SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of May
31, 2005, among Concentrax, Inc., a Nevada corporation (the "Company"), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers"); and
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company in the aggregate, up to $250,000 of shares of Common Stock and
Warrants on the Closing Date;
WHEREAS, the Company and the Purchasers acknowledge that an advance payment
of $125,000 was made by Purchaser toward the total purchase price of $250,000 on
or about February 15, 2005 ($50,000), April 15, 2005 and May 10, 2005 ($25,000);
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common
control with a Person as such terms are used in and construed under Rule
144. With respect to a Purchaser, any investment fund or managed account
that is managed on a discretionary basis by the same investment manager as
such Purchaser will be deemed to be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the Common
Stock and the Warrants pursuant to Section 2.1.
"Closing Price" means the fixed price of $0.025, subject to subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur
after the date of this Agreement.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations to
pay the Subscription Amount and (ii) the Company's obligations to deliver
the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value $0.001
per share, and any securities into which such common stock may hereafter be
reclassified.
"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 Counsel" means Sichenzia Ross Friedman Ference LLP.
"Disclosure Schedules" means the Disclosure Schedules of the Company
delivered concurrently herewith.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Escrow Agent" means the escrow agent identified in the Escrow
Agreement attached hereto as Exhibit E.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted by a majority of the members of the Board
of Directors of the Company or a majority of the members of a committee of
directors established for such purpose, (b) securities upon the exercise of
or conversion of any securities issued hereunder, convertible securities,
options or warrants issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions, provided any
such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the
business of the Company, which the Board of Directors of the Company shall
determine in its good faith business judgment, and in which the Company
receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business
is investing in securities
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"Intellectual Property Rights" shall have the meaning ascribed to such
term in Section 3.1(o).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such term
in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Per Share Purchase Price" equals $0.025, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date of
this Agreement. For the investment of $250,000, a total of 10,000,000
shares will be issued to Purchaser (which total shall include the 600,000
shares already delivered);
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit B hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Shares and the Warrant Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Shares, the Warrants, and the Warrant Shares.
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"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable to each
Purchaser pursuant to this Agreement.
"Subscription Amount" means, as to each Purchaser, the amounts set
forth below such Purchaser's signature block on the signature page hereto,
in United States dollars and in immediately available funds.
"Subsidiary" shall mean the subsidiaries of the Company, if any, set
forth on Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market, the OTC Bulletin Board or the Pink
Sheets.
"Transaction Documents" means this Agreement, the Warrants and the
Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"Warrants" means the Series A Common Stock Purchase Warrants as
described in Section 2.2(a)(iii), a form of which is attached hereto as
Exhibit A.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
(a) On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to the Purchaser, (a) a number of Shares equal
to such Purchaser's Subscription Amount divided by the Per Share Purchase
Price and (b) the Warrants as determined pursuant to Section 2.2(a)(iii).
The aggregate Subscription Amounts for Shares sold hereunder shall be up to
$250,000, $125,000 of which has already been paid to the Company. A total
of 600,000 shares of Common Stock have been transferred to the Purchaser.
On the Closing Date, 9,400,000 shares shall be issued to the Purchaser.
(b) Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices the Escrow Agent, or such other location
as the parties shall mutually agree;
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2.2 Deliveries.
(a) Prior to the Closing Date, the Company shall deliver or cause to
be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;
(iii) a Warrant, registered in the name of such Purchaser,
exercisable immediately upon issuance for a term of 5 years, pursuant
to which such Purchaser shall have the right to acquire up to the
number of shares of Common Stock equal to 10% of the Shares to be
issued to such Purchaser at an exercise price of 80% of average bid
price for the twenty trading days prior to the date of any exercise of
such warrant, which Warrant shall otherwise in the form of Exhibit A
attached hereto (the "Series A Warrant");
(iv) the Registration Rights Agreement, in the form set forth as
Exhibit D attached hereto, duly executed by the Company; and
(v) a legal opinion of Company Counsel, in the form of Exhibit C
attached hereto.
(b) Prior to the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to the
account as specified in writing by the Escrow Agent; and
(iii) the Registration Rights Agreement duly executed by such
Purchaser.
(c) By signing this Agreement, each Purchaser and the Company, subject
to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Escrow Agreement, all of the
provisions of which are incorporated herein by this reference as if set
forth in full.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
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(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers
contained herein;
(ii) all obligations, covenants and agreements of the Purchasers
required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service,
or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of
each Purchaser, makes it impracticable or inadvisable to purchase the
Shares at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:
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(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is
in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, could not have or reasonably be expected to result in
(i) a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of (i),
(ii) or (iii), a "Material Adverse Effect") and no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or
qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith other
than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally
and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares
and the consummation by the Company of the other transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of
the Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien upon
any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected other than our agreement
with Aaron Baer which is attached hereto as Exhibit F, or (iii) subject to
the Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound
or affected, other than our map vender, Geo Micro, which we are presently
concluding a settlement for $10,000 payable over a ninety day period or
(iv) conflict with or violate the terms of any agreement by which the
Company or any Subsidiary is bound or to which any property or asset of the
Company or any Subsidiary is bound or affected; except in the case of each
of clauses (ii) and (iii), such as could not have or reasonably be expected
to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.4 of this
Agreement, (ii) the filing with the Commission of the Registration
Statement, (iii) application(s) to each applicable Trading Market for the
listing of the Shares and Warrant Shares for trading thereon in the time
and manner required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable
state securities laws (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Shares and Warrants are duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than restrictions
on transfer provided for in the Transaction Documents. The Warrant Shares,
when issued in accordance with the terms of the Transaction Documents, will
be validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock
issuable pursuant to this Agreement and the Warrants.
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(g) Capitalization. The capitalization of the Company is as described
in Schedule 3.1(g). No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. The issue and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the Shares.
Except as disclosed in the SEC Reports, there are no stockholders
agreements, voting agreements or other similar agreements with respect to
the Company's capital stock to which the Company is a party or, to the
knowledge of the Company, between or among any of the Company's
stockholders.
(h) SEC Reports; Financial Statements. Except as described in Schedule
3.1(h), the Company has filed any and all reports required to be filed
pursuant to Section 13(a) or 15(d) as of and has agreed to file all missing
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) within thirty
days of the Closing Date, (all of the foregoing materials, including the
exhibits thereto, being collectively referred to herein as the "SEC
Reports"). As of their respective dates, the SEC Reports complied or will
comply in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed, contained
or will contain any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in
the SEC Reports comply or will comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared or will be prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present or will fairly present in all material
respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations
and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
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(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in Schedule 3.1(i): (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) the Geo Micro $10,000
settlement; (B) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and which do not
exceed $20,000 and (C) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be disclosed
in filings made with the Commission and which do not exceed $50,000, (iii)
the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock. The Company does not
have pending before the Commission any request for confidential treatment
of information.
(j) Litigation. Other than the Geo Micro matter, there is no action,
suit, inquiry, notice of violation, proceeding or investigation pending or,
to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which (i) adversely affects or challenges the legality, validity
or enforceability of any of the Transaction Documents or the Securities or
(ii) could, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
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(k) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
(l) Regulatory Permits. The Company and the Subsidiaries possess, all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses except where the failure to possess such permits
could not have or reasonably be expected to result in a Material Adverse
Effect ("Material Permits"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(m) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
(n) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights necessary or material for use in connection with their
respective businesses and which the failure to so have could have a
Material Adverse Effect (collectively, the "Intellectual Property Rights").
Neither the Company nor any Subsidiary has received a written notice that
the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights of others.
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(o) Transactions With Affiliates and Employees. Except as set forth in
Schedule 3.1(o), none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than 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 knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$10,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company; (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company; and (iv) for the
issuance of Common Stock to certain officers in lieu of paying back salary,
in any such case not greater than $10,000 in the aggregate.
(p) Sarbanes-Oxley; Internal Accounting Controls. The Company will be
in material compliance with all provisions of the Sarbanes-Oxley Act of
2002 which are applicable to it within 30 days of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures
(as defined in Exchange 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 its 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
periodic report under the Exchange 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 date prior
to the filing date of the most recently filed periodic report under the
Exchange Act (such date, the "Evaluation Date").
(q) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Trading Market.
(r) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Shares, will not be or
be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
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(s) Registration Rights. Except as described in Schedule 3.1(s), no
Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company.
(t) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(u) Disclosure. The Company confirms that, neither the Company nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, including
information regarding back salaries owed to certain employees, its business
and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do 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
light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
(v) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, 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
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation
system on which any of the securities of the Company are listed or
designated.
13
(w) Form SB-2 Eligibility. Upon becoming current with the SEC by
filing quarterly reports for the periods ended June 30, 2004, September 30
2004, the annual report for the period ended December 31, 2004 and the
quarterly report for the quarterly period ended March 31, 2005 (all of
which will be filed within 30 days of the Closing Date), the Company will
be eligible to register the resale of its Common Stock by the Purchasers
under Form SB-2 promulgated under the Securities Act and the Company hereby
covenants and agrees to use its best efforts to maintain its eligibility to
use Form SB-2 until the Registration Statement covering the resale of the
Shares shall have been filed with, and declared effective by, the
Commission.
(x) Taxes. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary intends to file all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon or within 60 days of the Closing
Date, and the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
(y) General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Shares by any form of
general solicitation or general advertising. The Company has offered the
Shares for sale only to the Purchasers and certain other "accredited
investors" within the meaning of Rule 501 under the Securities Act.
(z) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Accountants. The Company's accountants are set forth on Schedule
3.1(aa) of the Disclosure Schedule. To the Company's knowledge, such
accountants, who the Company expects will express their opinion with
respect to the financial statements to be included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2004 are independent
accountants as required by the Securities Act.
14
(bb) Acknowledgment Regarding Purchasers' Purchase of Shares. The
Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by
any Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Purchasers' purchase of the Shares. The Company
further represents to each Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and its
representatives.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by
applicable law.
(b) Purchaser Representation. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered under
the Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not
have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which
it exercises any Warrants, it will be either: (i) an "accredited investor"
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
15
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser 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. (f)
Short Sales. Each Purchaser represents that prior to execution of this
Agreement, neither it nor its affiliates have made any net short sales of,
or granted any option for the purchase of or entered into any hedging or
similar transaction with the same economic effect as a net short sale, in
the Common Stock. Each Purchaser represents that neither the Purchaser nor
its affiliates has an open short position in the Common Stock of the
Company and the Purchaser shall not and will not cause its affiliates not
to engage in any short sale as defined in any applicable Commission or
National Associate of Securities Dealers rules or any hedging transactions
with respect to the Common Stock.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.(a) The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the form
and substance of which opinion shall be reasonably satisfactory to the Company,
16
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in the following
form:
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 EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES
ACT.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and who agrees to be bound by the
provisions of this Agreement and the Registration Rights Agreement and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the
Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
17
(c) Certificates evidencing the Shares and Warrant Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)), (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act,
or (ii) following any sale of such Shares or Warrant Shares pursuant to
Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale
under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any portion
of a Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, such Warrant Shares
shall be issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required under
this Section 4.1(c), it will, no later than three Trading Days following
the delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing Shares or Warrant Shares, as the case may be,
issued with a restrictive legend (such date, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate
representing such Securities that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section.
(d) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
(e) Until the date that each Purchaser holds none of the Shares
initially purchased hereunder by such Purchaser, the Company shall not
undertake a reverse or forward stock split or reclassification of the
Common Stock without the prior written consent of the Purchasers holding a
majority in interest of the Shares.
4.2 Furnishing of Information. Upon becoming current with the SEC by filing
quarterly reports for the periods ended June 30, 2004, September 30 2004, the
annual report for the period ended December 31, 2004 and the quarterly report
for the quarterly period ended March 31, 2005 (all of which will be filed within
30 days of the Closing Date), as long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
18
Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 5:30 p.m.
Eastern time on the fourth Trading Day following the Closing Date, issue a press
release or file a Current Report on Form 8-K, in each case reasonably acceptable
to each Purchaser disclosing the material terms of the transactions contemplated
hereby. The Company and each Purchaser shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
4.5 Shareholders Rights Plan. The Company represents that it does not have
in effect any shareholder rights plan or similar plan or arrangement.
4.6 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
19
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.7 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
4.8 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.9 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing of the Common Stock on a Trading Market, and as soon as
reasonably practicable following the Closing (but not later than the earlier of
the Effective Date and the first anniversary of the Closing Date) to list all of
20
the Shares and Warrant Shares on such Trading Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Trading Market, it will include in such application all of the Shares and
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
4.10 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.11 Subsequent Equity Sales. If the Company or any Subsidiary shall at any
time from the date hereof until 90 days after the Effective Date, issue shares
of Common Stock or Common Stock Equivalents at a price below the Closing Price,
then the Company shall immediately issue the Purchasers a number of shares of
Common Stock determined by the following formula:
$250,000 - (10,000,000 * x)
---------------------------
x
where "x" equals the price at which the Company issues shares of Common Stock or
Common Stock Equivalents. For purposes of illustration, if the Company were to
sell shares of Common Stock before 12 months after the Effective Date at a price
of $0.02, then the Company would be required to issue the Purchasers 2,500,000
shares of Common Stock.
ARTICLE V.
MISCELLANEOUS
5.1 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.2 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
21
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.3 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.4 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Florida without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Florida for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
22
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.9 Survival. The representations and warranties herein shall survive the
Closing and delivery of the Shares and Warrant Shares.
5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.13 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
23
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser 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
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through Pluris Partners. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
(Signature Page Follows)
24
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
CONCENTRAX, INC. Address for Notice:
By: /S/ Mark Gifford Concentrax, Inc.
--------------------
Name: Mark Gifford 2400 Augusta Place, Ste. 425
Title: President Houston, TX 77057
With a copy to (which shall not constitute notice):
Andrea Cataneo, Esq. Sichenzia Ross Friedman
Ference LLP
1065 Avenue of the Americas
New York, NY 10018
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
25
[PURCHASER SIGNATURE PAGES TO APDN SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Authorized Entity:_____________________________________________
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount:
Shares:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
26
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $250,000 of Common Stock and
Warrants from Concentrax, Inc. (the "Company"), $125,000 of which the Company
acknowledges it has received from Pluris Partners. All funds will be wired
directly to the Company in accordance with a disbursement memorandum. On the
Closing Date, a certificate in the amount 9,400,000 shares of Concentrax, Inc.
Common Stock will be issued in the name of Pluris Partners, Inc. This total has
been adjusted to reflect the 600,000 shares already transferred to Pluris
Partners, Inc.
Disbursement Date: June 6, 2005
I. PURCHASE PRICE $250,000
Deposit payment received on or before May 31, 2005 ($125,000)
Gross Proceeds to be Received, first tranche $125,000
II. DISBURSEMENTS
Sichenzia Ross Friedman Ference LLP $22,500
Malone & Bailey, PC $11,065
Balance to Concentrax, Inc. $91,435
Total Amount Disbursed for first tranche: $125,000
WIRE INSTRUCTIONS:
Sichenzia Ross Friedman Ference LLP
HSBC Bank USA
950 Third Avenue
New York, New York 10022
A/C of Sichenzia Ross Friedman Ference LLP
A/C # 629034133
ABA # 021001088
Malone & Bailey, PC
Bank name: Wells Fargo Bank, N.A.
City of bank: Houston, Texas
ABA #: 121000248
Acct #: 3036453003
Name on acct: Malone & Bailey, PC
Special instructions, if any: fbo Concentrax
27
Concentrax. Inc.
Disclosure Schedules - Securities Purchase Agreement
3.1(a) Subsidiaries - None.
3.1(g) Capitalization - The capitalization of the Company as of May 31, 2005,
is as follows:
Common Stock: 100,000,000 shares authorized,
29,692,124 shares issued and
outstanding, par value $0.001 per share.
Preferred Stock: 10,000,000 shares authorized, none
issued and outstanding, par value $0.001
per share.
3.1(h) SEC Reports; Financial Statements - The Company has not filed its
Forms 10-QSB for the periods ended June 30, 2004, September 30, 2004
and March 31, 2005. The Company has not filed its Form 10-KSB for the
fiscal year ended December 31, 2004.
3.1(i) Material Changes - In June 2004, Aaron Baer loaned the Company
$100,000. In August 2004, Mr. Baer loaned the Company an additional
$75,000. The Company's agreement with Aaron Baer is attached as
Exhibit F to the Securities Purchase Agreement, the terms of which are
hereby incorporated by reference.
3.1(k) Compliance - The Company is currently in default on the loans and
wages due to the persons described under Schedule 3.1(o) below.
3.1(o) Transactions With Affiliates and Employees -
Paul Smith, former Chief Financial Officer of the Company, has made
three loans to the Company: (i) On October 11, 2003, Mr. Smith loaned
the Company $11,911, of which $8,522 is currently outstanding; (ii) On
March 25, 2004, Mr. Smith loaned the Company $10,200, of which $10,200
is currently outstanding; and (iii) on June 15, 2004, Mr. Smith loaned
the Company $11,210, of which $11,210 is currently outstanding. Each
of these loans bears interest at the rate of 15% per annum. As of May
31, 2005, the total principal amount owed to Mr. Smith was $29,932.
Mike Looney, a Director and Secretary of the Company, made a total of
eight loans over a period ranging from July 22, 2004 to April 23, 2005
to the Company. The total principal amount of these loans is
approximately $35,035, which bears interest at the rate of 15% per
annum. As of May 31, 2005, $34,630 of the principal amount was
outstanding.
28
Mark Gifford, Chairman and President of the Company, has loaned the
Company $85,000, which bears interest at the rate of 15% per annum. As
of May 31, 2005, $8,112 of the principal amount of this loan was
outstanding.
As of May 31, 2005, the owned the following employees the amounts
indicated as past due wages and salaries:
Paul Smith - $37,415
Mark Gifford - $71,600
Edward Wadsworth - $41,120
Josh Choi - $25,120
3.1(s) Registration Rights - On March 18, 2004, the Company entered into a
non-binding letter of intent with Vertical Capital Partners, Inc.,
pursuant to which the Company issued 4,028,571 shares of the Company's
common stock. The letter of intent required the Company to register
the resale of these shares within 30 days of March 18, 2004. Pursuant
to the express terms of the letter of intent, the letter of intent is
not a binding legal document.
3.1(x) Taxes - As of May 31, 2005, the Company had an outstanding liability
to the IRS in the amount of approximately $29,300. This includes
$10,000 owed from 2004 and an estimated $19,300 payroll tax for
January - May, 2005.
3.1(aa) Accountants - Malone & Bailey, P.C. is retained as the Company's
independent registered public accounting firm. The Company is in the
process of changing its independent registered public accounting firm
to Wheeler Herman Hopkins and Lagor, P.A.
3.1(bb) Form SB-2 Eligibility - The Company is currently deficient in its 1934
Act Filings with the Securities and Exchange Commission, and must file
its quarterly reports on Form 10-QSB for the quarters ended June 30,
2004, September 30, 2004 and March 31, 2005, and its annual report on
Form 10-KSB for the year ended December 31, 2004. The Company will be
eligible to file a Form SB-2 immediately after filing its deficient
1934 Act Filings with the Securities and Exchange Commission.
29