Document:

Exhibit 10.20

 

NEITHER THESE SECURITIES NOR
THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE 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 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.

 

SUBJECT TO THE PROVISIONS OF
SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME
ON JUNE 10, 2009 (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 $0.28 (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 thereof 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 the duly executed Warrant exercise form attached hereto as Appendix
A (the “Exercise Agreement”) and payment by cash, certified check or wire
transfer of funds for 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
evidence of loss, theft or destruction thereof and security or indemnity
satisfactory 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, representing the aggregate number of shares specified in the
Exercise Agreement, shall be delivered to the Warrantholder within a reasonable
time, not exceeding five (5) 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.  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 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 or 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

 

2

 

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 cancellation of the mutilated Warrant,
or in lieu of and substitution for the Warrant 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 the number of Warrant Shares purchasable upon
exercise of the Warrant and the Warrant Price in effect immediately prior to
the date upon which such change shall become effective, shall be adjusted by
the Company so that the Warrantholder thereafter exercising the Warrant shall
be entitled to receive the number of shares of Common Stock or other capital
stock which the Warrantholder would have received if the Warrant had been
exercised immediately prior to such event upon payment of a Warrant Price that
has been adjusted to reflect a fair allocation of the economics of such event
to the Warrantholder.  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

 

3

 

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 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
exchange or association, the closing sale price of one share of Common Stock on
Nasdaq, the Bulletin Board or such other exchange 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 exchange or association, the fair market value of
one share of Common Stock as of the Valuation Date, shall

 

4

 

be 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, the Bulletin Board or such other exchange 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) hereof,
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 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 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
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

 

8

 

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.

 

(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 directors, officers,
employees or consultants of the Company in connection with their service as
directors of the Company, their employment by the Company or their retention as
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, (B) shares of Common Stock issued upon the
conversion or exercise of Options or Convertible Securities issued prior to the
date hereof or those Options 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 (as that term is
defined below), (C) securities issued pursuant to that certain Purchase
Agreement dated June 8, 2004, among the Company and the Investors named
therein (the “Purchase Agreement”) and securities issued upon the exercise or
conversion of those securities and securities issued pursuant to
Section 6.1(i) of the Purchase Agreement, or, (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) and (E) capital stock, Options or Convertible
Securities (not to exceed in the aggregate the Market Price of $1,500,000
(calculated on the as-converted basis of such capital stock, Options or
Convertible Securities)) issued in any acquisition by the Company or a
subsidiary of the Company, whether pursuant to a merger, acquisition of assets,
stock purchase, joint venture, or other strategic alliance or to lending
institutions, licensors of tangible or intangible property, landlords or
equipment leasing companies in connection with financing, licensing or leasing
transactions, in all cases approved by the Board of Directors (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.

 

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 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.

 

9

 

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; Provided, however, that this Section 10
will not apply to the extent, but only to the extent, that a state securities
regulator requires the extension to be inapplicable in connection with an
offering of securities by the Company. 
In any event, this Section 10 will continue to be applicable if and
when the Common Stock constitutes a “covered security” under the National
Securities Markets Improvement Act of 1996.

 

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 Co. 
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 address as set forth in the Company’s books and records and, if to the
Company, at the address as

 

10

 

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:  Chief Financial Officer

Fax:  (949) 221-8590

 

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.  Notwithstanding any other provision
contained herein to the contrary, in the event that the closing bid price of a
share of Common Stock as reported on Bloomberg equals or exceeds $0.56
(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 thirty (30) consecutive trading days commencing
after June 10, 2006 and after the Registration Statement (as defined in
the Registration Rights Agreement) has been 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 thirty (30) trading day period, may call this Warrant, in whole but not in
part, at a redemption price equal to $0.01 per share of Common Stock then
purchasable pursuant to this Warrant; provided that (i) the Company
simultaneously calls all Company Warrants (as defined below) on the same terms
and (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).  Notwithstanding any
such notice by the Company, the Warrantholder shall have the right to exercise
this Warrant prior to the end of the Notice Period.

 

Section 19.             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 20.             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 6,869,565 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 21.             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.

 

12

 

IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed, as of the 10th
day of June, 2004.

 

	
   

  	
  PRIMAL SOLUTIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Joseph R. Simrell

  
	
   

  	
  Title:

  	
   President and Chief Executive Officer

  
					

 

13

 

APPENDIX A

PRIMAL
SOLUTIONS, INC.

WARRANT
EXERCISE FORM

 

To Primal
Solutions, Inc.:

 

The
undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant (“Warrant”) for, and to purchase thereunder
by the payment of the Warrant Price and surrender of the Warrant,
                       
shares of Common Stock (“Warrant Shares”) provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:

 

	
   

  	
   

  
	
  Name

  	
   

  
	
   

  	
   

  
	
  Address

  	
   

  
	
   

  	
   

  
	
  Federal Tax ID or Social Security No.

  	
   

  

 

and delivered by (certified mail to the above address, or
(electronically (provide DWAC
Instructions:                                   ),
or (other (specify):
                                     ).

 

and, if the number of Warrant
Shares shall not be all the Warrant Shares purchasable upon exercise of the
Warrant, that a new Warrant for the balance of the Warrant Shares purchasable
upon exercise of this Warrant be registered in the name of the undersigned
Warrantholder or the undersigned’s Assignee as below indicated and delivered to
the address stated below.

 

	
  Dated:

  	
   

  	
   

  

 

Note:  The signature must correspond with the name
of the Warrantholder as written on the first page of the Warrant in every
particular, without alteration or enlargement or any change whatever, unless
the Warrant has been assigned.

 

	
   

  	
   

  
	
  Name (please print)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Federal Identification or Social Security
  No.

  	
   

  
	
   

  	
   

  
	
  Assignee:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

14Exhibit 10.21

 

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
              
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
              
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 to the Investors, 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; and

 

D.                                    Contemporaneous
with the sale of the Common Stock and Warrants to the Investors, the Investors
each will execute and deliver a Lock-Up Agreement, in the form attached hereto
as Exhibit C (the “Lock-Up Agreement”); and

 

E.                                      Contemporaneous
with the sale of the Common Stock and Warrants to the Investors, the Company
also is entering into a Purchase Agreement with certain investors set forth on
the signature pages thereto, providing for the sale to such investors of the
Company’s common stock and warrants to purchase additional shares of the
Company’s common stock as set forth in such agreement, which terms and
conditions include the Registration Rights Agreement attached in the form as
Exhibit B thereto, and the Warrant attached in the form as Exhibit A thereto.

 

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.

 

2

 

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

 

“Purchase Price” means
                    ,
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 the
Investors holding a majority of the Securities.

 

“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.

 

“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 its Secretary,

 

3

 

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 the
Secretary of the Company 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, or such other method of payment as the Company shall authorized, 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 and Warrants shall
take place at the offices of the Company, or at such other location and on such
other date as the Company and the Investors shall mutually agree.

 

4.                                       Representations
and Warranties of the Company.  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

 

4

 

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,
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.

 

5

 

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 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;

 

6

 

(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, 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

 

7

 

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 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

 

8

 

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 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

 

9

 

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.

 

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.

 

10

 

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 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

 

11

 

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.

 

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.

 

12

 

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 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 date on which the Registration Statement covering the Registrable
Securities is declared effective under the terms of the Registration Rights
Agreement, such Investor shall not engage, directly or indirectly, in a
Prohibited Transaction.  Such Investor
acknowledges that the representations and warranties

 

13

 

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, any of which may be waived by such Investor (as to itself only):

 

(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)                                  Reserved.

 

(f)                                    Reserved.

 

(g)                                 Reserved.

 

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)                                     Reserved.

 

(j)                                     Reserved.

 

(k)                                  Reserved.

 

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 and the Lock-Up
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:

 

(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;

 

15

 

(iii)                               By an Investor (with
respect to itself only) if any of the conditions set forth in Section 6.1
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                                 Reserved.

 

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.

 

16

 

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.

 

7.9                                 Reserved.

 

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 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.

 

17

 

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

 

18

 

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

 

19

 

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.  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                                 Reserved.

 

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.

 

20

 

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

 

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

 

9.12                           Independent
Nature of Investors’ Obligations and Rights. 
The obligations of each Investor under any Transaction Document are
several and not joint with the obligations of any other Investor, and no
Investor shall be responsible in any way for the performance of the obligations
of any other Investor under any Transaction Document.  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]

 

21

 

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:

  	
  Chief
  Executive Officer and

  	
   

  
	
   

  	
   

  	
  President

  	
   

  

 

 

[REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK

SIGNATURE PAGES FOR INVESTORS
FOLLOW]

 

22

 

[INVESTOR SIGNATURE PAGE]

 

23

 

EXHIBIT A

WARRANT

 

24

 

EXHIBIT B

REGISTRATION RIGHTS AGREEMENT

 

25

 

EXHIBIT C

LOCK-UP AGREEMENT

 

26

 

DISCLOSURE SCHEDULE

 

27

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