transfer the
Company shall have the right to call the same number of Warrants that it would
have had if the transfer or exchange had not occurred.

 

12

 

Section 19.             Cashless Exercise. Notwithstanding
any other provision contained herein to the contrary, from and after the first
anniversary of the Closing Date (as defined in the Purchase Agreement) upon the
occurrence and during the continuance of any breach by the Company of its
obligations under the Registration Rights Agreement, the Warrantholder may
elect to receive, without the payment by the Warrantholder of the aggregate
Warrant Price in respect of the shares of Common Stock to be acquired, shares
of Common Stock of equal value to the value of this Warrant, or any specified
portion hereof, by the surrender of this Warrant (or such portion of this Warrant
being so exercised) together with a Net Issue Election Notice, in the form
annexed hereto as Appendix B, duly executed, to the Company. Thereupon, the
Company shall issue to the Warrantholder such number of fully paid, validly
issued and nonassessable shares of Common Stock as is computed using the
following formula:

 

	
   

  	
  X = Y (A - B)

  	
   

  
	
   

  	
     A

  	
   

  

 

where

 

X =          the number of shares of Common Stock
to which the Warrantholder is entitled upon such cashless exercise;

 

Y =          the total number of shares of Common
Stock covered by this Warrant for which the Warrantholder has surrendered
purchase rights at such time for cashless exercise (including both shares to be
issued to the Warrantholder and shares as to which the purchase rights are to
be canceled as payment therefor);

 

A =         the “Market Price” of one share of
Common Stock as at the date the net issue election is made; and

 

B =          the Warrant Price in effect under this
Warrant at the time the net issue election is made.

 

Section 20.             No Rights as Stockholder. Prior
to the exercise of this Warrant, the Warrantholder shall not have or exercise
any rights as a stockholder of the Company by virtue of its ownership of this
Warrant.

 

Section 21.             Amendment; Waiver. This
Warrant is one of a series of Warrants of like tenor issued by the Company
pursuant to the Purchase Agreement and initially covering an aggregate of
7,500,000 shares of Common Stock (collectively, the “Company Warrants”).
Any term of this Warrant may be amended or waived (including the adjustment
provisions included in Section 8 of this Warrant) upon the written consent of
the Company and the holders of Company Warrants representing at least 50% of
the number of shares of Common Stock then subject to all outstanding Company
Warrants (the “Majority Holders”); provided, that (x) any such
amendment or waiver must apply to all Company Warrants; and (y) the number of
Warrant Shares subject to this Warrant, the Warrant Price and the Expiration
Date may not be amended, and the right to exercise this Warrant may not be altered
or waived, without the written consent of the Warrantholder.

 

Section 23.             Section Headings. The
section headings in this Warrant are for the convenience of the Company and the
Warrantholder and in no way alter, modify, amend, limit or restrict the provisions
hereof.

 

13

 

IN WITNESS WHEREOF, the Company has caused
this Warrant to be duly executed, as of the 31st day of March, 2006.

 

	
   

  	
  PRIMAL
  SOLUTIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Joseph
  R. Simrell

  
	
   

  	
  Title: Chief
  Executive Officer

  

 

14Exhibit 10.4

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (the “Agreement”) is made and
entered into as of this 31st day of March, 2006 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, Wireless Billing
Systems, a California corporation (“WBS”), 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.

 

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

 

“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.

 

“Notes” means the 5% Senior Secured Convertible Notes issued by
the Company and WBS to the Investors pursuant to the Purchase Agreement, the
form of which is attached to the Purchase Agreement as Exhibit A.

 

“Prospectus” shall mean (i) 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,
together with (ii) any “free writing prospectus” as defined in Rule 405 under
the 1933 Act.

 

“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 (i) the Conversion Shares,
(ii) the Warrant Shares and (iii) 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.

 

“SSF Investors” has the meaning ascribed to such term in 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 B.

 

“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 the earlier of (i)
the fourteenth (14th) day after the filing by the Company of its
Annual Report on Form 10-KSB with the SEC or (ii) April 30, 2006 (the earlier
of such dates, the “Filing Deadline”), the Company shall prepare and file with
the SEC one Registration Statement on Form SB-2 (or on such form of
registration statement as is then available to effect a registration for resale
of the Registrable Securities, subject to the Required Investors’ consent),
covering the resale of the Registrable Securities in an amount at least equal
to the Conversion Shares and the Warrant Shares. Subject to any SEC comments,
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. Such Registration Statement shall not
include any shares of Common Stock or other securities for the account of any
other holder without the prior written consent of the Required 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 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 Filing
Deadline for which no Registration Statement is filed with respect to the
Registrable Securities. Such payments shall constitute the Investors’ exclusive
monetary remedy for such events, but shall not affect the right of the
Investors to seek injunctive relief. 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 Conversion Price (as defined in the Notes) or in the Warrant
Price (as defined in the Warrants) such that additional shares of Common Stock
become issuable upon the due conversion of the Notes or the due exercise of the
Warrants (the “Additional Shares”), 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 on such form of registration
statement as is then available to effect a registration for resale of 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. Subject to
any SEC comments, 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 Additional Shares. Such
Registration Statement shall not include any shares of Common Stock or other
securities for the account of any other holder without the prior written
consent of the Required 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
constitute the Investors’ exclusive monetary remedy for such events, but shall
not affect the right of the Investors to seek injunctive relief. Such payments
shall be made to each Investor in cash.

 

(iii)          S-3
Qualification. 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 thirty (30) 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 purchase price paid by such
Investor pursuant to the Purchase Agreement attributable to those Registrable
Securities that remain unsold at that time 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 constitute the Investors’ exclusive monetary
remedy for such events, but shall not affect the right of the Investors to seek
injunctive relief. 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, reasonable fees and
expenses of one counsel to the Investors (not to exceed $5,000) 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 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 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 prior to the
earliest of (i) five (5) Business Days after the SEC shall have informed the
Company that no review of the Registration Statement will be made or that the
SEC has no further comments on the Registration Statement, (ii) July 16, 2006
or (iii) the 120th day after the Closing Date if the Registration
Statement is reviewed by the SEC, (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 such Registration Statement is
reviewed by the SEC) or (z) a Shelf Registration Statement is not declared
effective by the SEC within ninety (90) days after the Qualification Deadline
(120 days if such Registration Statement is reviewed by the SEC), 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 (X) market conditions
or its receipt of material nonpublic information at its request in accordance
with Section 4 hereof or (Y) an Allowed Delay (as defined below), then 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
effective (the “Blackout Period”). Such payments shall constitute the Investors’
exclusive monetary remedy for such 

 

 

events, but shall not affect the right of the Investors to seek
injunctive relief. 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, that (i) 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
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 and (ii) 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 for not more than ten (10) days 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 (not to exceed ten
(10) days) 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).

 

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 Effectiveness Period and to comply with the
provisions of the 1933 Act and the 1934 Act with respect to the distribution of
the Registrable Securities covered thereby;

 

 

(c)           provide copies to
and permit counsel designated by the SSF Investors 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 SSF
Investors and their legal counsel (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 SSF
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such SSF 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 their counsel in
connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions requested by the Investors (other than California) 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)          immediately notify
the Investors, at any time prior to the end of the Effectiveness Period, upon
discovery that, or upon the happening of any event as a result of which, the
Prospectus 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
promptly prepare, file with the SEC and furnish to such holder a supplement to
or an amendment of such Prospectus as may be necessary so that 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, file any final
Prospectus, including any supplement or amendment thereof, with the SEC
pursuant to Rule 424 under the 1933 Act, promptly inform the Investors in
writing if, at any time during the Effectiveness Period, the Company does not
satisfy the conditions specified in Rule 172 and, as a result thereof, the
Investors are required to deliver a Prospectus in connection with any
disposition of Registrable Securities and 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 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 Investors, advisors to and
representatives of the 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 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 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
SSF Investors, or to advisors to or representatives of the SSF Investors,
unless prior to disclosure of such information the Company identifies such
information as being material nonpublic information and provides the SSF
Investors, such advisors and representatives with the opportunity to accept or
refuse to accept such material nonpublic information for review and any SSF
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 in writing to the Company such information regarding itself, the
Company securities beneficially owned by it, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it, as shall be reasonably requested by the Company to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
Business Days prior to the first anticipated filing date of any Registration
Statement, the Company shall notify each Investor of the information the
Company requests from such Investor. An Investor shall provide such information
to the Company at least two (2) Business Days prior to the first anticipated
filing date of such Registration Statement. Notwithstanding anything herein to
the contrary, the Company shall not be required to pay any liquidated or other
damages otherwise be liable to any Investor who fails to comply with this
Section 5(a) to the extent such damages result from such failure by the
Investor.

 

(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
is advised by the Company in writing that such dispositions may again be made.

 

(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, if the
Company does not meet the conditions of Rule 163, any prospectus delivery
requirement applicable to such sales or dispositions upon written notice from
the Company that the Company has failed to satisfy the conditions of Rule 163
and that delivery of a prospectus is required as a result thereof.

 

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, 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 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 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.

 

(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 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 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 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.

 

 

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

 

	
  The Company:

  	
  PRIMAL
  SOLUTIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph
  R. Simrell

  	
   

  
	
   

  	
  Name: Joseph
  R. Simrell

  
	
   

  	
  Title: Chief
  Executive Officer

  

 

 

	
  The
  Investors:

  	
  SPECIAL
  SITUATIONS FUND III QP, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Austin W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS FUND III, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Austin W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS PRIVATE EQUITY FUND, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Austin W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS TECHNOLOGY FUND, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Austin W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

  
	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS TECHNOLOGY FUND II, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Austin W. Marxe

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  
	
   

  	
  Title:
  General Partner

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