Document:

Exhibit 10.3

 

REGISTRATION
RIGHTS AGREEMENT

 

This
REGISTRATION RIGHTS AGREEMENT is
made as of August 18, 2005, by and among CREATIVE
COMPUTER APPLICATIONS, INC., a California corporation (the ”Company”), with headquarters located at
26115-A Mureau Road, Calabasas, California 91302, and the purchasers
(collectively, the “Purchasers”
and each a “Purchaser”) set forth
on Schedule 1 hereof, with regard to the following:

 

RECITALS

 

WHEREAS, the Company and the Purchasers are parties
to that certain Common Stock and Warrant Purchase Agreement dated as of August
18, 2005 (the “Purchase Agreement”);

 

WHEREAS, as a condition of the obligations of, and
an inducement to, the parties to consummate the purchase by the Purchasers of
the Common Shares and Warrants (each as defined in the Purchase Agreement),
contemplated by the Purchase Agreement, this Agreement shall be executed and
delivered;

 

NOW, THEREFORE, in consideration of their
respective promises contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
Purchasers hereby agree as follows:

 

Any
capitalized terms not defined herein shall have the meaning set forth in the
Purchase Agreement.

 

ARTICLE I.

REGISTRATION OF
SHARES; COMPLIANCE WITH THE SECURITIES ACT

 

Section 1.1             Registration Procedures and Expenses.  The Company shall:

 

(a)   Subject
to receipt of necessary information from the Purchasers, including all
information requested by Schedule 2 hereof, use commercial reasonable
efforts to prepare and file with the SEC, within sixty (60) days after the
Closing of the Purchase Agreement, a registration statement (the “Registration Statement”) on Form S-3 (or,
if Form S-3 is not then available to the Company, on such appropriate form as
is then available to the Company) to enable the resale of the Registrable
Shares by the Purchasers on a delayed or continuous basis under Rule 415 of the
Securities Act.  “Registrable Shares” means (a) each Common
Share and (b) each Warrant Share until the earlier of: (1) the date on which
such share has been resold or otherwise transferred pursuant to the
Registration Statement; (2) the date on which such share is transferred in
compliance with Rule 144 under the Securities Act or may be sold or transferred
pursuant to Rule 144 under the Securities Act (or any other similar provisions
then in force) without any volume or manner of sale restrictions thereunder; or
(3) the date on which such share ceases to be outstanding (whether as a result
of redemption, repurchase and cancellation or otherwise).  Prior to the filing of the Registration
Statement, the Company will provide to each Purchaser a copy of the “Selling
Shareholder” section for their review, and if no comments are received within
three (3) days of delivery of this section, then it will be deemed approved.

 

 

(b)   use
commercial reasonable efforts, subject to receipt of necessary information from
the Purchasers, including the Registration Statement Questionnaire, to cause
the Registration Statement to become effective within 120 days of the Closing
of the Purchase Agreement (the “Effective Date Deadline”).

 

(c)   se
commercial reasonable efforts to prepare and file with the SEC such amendments
and supplements to the Registration Statement and the Prospectus (as defined in
Section 1.3 below) used in connection therewith and take all such other
actions as may be necessary to keep the Registration Statement current and
effective for a period (the ”Registration
Period”) not exceeding, with respect to the Purchaser’s Registrable
Shares, the earlier of (i) the second anniversary of the Closing of the
Purchase Agreement (provided, however, that with respect to Registrable Shares that are Warrant
Shares, the foregoing date shall be the second anniversary of the date the
related Warrant was exercised), (ii) the date on which all Registrable
Shares then held by the Purchaser may be sold or transferred in compliance with
Rule 144 under the Securities Act (or any other similar provisions then in
force) without any volume or manner of sale restrictions thereunder, and
(iii) such time as all Registrable Shares held by the Purchaser have been
sold (A) pursuant to a registration statement, (B) to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, or (C) in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;

 

(d)   promptly
furnish to the Purchaser with respect to the Registrable Shares registered
under the Registration Statement such reasonable number of copies of the
Prospectus, including any supplements to or amendments of the Prospectus, in
order to facilitate the public sale or other disposition of all or any of the
Registrable Shares by the Purchaser;

 

(e)   promptly
take such action as may be necessary to qualify, or obtain, an exemption for
the Registrable Shares under such of the state securities laws of United States
jurisdictions as shall be necessary to qualify, or obtain an exemption for, the
sale of the Registrable Shares in states specified in writing by the
Purchaser;  provided, however,
that the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented;

 

(f)    bear
all expenses in connection with the procedures in paragraph (a) through (c) of
this Section 1.1 and the registration of the Registrable Shares
pursuant to the Registration Statement, regardless of whether a Registration
Statement becomes effective, including without limitation: (i) all registration
and filing fees and expenses (including filings made with the NASD); (ii) fees
and expenses of compliance with federal securities and state “blue sky” or
securities laws; (iii) expenses of printing (including printing certificates
for the Registrable Shares and Prospectuses); (iv) all application and filing
fees in connection with listing the Registrable Shares on the AMEX; and (v) all
fees and disbursements of counsel of the Company and independent certified
public accountants of the Company; provided,
however, that the Purchaser shall be responsible for paying the fees and
disbursements for the Purchasers’ respective counsel, the underwriting
commissions or brokerage fees, and taxes of any kind (including, without
limitation, transfer taxes) applicable to any disposition, sale or transfer of
the Purchaser’s Registrable Shares.  The
Company shall, in any event, bear its internal expenses

 

 

(including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties); and

 

(g)   advise
the Purchasers, within two (2) business days by e-mail, fax or other type of
communication, and, if requested by such person, confirm such advice in
writing: (i) after it shall receive notice or obtain knowledge of the issuance
of any stop order by the SEC delaying or suspending the effectiveness of the
Registration Statement or of the initiation or threat of any proceeding for
that purpose, or any other order issued by any state securities commission or
other regulatory authority suspending the qualification or exemption from
qualification of such Registrable Shares under state securities or “blue sky”
laws; and it will promptly use its commercially reasonable efforts to prevent
the issuance of any stop order or other order or to obtain its withdrawal at
the earliest possible moment if such stop order or other order should be
issued; and (ii) when the Prospectus or any supplements to or amendments of the
Prospectus have been filed, and, with respect to the Registration Statement or
any post-effective amendment thereto, when the same has become effective.

 

Section 1.2             Transfer of Shares; Suspension.

 

(a)   The
Purchaser agrees that it will not effect any disposition of the Securities or
its right to purchase the Registrable Shares that would constitute a sale
within the meaning of the Securities Act, except as contemplated in the
Registration Statement referred to in Section 1.1 or in accordance
with the Securities Act, and that it will promptly notify the Company of any
changes in the information set forth in the Registration Statement regarding
the Purchaser or its plan of distribution.

 

(b)   Except
in the event that clause (c) below applies, the Company shall, at all times
during the Registration Period, promptly (i) prepare and file from time to
time with the SEC a post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that such Registration Statement will not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, and so that, as thereafter delivered to purchasers of
the Registrable Shares being sold thereunder, such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(ii) provide the Purchaser copies of any documents filed pursuant to Section 1.2(b)(i);
and (iii) inform the Purchaser that the Company has complied with
its obligations in Section 1.2(b)(i) (or that, if the Company has
filed a post-effective amendment to the Registration Statement which has not
yet been declared effective, the Company will notify the Purchaser to that
effect, will use its commercially reasonable 
efforts to secure the effectiveness of such post-effective amendment as
promptly as possible and will promptly notify the Purchaser pursuant to Section 1.2(b)(iii) hereof
when the amendment has become effective).

 

(c)   Subject
to clause (d) below, in the event of (i) any request by the SEC or any
other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to a
Registration Statement or related

 

 

Prospectus or for additional information;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose; (iii) the
receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; or (iv) any event or circumstance which
necessitates the making of any changes in the Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated therein
by reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, then the Company shall deliver a notice in
writing to the Purchaser (the “Suspension
Notice”) to the effect of the foregoing and, upon receipt of such
Suspension Notice, the Purchaser will refrain from selling any Registrable
Shares pursuant to the Registration Statement (a “Suspension”) until the Purchaser’s receipt of copies of a
supplemented or amended Prospectus prepared and filed by the Company, or until
it is advised in writing by the Company that the current Prospectus may be
used.  In the event of any Suspension,
the Company will use its commercially reasonable efforts, consistent with the
best interests of the Company and its shareholders, to cause the use of the
Prospectus so suspended to be resumed as soon as reasonably practicable after
the delivery of a Suspension Notice to the Purchaser; provided, however,
that the Company may on two occasions only suspend sales pursuant to the
Registration Statement for a period of up to thirty (30) days if the Company
furnishes to the holders of the Registrable Shares a certificate signed by the
Company’s Chief Executive Officer stating that in the good faith judgment of
the Company’s Board of Directors, (i) the offering would interfere in any
material respect with any acquisition, corporate reorganization or other
material transaction under consideration by the Company or (ii) there is some
other material development relating to the condition (financial or other) of
the Company that has not been disclosed to the general public and as to which
it is in the Company’s best interests not to disclose such development;
provided further, however, that the Company may not so suspend sales more than
twice in any calendar year without the written consent of the holders of at
least a majority of the then-eligible Registrable Shares consisting of
outstanding shares of Common Stock.

 

(d)   In
the event of a sale of Registrable Shares by the Purchaser under the
Registration Statement, the Purchaser must also deliver to the Company’s
transfer agent, with a copy to the Company, a Certificate of Subsequent Sale
substantially in the form attached hereto as Exhibit A, so that the Registrable Shares may be properly
transferred.

 

Section 1.3             Indemnification.  For the purpose of this Section 1.3,
the term “Registration Statement”
shall include any preliminary or final prospectus, exhibit, supplement or
amendment included in or relating to the Registration Statement referred to in Section
1.1 and the term “Rules and Regulations”
means the rules and regulations promulgated under the Securities Act.

 

(a)   Indemnification by the
Company.  The Company
agrees to indemnify and hold harmless the Purchaser and each person, if any,
who controls the Purchaser within the

 

 

meaning of the Securities Act, against any losses, claims, damages,
liabilities or expenses to which the Purchaser or such controlling person may
become subject, under the Securities Act, the Exchange Act, or any other
federal or state statutory law or regulation insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement,
including the Prospectus, financial statements and schedules, and all other
documents filed as a part thereof, as amended at the time of effectiveness of
the Registration Statement, including any information deemed to be a part
thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A,
or pursuant to Rule 434 of the Rules and Regulations, or the Prospectus, in the
form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, or filed as part of the Registration Statement at the time of
effectiveness if no Rule 424(b) filing is required (the “Prospectus”), or any amendment or
supplement thereto (ii) the omission or alleged omission to state in any of
them a material fact required to be stated therein or necessary to make the
statements in any of them (in the case of the Prospectus only, in light of the
circumstances under which they were made), not misleading, or (iii) any
inaccuracy in the representations and warranties of the Company contained in
this Agreement, or any failure of the Company to perform its obligations under
this Agreement, and will reimburse the Purchaser and each such controlling
person for any legal and other expenses as such expenses are reasonably
incurred by the Purchaser or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, the Prospectus or any amendment or supplement of
the Registration Statement or Prospectus in reliance upon and in conformity
with information furnished to the Company by or on behalf of the Purchaser
expressly for use in the Registration Statement or the Prospectus, or (ii) the
failure of the Purchaser to comply with the covenants and agreements contained
in the Purchase Agreement or this Agreement, or (iii) the inaccuracy of any
representations made by the Purchaser in this Agreement or (iv) any untrue
statement or omission of a material fact in any Prospectus that is corrected in
any subsequent Prospectus that was delivered to the Purchaser before the
pertinent sale or sales by the Purchaser.

 

(b)   Indemnification by the
Purchaser.  The Purchaser
will indemnify and hold harmless the Company, each of its directors, each of
its officers who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages, liabilities or expenses to which the Company, each of
its directors, each of its officers who sign the Registration Statement or
controlling person may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon (i) any failure on the
part of the Purchaser to comply with the covenants and agreements contained in
the Purchase Agreement or this Agreement or (ii) the inaccuracy of any
representation or warranty made by the Purchaser in this Agreement or (iii) any
untrue or alleged untrue statement of any material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement to the
Registration Statement or Prospectus, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements

 

 

therein (in the case of the Prospectus only,
in light of the circumstances under which they were made), not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Purchasers expressly for use therein; provided,
however, that the Purchaser shall not be liable for any such untrue or
alleged untrue statement or omission or alleged omission of which the Purchaser
has delivered to the Company in writing a correction at least two (2) business
days before the occurrence of the transaction from which such loss was
incurred, and the Purchaser will reimburse the Company, each of its directors,
each of its officers who signed the Registration Statement or controlling
person for any legal and other expense reasonably incurred by the Company, each
of its directors, each of its officers who signed the Registration Statement or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action for which such person is entitled to be indemnified in accordance with
this Section 1.3(b).

 

(c)   Indemnification Procedure.

 

(i)    Promptly after receipt by an indemnified party under this Section
1.3 of notice of the threat or commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party under this Section 1.3, promptly notify the indemnifying party in
writing of the claim; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
for contribution or otherwise under the indemnity agreement contained in this Section
1.3 except to the extent it is materially prejudiced as a result of such
failure.

 

(ii)   In case any such action is brought against any indemnified party
and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with all other indemnifying
parties similarly notified, to assume the defense thereof; provided, however,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party
and the indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it or other indemnified parties that
are different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties.  Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action, the indemnifying party will not be liable to such indemnified party
under this Section 1.3 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless:

 

(1)   the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the

 

 

expenses of more than one separate counsel,
approved by such indemnifying party representing all of the indemnified parties
who are parties to such action), or

 

(2)   the indemnifying party shall not have counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of action, in each of which
cases the reasonable fees and expenses of counsel shall be at the expense of
the indemnifying party.

 

(d)   Contribution.  If a claim for indemnification under this Section
1.3 is unavailable to an indemnified party (by reason of public policy or
otherwise), then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities or
expenses referred to in this Agreement, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified party in
connection with the actions, statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses as well as any other relevant
equitable considerations.  The relative
fault of such indemnifying party and indemnified party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission.  The amount paid or payable by a party as a
result of any losses, claims, damages, liabilities or expenses shall be deemed
to include, subject to the limitations set forth in this Section 1.3,
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.

 

No party to this Agreement guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any other party to this Agreement
who was not guilty of such fraudulent misrepresentation.

 

Section 1.4             Termination of Conditions and Obligations.  The restrictions imposed by Article I
upon the transferability of the Registrable Shares shall cease and terminate as
to any particular number of the Registrable Shares upon the passage of two (2)
years from the Closing of the Purchase Agreement, provided, however,
that with respect to the Registrable Shares that are the Warrant Shares, the
foregoing date shall be the second anniversary of the date the relevant Warrant
was exercised, or at such time as an opinion of counsel satisfactory in form
and substance to the Company shall have been rendered to the effect that such
conditions are not necessary in order to comply with the Securities Act.

 

Section 1.5             Registration Default. (a) If the
Registration Statement covering  the  Registrable Shares required to be filed
by  the 
Company pursuant  to  Section 1.1 is not for any reason (other than
through the fault of the Purchaser) declared effective  by 
the  SEC  by  the
Effective  Date Deadline, then the
Company shall make the payments  to  each Purchaser as provided in the next
sentence as liquidated damages and not 
as a  penalty.  The amount to be paid by the Company to each
Purchaser shall  be determined as of each
Computation Date (as

 

 

defined below), and such  amount
shall be equal to 1% (the “Liquidated Damage Rate”) of the product of (i)
the  per 
unit  Purchase  Price 
of the Units  under  the 
Purchase  Agreement and (ii) the
number of shares of Registrable Shares then 
held by such Purchaser, for the period from the Effective Date Deadline
to the first Computation Date, and for each 30-day period of any subsequent
Computation Dates thereafter, in each case calculated on a pro  rata 
basis to  the  date on which the Registration Statement is
declared effective  by the SEC (the “Periodic
Amount”).  The full Periodic Amount shall
be paid by the Company to the Purchaser by wire transfer of immediately
available funds within  three  business days after each Computation Date or
three  business days  after 
the  date  on 
which the Registration 
Statement  is  declared effective by the SEC, whichever
occurs earlier.

 

(b)           As  used in Section 1.5(a), “Computation Date”
means the date which is  30  days 
after  the Effective Date Deadline
and, if  the  Registration Statement  to 
be  filed by the Company pursuant
to Section  1.1 has  not theretofore been declared effective by
the SEC, each date which is 30  days
after the previous Computation Date until such Registration Statement is so
declared effective.

 

ARTICLE II.

MISCELLANEOUS

 

Section 2.1             Governing Law: Jurisdiction.  This Agreement shall be governed by and construed
in accordance with the California Corporation Law (in respect of matters of
corporation law) and the laws of the State of California (in respect of all
other matters) applicable to contracts made and to be performed in the State of
California.  The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts and
state courts located in the County of Los Angeles in the State of California in
any suit or proceeding based on or arising under this Agreement or the transactions
contemplated hereby and irrevocably agree that all claims in respect of such
suit or proceeding may be determined in such courts.  The Company and each Purchaser irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or proceeding
in such forum.  The Company and each
Purchaser further agrees that service of process upon the Company or such
Purchaser, as applicable, mailed by the first class mail in accordance with Section 2.6
shall be deemed in every respect effective service of process upon the Company
or such Purchaser in any suit or proceeding arising hereunder.  Nothing herein shall affect Purchaser’s right
to serve process in any other manner permitted by law.  The parties hereto agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.  The parties hereto
irrevocably waive any right to a trial by jury under applicable law.

 

Section 2.2             Counterparts.  This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to each other party.  In the event any
signature page is delivered by facsimile transmission, the party using such
means of delivery shall cause additional original executed signature pages to
be delivered to the other parties as soon as practicable thereafter.

 

 

Section 2.3             Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

 

Section 2.4             Severability.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.

 

Section 2.5             Entire Agreement; Amendments.  This Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
maters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived
other than by an instrument in writing signed by the party to be charged with
enforcement and no provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and each Purchaser.

 

Section 2.6             Notices.  Notices shall be delivered in accordance with
the Purchase Agreement.

 

Section 2.7             Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns.  Neither the Company nor any Purchaser shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other. 
Notwithstanding the foregoing, each Purchaser may assign its rights and
obligations hereunder to any of its “affiliates,” as that term is defined under
the Securities Act, without the consent of the Company so long as such
affiliate is an accredited investor (within the meaning of Regulation D
under the Securities Act) and agrees in writing to be bound by this
Agreement.  This provision shall not
limit each Purchaser’s right to transfer the Securities pursuant to the terms
of this Agreement or to assign such Purchaser’s rights hereunder to any such
transferee.  In that regard, if a
Purchaser sells all or part of its Common Shares to someone that acquires the
shares subject to restrictions on transferability (other than restrictions, if
any, arising out of the transferee’s status as an affiliate of the Company),
such Purchaser shall be permitted to assign its rights hereunder, in whole or
in part, to such transferee.

 

Section 2.8             Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

 

 

[Signature page to follow]

 

 

IN
WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above written.

 

	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
  CREATIVE
  COMPUTER APPLICATIONS, INC.

  
	
   

  
	
  By:

  	
  /s/ Steven M. Besbeck

  	
   

  
	
   

  	
  Name: Steven M. Besbeck

  
	
   

  	
  Title: President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PURCHASERS:

  
	
   

  	
   

  	
   

  
	
  ANN
  KRUEGER and KYLE KRUEGER,

  
	
   

  	
   

  	
   

  
	
  joint
  tenants by the entirety

  
	
   

  
	
  By: 

  	
  /s/    Ann
  Krueger

  	
   

  
	
   

  	
  ANN
  KRUEGER

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/    Kyle
  Krueger

  	
   

  
	
   

  	
  KYLE
  KRUEGER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GREGORY
  H. EKIZIAN REVOCABLE TRUST

  
	
   

  
	
   

  
	
  By: 

  	
  /s/GregoryH.Ekizian

  	
   

  
	
   

  	
  Name:GregoryH.Ekizian

  
	
   

  	
  Title:CEO

  
						

 

 

	
  TEBO
  PARTNERS II, LLC,

  
	
   

  	
   

  	
   

  
	
  a Kansas
  limited liability company

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/    ToddTumbleson

  	
   

  
	
   

  	
  Name:ToddTumbleson

  
	
   

  	
  Title:CEOExhibit 10.1

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR
ENDORSED THE MERITS OF THIS NOTE.

 

PROMISSORY
NOTE

 

	
  $251,000.00

  	
   

  	
  The
  Woodlands, Texas

  
	
   

  	
   

  	
  April 5,
  2005

  

 

 

FOR VALUE RECEIVED, POWER 3 MEDICAL PRODUCTS,
INC., a New York corporation (the “Maker”), promises to pay to the order of
Cordillera Fund L.P., a limited partnership (the “Payee”), pursuant to the
terms and conditions contained in this promissory note (this “Note”) the
principal sum of Two Hundred Fifty-One Thousand Dollars ($251,000.00), together
with interest on the unpaid principal balance from the date hereof until paid
in full, if applicable, at the rate and on the terms provided herein.

 

1.             Term
and Payment.  Principal and interest
of this Note shall be payable as follows:

 

(i)            The
entire unpaid principal balance of this Note shall be payable, in cash, within
one Business Day (as hereinafter defined) of the closing of the Maker’s
issuance and sale of $1,600,000 aggregate principal amount of debentures
pursuant to the Securities Purchase Agreement dated October 28, 2004, as
amended, which closing is to occur within five trading days of the
effectiveness of the Maker’s registration statement on Form SB-2 currently
pending with the U.S. Securities and Exchange Commission (the “Registration
Statement Funding”); provided, however, that if the Registration Statement
Funding does not occur on or before August 15, 2005, the entire unpaid
principal balance of this Note shall be due and payable in full on such
date.  The payment date of the principal
is referred to as the “Payment Date.”

 

(ii)           Interest,
computed on the unpaid principal balance of this Note, shall be due and payable
at Payee’s option, as follows:

 

(A)          the
accrued and unpaid interest calculated in accordance with Section 2 below
shall be paid, in cash, concurrently upon the Payment Date; or

 

 

(B)           the
accrued and unpaid interest payable on this Note shall be considered paid, in
full, upon Maker’s issuance and delivery of restricted shares of Maker’s common
stock calculated by the following formula: $251,000 ÷ common stock price X 20%
= Number of Shares to be Issued, such issuance and delivery to occur on the
date which is 95 days following the effectiveness of the registration statement[, subject to the provisions of the Securities Purchase
Agreement].

 

If the Payment of interest or principal is
due on a day that is not a Business Day (as hereinafter defined), such payment
shall be made on the first Business Day following such payment date.  For purposes of this Note, “Business Day”
means any day other than Saturday, Sunday or any other day on which national
banking associations in the State of New York generally are closed for
commercial banking business.

 

2.             Interest
Rate. During the period ending on the Payment Date (the “Payment Period”),
the unpaid principal balance of this Note shall bear simple interest at a per
annum rate equal to ten percent (10%) for such period determined in accordance
with this Section 2. Notwithstanding the foregoing, upon an Event of
Default (as hereinafter defined) with respect to the Payment and until such
Event of Default shall have been cured, such Payment shall bear interest at a
rate of twelve percent (12%) per annum. 
Interest shall be payable as provided in Section 1 above.

 

3.             Event
of Default. It is expressly provided that upon failure in the punctual
payment of theprincipal due hereunder, as the same shall become due and
payable, and the passage of thirty (30) days following when such payment was
due and payable, during which period the Maker may make such payment(s) as are
due and payable and prevent a default of this Note, an “Event of Default” will
have occurred. Upon an Event of Default and until such Event of Default shall
have been cured, the holder of this Note may, at its option, without further
notice or demand, (i) declare the outstanding principal balance of this
Note, and accrued but unpaid interest payable on this Note in cash at the rate
provided in Section 2 hereof, at once due and payable, (ii) pursue
any and all rights, remedies and recourses available to the holder hereof,
including but not limited to any such rights, remedies or recourses at law or
in equity, or (iii) pursue any combination of the foregoing; and in the
event default is made in the prompt payment of this Note when due or declared
due, and the same is placed in the hands of an attorney for collection, or suit
is brought on the same, or the same is collected through probate, bankruptcy or
other judicial proceedings, then the Maker agrees and promises to pay all costs
of collection, including reasonable attorney’s fees.

 

4.             Right
of Prepayment.  The Maker shall have
the right to prepay all or any part of the unpaid principal or interest hereon
at any time without premium or penalty. 
Any and all prepayments with respect to this Note shall be applied first
to payment of accrued interest as of the date of such prepayment and the
balance, if any, shall be applied in reduction of the unpaid principal.

 

2

 

5.             No
Right of Setoff.   THE PAYEE ACKNOWLEDGES AND AGREES THAT THE
MAKER HAS NO RIGHTS OF SETOFF AGAINST THE PAYMENT AND THEREFORE SHALL NOT
WITHHOLD OR REDUCE THE PAYMENT ON THIS NOTE BY ANY AMOUNTS DUE FROM THE PAYEE
TO THE MAKER.

 

6.             No
Usury Intended; Usury Savings Clause. 
 In no event shall interest
contracted for, charged or received hereunder, plus any other charges in connection
herewith which constitute interest, exceed the maximum interest permitted by
applicable law. The amounts of such interest or other charges previously paid
to the holder of the Note in excess of the amounts permitted by applicable law
shall be applied by the holder of the Note to reduce the principal of the
indebtedness evidenced by the Note, or, at the option of the holder of the
Note, be refunded. To the extent permitted by applicable law, determination of
the legal maximum amount of interest shall at all times be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
full stated term of the loan and indebtedness, all interest at any time
contracted for, charged or received from the Maker hereof in connection with
the loan and indebtedness evidenced hereby, so that the actual rate of interest
on account of such indebtedness is uniform throughout the term hereof.

 

7.             Transferability.  The Payee may not transfer, sell, assign,
pledge, hypothecate, bequeath, gift, create a lien on, place in trust, assign
or in any other way encumber or dispose of, directly or indirectly and whether
or not by operation of law or for value, this Note or
the obligations represented hereby (collectively, “transfer”) or any beneficial
interest in this Note or any of the obligations represented hereby without the
Maker’s prior written consent, which shall not be unreasonably withheld
provided that the transferee of this Note or any portion hereof (i) executes
and delivers to the Maker an appropriate document, satisfactory to the Maker,
in which such permitted transferee agrees that it shall be bound by the same
transfer restrictions set forth herein with respect to all or any portion of
this Note received by such permitted transferee and (ii) delivers to the
Maker an opinion of counsel or other evidence satisfactory to the Maker to the
effect that the proposed transfer may be made without registration under the
Securities Act of 1933 or the securities laws of any state.

 

8.             Waivers.  The Maker hereby waives presentment, protest,
demand for payment, notice of dishonor and all other notices of any kind.  No waiver of any default shall operate as a
waiver of any other default or of the same default on any future occasion, and
no action to enforce payment hereunder nor any indulgences or other
arrangements granted to the Maker, including any extension of time for payment
due thereon, shall release, waive or otherwise affect any right of the owner or
holder hereof.

 

9.             Governing
Law.  This Note will be governed by
the laws of the State of New York without giving effect to any choice or
conflict of law principles of any jurisdiction.

 

[The rest of this page is
intentionally left blank.]

 

3

 

                IN WITNESS WHEREOF, the
Maker has caused this Note to be executed as of the day and year first above
written.

 

 

	
   

  	
  POWER 3 MEDICAL PRODUCTS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Steven B. Rash

  
	
   

  	
  Name:

  	
  Steven B. Rash

  
	
   

  	
  Title:

  	
  Chairman/CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CORDILLERA FUND L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Stephen J. Carter

  
	
   

  	
  Name:

  	
  Stephen J. Carter

  
	
   

  	
  Title:

  	
  Co-CEO of Andrew Carter Capital

  
	
   

  	
   

  	
  The GP of ACCF Gen Par, L.P.

  
	
   

  	
   

  	
  The GP of the Cordillera Fund L.P.

  
					

 

4

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