SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made and entered
into on December 1, 2004, by and between Rapidtron, Inc., a corporation
organized under the laws of the State of Nevada, with its principal place of
business located at 0000 Xxxxxx Xxxxxx, Xxxxxxxx X, Xxxxx Xxxx, Xxxxxxxxxx (the
"Company"), and Oceanus Value Fund, L.P. (the "Buyer").
RECITALS
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A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemptions from securities registration afforded
by (i) the provisions of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and (ii) Section 4(2) under
the 0000 Xxx.
B. The Buyer desires to purchase from the Company, and the Company
desires to sell to the Buyer, for the amount and upon the terms and conditions
stated in this Agreement, in a closing (the "Closing") as herein described, the
following securities of the Company:
(i) The Company's 15% Secured Convertible Promissory Note, the form of
which is attached as Exhibit A (the "Note"), which may be converted into the
Company's $0.001 par value common stock (the "Common Stock") on the terms and
conditions set forth in the Note. The principal amount of the Note shall be Four
Hundred Thousand Dollars ($400,000).
(ii) As additional consideration for the Buyer's purchase of the Note,
the Company shall also issue to the Buyer a warrant (the "Warrant") to purchase
800,000 shares of Common Stock with an exercise price as specified in the
Warrant, which Warrant must be exercised (if at all) within five (5) years after
the date of issuance. The Warrant shall be in the form attached as Exhibit B.
Any Common Stock issuable pursuant to conversion of the Note shall be
referred to herein as the "Conversion Shares." The Common Stock receivable upon
exercise of the Warrant shall be referred to herein as the "Warrant Shares." The
Note, the Conversion Shares, the Warrant and the Warrant Shares may be
collectively referred to herein as the "Securities."
C. Contemporaneously with the execution and delivery of this Agreement,
the Company is executing and delivering a Security Agreement (the "Security
Agreement") in the form of the attached Exhibit C, pursuant to which the Company
has agreed to secure its obligations under the Note with a security interest in
substantially all tangible and intangible assets (including intellectual
property) owned by the Company (the "Collateral"). Pursuant to a Subordination
Agreement between the Buyer and Silicon Valley Bank ("SVB") in the form
attached as Exhibit D (the "SVB Subordination Agreement"), the Buyer's security
interest in the Collateral will be subordinated to the interest of SVB.
D. As additional security for the Company's obligations under the Note,
contemporaneously with the execution and delivery of this Agreement, Xxxx Xxxxx
(the Company's President and Chief Executive Officer) and Xxxxx Xxxxxxx (the
Company's Executive Vice President, acting Secretary, Treasurer and Principal
Financial Officer) (collectively, the "Pledgors"), are each executing and
delivering a Guaranty, Pledge and Security Agreement (the "Pledge Agreements")
in the form attached as Exhibit E pursuant to which, effective January 1, 2005,
each Pledgor agrees to guaranty payment of the Note and to secure that guaranty
with a first-priority security interest in all shares of the Company which he
owns.
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are also executing and delivering a Registration Rights
Agreement (the "Registration Rights Agreement") in the form of the attached
Exhibit F, pursuant to which the Company has, among other things, agreed to
provide certain registration rights for the Warrant Shares under the 1933 Act
and applicable state securities laws.
AGREEMENTS
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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 the Buyer hereby agree as
follows:
1. PURCHASE AND SALE OF THE SECURITIES.
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(a) Purchase. At the Closing, the Buyer agrees to purchase the Note
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from the Company and the Company agrees to sell the Note to the Buyer. The
purchase price for the Note shall be $400,000 (the "Purchase Price"), out of
which shall be paid (i) $15,000 in pre-paid interest (as provided in the Note),
(ii) an origination fee of $12,000 to the Buyer, (iii) a finder's fee of $20,000
to Bridgewater Capital Corporation and (iv) such other amounts as may be
included in the Disbursement Instructions attached as Exhibit G (the
"Disbursement Instructions"). The disbursements specified in the Disbursement
Instructions (including disbursement to the Company of the remainder of the
Purchase Price) shall be made on the Closing Date (as defined below).
(b) The Closing. The date of the Closing (the "Closing Date") shall
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be December 1, 2004, or such other date as the parties may agree in writing. On
or before the Closing Date, (i) the Purchase Price shall be delivered to the
Escrow Agent (as defined in the Escrow Agreement in the form of the attached
Exhibit H (the "Escrow Agreement")) and (ii) the Company shall deliver to the
Escrow Agent on behalf of the Company the originals of this Agreement, the Note,
the Warrant, the Security Agreement, the SVB Subordination Agreement, the Pledge
Agreements, the Registration Rights Agreement, the Disbursement Instructions and
the Escrow Agreement, each duly authorized and executed by the Company and/or
any other parties thereto (other than the Buyer), together with such other items
as may be required by this Agreement (collectively, the "Closing Documents").
(c) Payment. The Buyer shall pay the Purchase Price by wire transfer
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of immediately available funds in United States Dollars, to be deposited into
the Escrow Account (as defined in the Escrow Agreement), against delivery to the
Escrow Agent of the Closing Documents by the Company. At the Closing, the
Escrow Agent shall be responsible for disbursement of the Purchase Price
according to the Disbursement Instructions and delivery of the Closing Documents
to the Buyer (with copies to the Company duly executed by the Buyer, where
required), in each case in accordance with the terms of the Escrow Agreement.
2. THE BUYER'S REPRESENTATIONS AND WARRANTIES. With respect to its
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purchase hereunder, the Buyer represents and warrants to the Company, and
agrees, as follows:
(a) Investment Purposes; Compliance With 1933 Act. The Buyer is
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purchasing the Securities for its own account for investment only and not with a
view towards, or in connection with, the public sale or distribution thereof,
except pursuant to sales registered, or exempt from registration, under the 1933
Act and applicable state securities laws. The Buyer is not purchasing the
Securities for the purpose of covering short sale positions in the Common Stock
established on or prior to the Closing Date. The Buyer agrees to offer, sell or
otherwise transfer the Securities only (i) in accordance with the terms of this
Agreement, the Note and the Warrant, as applicable, and (ii) pursuant to
registration under the 1933 Act or an exemption from registration under the 1933
Act and any other applicable securities laws. The Buyer does not by its
representations in this Section 2(a) agree to hold the Securities for any
minimum or other specific term, and reserves the right to dispose of the
Securities at any time pursuant to a registration statement or in accordance
with an exemption from registration under the 1933 Act, in all cases in
accordance with applicable state and federal securities laws. The Buyer
understands that it shall be a condition to the issuance of the Conversion
Shares and the Warrant Shares that such shares be and are subject to the
representations set forth in this Section 2(a).
(b) Accredited Investor Status. The Buyer is an "accredited investor,"
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as that term is defined in Rule 501(a) of Regulation D. The Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment made pursuant to this
Agreement. The Buyer is aware that it may be required to bear the economic risk
of the investment made pursuant to this Agreement for an indefinite period of
time, and is able to bear such risk.
(c) Reliance on Exemptions. The Buyer understands that the Securities
-----------------------
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of applicable federal and state securities laws, and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements and covenants of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.
(d) Information. The Buyer and its advisors, if any, have been
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furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by the Buyer. The Buyer and its advisors, if any, have
been afforded the opportunity to ask all questions of the Company as they
have in their discretion deemed advisable. The Buyer understands that its
investment in the Securities involves a high degree of risk. The Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
an informed investment decision with respect to the investment made pursuant to
this Agreement.
(e) No Government Review. The Buyer understands that no United States
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federal or state agency or any other government or governmental agency has
approved or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. The Buyer understands that: (i) except as
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provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold or otherwise transferred unless either (A)
subsequently registered thereunder or (B) the Buyer shall have delivered to the
Company an opinion by counsel reasonably satisfactory to the Company, in form,
scope and substance reasonably satisfactory to the Company, to the effect that
the securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration and (ii) neither the Company nor any other
person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, except as required by this Agreement or the
Registration Rights Agreement).
(g) Legend. Subject to Section 5(b) below, the Buyer understands that
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the Note, the Warrant and the stock certificates representing the Conversion
Shares and the Warrant Shares (until such time as the Conversion Shares and the
Warrant Shares have been registered under the 1933 Act pursuant to the
Registration Rights Agreement or otherwise may be sold by the Buyer pursuant to
Rule 144 (or any applicable rule which operates to replace said Rule)
promulgated under the 1933 Act ("Rule 144")), will bear a restrictive legend
(the "Legend") in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE (COLLECTIVELY, THE "LAWS"). THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE APPLICABLE LAWS OR (II) AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
SCOPE REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED DUE TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE APPLICABLE LAWS.
(h) Authorization; Enforcement. This Agreement, the Registration
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Rights Agreement, the Disbursement Instructions, the Security Agreement and the
Escrow Agreement (collectively, the "Agreements") have been duly and validly
authorized, executed and delivered
by the Buyer and are each valid and binding agreements of the Buyer enforceable
in accordance with their terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally.
3. THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company
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represents and warrants to the Buyer, and agrees, as follows:
(a) Organization and Qualification. The Company is a corporation duly
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organized and existing in good standing under the laws of the State of Nevada,
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. As used herein, "Material Adverse Effect" means any material adverse
effect on the operations, properties or financial condition of the Company taken
as a whole. The Common Stock is quoted on the OTC Bulletin Board. The Company
has received no notice, either written or oral, with respect to the continued
eligibility of the Common Stock for such quotation, the Company has maintained
all requirements for the continuation of such quotation, and the Company does
not reasonably anticipate that the Common Stock will be removed from the OTC
Bulletin Board in the foreseeable future. The Company has complied, and will
timely comply, with all requirements of the SEC, the National Association of
Securities Dealers and the OTC Bulletin Board with respect to the issuance of
the Securities.
(b) Authorization; Enforcement. The Company has the requisite
---------------------------
corporate power and authority to enter into and perform the Agreements, to issue
and sell the Securities in accordance with the terms thereof, and to perform its
obligations under the Note and the Warrant in accordance with their terms. The
Company's execution, delivery and performance of the Agreements, the Note and
the Warrant, and its consummation of the transactions contemplated thereby, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors, its stockholders, or
any other person or entity is required. The Agreements and, on the Closing
Date, the Note and the Warrant, have been duly and validly authorized, executed
and delivered by the Company, and the Note (when issued), the Warrant (when
issued), and the Agreements constitute the valid and binding obligations of the
Company enforceable in accordance with their terms, subject as to enforceability
to general principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally.
(c) Capitalization. As of September 30, 2004, the authorized capital
--------------
stock of the Company consisted of 100,000,000 shares of Common Stock, of which
20,463,058 shares were issued and outstanding. All of such outstanding shares
have been validly issued and are fully paid and non-assessable. No shares of
Common Stock are subject to preemptive rights or any other similar rights or any
liens or encumbrances. As of the Closing Date, except as set forth in the
attached Schedule 3(c) or in the SEC Documents (as defined in paragraph (h)
below) filed
prior to or for the quarter ended September 30, 2004, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever issued or agreed to by the Company
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or arrangements by which the
Company or any of its subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities of the Company or any of its subsidiaries
except those issued to the Buyer and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
as provided herein and in the Registration Rights Agreement). If requested by
the Buyer, the Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation as in effect on the date hereof (the
"Articles of Incorporation"), and the Company's Bylaws as in effect on the date
hereof.
(d) Issuance of Warrant and Conversion Shares. The Warrant Shares are
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all duly authorized and reserved for issuance, and in all cases upon issuance
shall be validly issued, fully paid and non-assessable, free from all taxes,
liens and charges with respect to the issuance thereof, and will not be subject
to preemptive rights or other similar rights of stockholders of the Company.
Upon issuance, the Conversion Shares shall be validly issued, fully paid and
non-assessable, free from all taxes, liens and charges with respect to the
issuance thereof, and will not be subject to preemptive rights or other similar
rights of stockholders of the Company.
(e) Acknowledgment Regarding Buyer's Purchase of the Securities. (i)
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The Buyer is not acting as a financial advisor to or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement or the transactions
contemplated hereby, (ii) this Agreement and the transactions contemplated
hereby, and the relationship between the Buyer and the Company, are and will be
considered "arms-length" notwithstanding any other or prior agreements or nexus
between the Buyer and the Company, whether or not disclosed, and (iii) any
statements made by the Buyer, or any of its representatives or agents, in
connection with this Agreement and the transactions contemplated hereby are not
to be construed as advice or a recommendation, are merely incidental to the
Buyer's purchase of the Securities and have not been relied upon in any way by
the Company, its officers or directors. The Company's decision to enter into
this Agreement and the transactions contemplated hereby have been based solely
upon an independent evaluation by the Company, its officers and directors.
(f) No Integrated Offering. Neither the Company nor any of its
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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 which would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the 1933 Act and, specifically, in accordance with the
provisions of Regulation D. The transactions contemplated hereby are exempt from
the registration requirements of the 1933 Act, assuming the accuracy of the
representations and warranties of the Buyer contained herein.
(g) No Conflicts. Except as set forth in the attached Schedule 3(g),
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neither the Company nor any of its subsidiaries is in violation of its Articles
of Incorporation or other organizational documents, and neither the Company nor
any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation, of any agreement, indenture or other instrument to
which the Company or any of its subsidiaries is a party, except for possible
defaults or rights as would not, in the aggregate or individually, have a
Material Adverse Effect. The business of the Company and its subsidiaries is
not being conducted and, so long as the Buyer owns any of the Securities, shall
not be conducted, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which neither singly or in
the aggregate would have a Material Adverse Effect. Except as specifically
contemplated by this Agreement or as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court, governmental agency, individual or entity in order for it to execute,
deliver and perform any of its obligations under the Agreements, the Note or the
Warrant in accordance with the terms thereof.
(h) SEC Documents; Financial Statements. Except as disclosed on
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Schedule 3(h) hereof, since at least September 30, 2004, the Company has timely
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), with all of the
foregoing that were filed prior to the date hereof and all exhibits included
therein and all financial statements and schedules thereto and all documents
(other than exhibits) incorporated by reference therein being hereinafter
referred to as the "SEC Documents." The Company has delivered to the Buyer (to
the extent requested by the Buyer) true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the applicable rules
and regulations of the SEC promulgated thereunder, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements (i) have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved except (A) as may be otherwise indicated in such financial
statements or the notes thereto or (B) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements and (ii) fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No information
provided by or on behalf of the Company to the Buyer contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein in order to make the statements therein, in the light of
the circumstances under which they are or were made, not misleading. Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
date of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, in each case of clauses (i) and (ii) above, which, individually or
in the aggregate, are not material to the financial condition, business,
operations, properties, operating results or prospects of the Company. The SEC
Documents contain a complete and accurate description of all written and oral
contracts, agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound which
are required by the rules and regulations promulgated by the SEC to be disclosed
(each a "Contract"). None of the Company, its subsidiaries or, to the best of
the Company's knowledge, any of the other parties thereto, is in breach or
violation of any Contract, which breach or violation would, or with the lapse of
time, the giving of notice, or both, have a Material Adverse Effect.
(i) Absence of Certain Changes; Bankruptcy. Except as disclosed in the
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SEC Documents, since at least November 23, 2004, there has been no material
adverse change or development in the business, properties, operation, financial
condition, results of operations or prospects of the Company. The Company has
not taken any steps, and does not currently have any reasonable expectation of
taking any steps, to seek protection pursuant to any bankruptcy law, nor does
the Company have any knowledge that its creditors intend to initiate involuntary
bankruptcy proceedings.
(j) Absence of Litigation. Except as set forth in the attached
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Schedule 3(j) or in the SEC Documents filed prior to or for the quarter ended
September 30, 2004, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or governmental body pending
or, to the knowledge of the Company, threatened against or affecting the
Company, wherein an unfavorable decision, ruling or finding would have a
Material Adverse Effect or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein.
(k) Foreign Corrupt Practices. Neither the Company nor any of its
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subsidiaries, nor any officer, director or other person acting on behalf of the
Company or any subsidiary has, in the course of his, her or its actions for or
on behalf of the Company, (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
(l) Brokers; No General Solicitation. The Company has taken no action
---------------------------------
that would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments relating to this Agreement and the
transactions contemplated hereby, other than as set forth in the attached
Schedule 3(l) or the Disbursement Instructions. The Company acknowledges that no
broker or finder was involved with respect to the transactions contemplated
hereby, other than as set forth in the attached Schedule 3(l) or the
Disbursement Instructions. Neither the Company nor any other person or entity
participating on the Company's behalf in the transactions contemplated hereby,
nor any person or entity acting for the Company or any such other person or
entity, has conducted any "general solicitation," as described in Rule 502(c)
under Regulation D, with respect to the Securities.
(m) Status of Assets. Except as described on Schedule 3(m) or in the
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SEC Documents filed prior to or for the quarter ended September 30, 2004, the
Company has good and marketable title to each of the assets that is material to
its business, free and clear of all liens, claims, restrictions and other
encumbrances.
(n) Eligibility to File Registration Statement. The Company is
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currently eligible to file registration statements with the SEC on Form SB-2
under the 0000 Xxx.
(o) No Encumbrances on Shares. To the Company's best knowledge after
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inquiry of both Xxxx Xxxxx and Xxxxx Xxxxxxx, except as described on Schedule
3(o), neither Xx. Xxxxx nor Mr. Dermutz has pledged, hypothecated or otherwise
encumbered any shares in the Company that he may own.
(p) Validity of Pledge Agreements. To the Company's best knowledge,
--------------------------------
the Pledge Agreements constitute valid and binding obligations of Xxxx Xxxxx and
Xxxxx Xxxxxxx, enforceable in accordance with their terms, subject to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
4. COVENANTS OF THE PARTIES.
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(a) Best Efforts. Each party shall use its best efforts to timely
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satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Securities Laws. The Company shall timely file a Form D (and any
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other equivalent form or notice required by applicable state law) with respect
to the Securities if and as required under Regulation D and applicable state
securities laws and provide copies thereof to the Buyer upon the Buyer's
request. The Company shall, on or before the Closing Date, take all action
necessary in order to sell the Securities to the Buyer in compliance with
federal and applicable state securities laws, and shall provide written evidence
of such action to the Buyer upon the Buyer's request.
(c) Reporting Status. So long as the Buyer beneficially owns any of
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the Securities, the Company shall (i) file all reports required to be filed with
the SEC pursuant to the 1934 Act
and (ii) maintain its status as an issuer required to file reports under the
1934 Act, even if the 1934 Act or the rules and regulations thereunder would
permit termination of such status.
(d) Reservation of Shares.
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(i) The Company shall at all times have authorized and reserved
for the purpose of issuance that number of shares of Common Stock which is
sufficient to provide for the issuance of all of the Conversion Shares and the
Warrant Shares. Prior to full payment of the Note and complete exercise of the
Warrant, the Company shall not reduce the number of shares of Common Stock
reserved for issuance hereunder without the written consent of the Buyer, except
for a reduction proportionate to a reverse stock split which affects all shares
of Common Stock equally.
(ii) If at any date the Company shall not have authorized and
reserved for the purpose of issuance that number of shares of Common Stock which
is sufficient to provide for the issuance of all of the Conversion Shares and
the Warrant Shares which could then be issued, within thirty (30) days of such
date the Company shall call and hold a special meeting of its shareholders for
the sole purpose of increasing the Company's authorized and unissued shares to
an amount sufficient to correct such deficiency. In connection with such
meeting, (i) the Company's officers and directors shall (A) recommend to
shareholders that they vote in favor of such increase in the number of
authorized and unissued shares and (B) vote all of their shares in favor of such
increase and (ii) the Company shall cause its officers and directors to act in a
manner consistent with the forgoing clause (i).
(e) Listing or Quotation. The Company shall promptly secure the
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listing of the Warrant Shares and the Conversion Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance), and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of the Warrant Shares and the Conversion Shares as may exist from time
to time under the terms of this Agreement and/or the Registration Rights
Agreement. The Company shall at all times comply in all respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers and the OTC Bulletin Board or
such national securities exchange or other market on which the Common Stock may
then be quoted or listed, as applicable.
(f) Prospectus Delivery Requirement. The Buyer understands that the
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1933 Act requires delivery of a prospectus relating to the Conversion Shares and
the Warrant Shares in connection with any sale thereof pursuant to a
registration statement under the 1933 Act, and the Buyer shall comply with any
applicable prospectus delivery requirements of the 1933 Act in connection with
any such sale. The Company shall have the right to rely upon the Buyer's
agreement contained in this Section 4(g); therefore, with respect to any resale
of the Conversion Shares and the Warrant Shares by the Buyer pursuant to a
registration statement, any certificate
evidencing such Conversion Shares and Warrant Shares shall not contain a
restrictive legend of any kind.
(g) Intentional Acts or Omissions. Neither party shall intentionally
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perform or fail to perform any act that, if performed or omitted to be
performed, would prevent or excuse the performance of this Agreement or any of
the transactions contemplated hereby.
(h) Expenses. At the Closing, the Company agrees to pay to, or at the
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direction of, the Buyer an amount equal to the attorney's fees and other
expenses incurred by Buyer in connection with the Buyer's due diligence
investigation, document preparation and escrow for the transactions contemplated
by this Agreement.
(i) Corporate Status; Taxes. The Company shall, at least until the
-------------------------
Buyer no longer holds any of the Securities, maintain its corporate existence in
good standing and shall pay all taxes when due except for taxes it reasonably
disputes.
5. LEGEND; TRANSFER INSTRUCTIONS; RELATED MATTERS.
---------------------------------------------------
(a) Transfer Agent Instructions. Promptly after receiving notice of
-----------------------------
conversion of the Note or exercise of the Warrant (as applicable), and in any
event no more than three (3) business days after the Company's receipt of such
notice of conversion or exercise, the Company shall instruct its transfer agent
to issue certificates, registered in the name of the Buyer or its permitted
nominee, for the Conversion Shares and/or Warrant Shares in such amounts as are
specified in such notice. All such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement only to the extent required
by applicable law and as specified in this Agreement or any documents referenced
herein. The Company represents and warrants that (i) no instructions will be
given by it to its transfer agent other than (A) the instructions referred to in
this Section 5 and (B) any stop transfer instructions required to give effect to
Section 2(f) hereof in the case of the Conversion Shares and Warrant Shares
prior to their registration under the 1933 Act and (ii) the Conversion Shares
and Warrant Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent permitted by applicable law and
provided by this Agreement, the Warrant and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Conversion Shares and Warrant Shares. If the Buyer (i) provides the Company with
an opinion of counsel reasonably satisfactory to Company that registration by
the Buyer of the Note, the Warrant, the Warrant Shares and/or the Conversion
Shares is not required under the 1933 Act or (ii) transfers any of the
Securities to an affiliate which is an accredited investor (in accordance with
the provisions of this Agreement) or in compliance with Rule 144, then, in
either instance, the Company shall permit such transfer and, if applicable,
promptly (and in all events within three (3) trading days) instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by the Buyer.
(b) Removal of Legend. The Legend shall be removed from any
-------------------
certificate for a Security, and a certificate for a Security shall be originally
issued without the Legend, if, unless otherwise required by state securities
laws, (i) the sale of such Security is registered under the 1933 Act, (ii) the
holder of such Security provides the Company with an opinion by counsel
reasonably satisfactory to the Company, that is in form, substance and scope
reasonably satisfactory to the Company, to the effect that a public sale or
transfer of such Security may be made without registration under the 1933 Act or
(iii) such holder provides the Company with assurances reasonably satisfactory
to the Company and its counsel that such Security can be sold pursuant to Rule
144. The Buyer agrees that its sale of all Securities, including those
represented by a certificate from which the Legend has been removed, or which
were originally issued without the Legend, shall be made only pursuant to an
effective registration statement (with delivery of a prospectus in connection
with such sale) or in compliance with an exemption from the registration
requirements of the 1933 Act. In the event the Legend is removed from the
certificate for any Security or any certificate for a Security is issued without
the Legend and thereafter the effectiveness of a registration statement covering
the sale of such Security is suspended or the Company determines that a
supplement or amendment thereto is required by applicable securities laws, then
upon reasonable advance notice to the holder of such Security, the Company shall
be entitled to require that the Legend be placed upon such Security, which
Legend shall be removed when such Security may again be sold pursuant to an
effective registration statement or Rule 144 or such holder provides the opinion
with respect thereto described in clause (ii) above.
(c) Conversion of Note. Subject to the terms of the Note, the Buyer
--------------------
shall have the right to convert the Note by delivering via facsimile an executed
and completed Notice of Conversion (as defined in the Note) to the Company and
delivering within three (3) business days thereafter the original Notice of
Conversion and, if required by the Company, the original Note being converted by
overnight courier to the Company. Each date on which a Notice of Conversion is
faxed to the Company in accordance with the provisions hereof shall be deemed a
"Conversion Date." The Company will then deliver the certificates representing
the shares of Common Stock issuable upon conversion of the Note (along with a
replacement Note representing the principal amount of the original Note not so
converted, if applicable) to the Buyer or its designee via overnight courier
within three (3) business days after the relevant Conversion Date (with respect
to each conversion, the "Deadline"). Time is of the essence with respect to the
requirements of the immediately preceding sentence.
(d) Exercise of Warrant. The Buyer shall have the right to exercise the
-------------------
Warrant by delivering via facsimile an executed and completed Notice of Exercise
(as attached to the Warrant) to the Company and delivering within three (3)
business days thereafter the original Notice of Exercise and the original
Warrant being exercised (if required by the Company) by overnight courier to the
Company. Each date on which a Notice of Exercise is faxed to the Company in
accordance with the provisions hereof shall be deemed an "Exercise Date." The
Company will transmit the certificates representing the shares of Common Stock
issuable upon exercise of the Warrant (along with a replacement Warrant
representing the amount of said Warrant not so exercised, if applicable) to the
Buyer or its designee via overnight courier within three (3) business days after
the relevant Exercise Date (with respect to each exercise, the "Deadline"). Time
is of the essence with respect to the requirements of the immediately preceding
sentence.
(e) Injunctive Relief for Breach. The Company acknowledges that a
-------------------------------
breach of its obligations under Sections 5(a), 5(b), 5(c) and/or 5(d) above will
cause irreparable harm to the Buyer by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company agrees that the
remedy at law for a breach of its obligations under such Sections would be
inadequate and agrees that, in the event of a breach or threatened breach by the
Company, the Buyer shall be entitled, in addition to all other remedies at law
or in equity, to an injunction restraining any breach and requiring immediate
issuance and/or transfer, without the necessity of showing economic loss and
without any bond or other security being required.
(f) Liquidated Damages for Non-Delivery of Certificates. In addition to
---------------------------------------------------
the provisions of Section 5(e) above, the Company understands and agrees that
any delay in the issuance of the certificates beyond the Deadline will result in
substantial economic loss and other damages to the Buyer. As partial
compensation to the Buyer for such loss, the Company agrees to pay liquidated
damages (which the Company acknowledges is not a penalty) to the Buyer for
issuance and delivery of the certificates after the Deadline, in accordance with
the following schedule (where "No. of Business Days Late" is defined as the
number of business days beyond five (5) business days from the date of delivery
by the Buyer to the Company of a facsimile Notice of Conversion or Notice of
Exercise or, if later, from the date on which all other necessary documentation
duly executed and in proper form required for conversion of the Note or exercise
of the Warrant has been delivered to the Company, but only if such necessary
documentation has not been delivered to the Company within the three (3)
business day period after the facsimile delivery to the Company of the Notice of
Conversion or Notice of Exercise required in this Agreement):
No. of Business Days Late Liquidated Damages (in US$)
------------------------- ---------------------------
1 $300
2 $400
3 $500
4 $600
5 $700
6 $800
7 $900
8 $1,000
9 $1,250
10 $1,500
11+ $1,750 + $1,000 for
each Business Day Late
beyond 11 days
Subject to the Buyer's right, in its sole discretion, to add accrued
liquidated damages on to the principal amount of the Note (as provided in the
Note), the Company shall pay the Buyer any liquidated damages incurred under
this Section 5(f) by certified or cashier's check upon the earlier of (i) the
issuance to the Buyer of the certificates with respect to which the damages
accrued or (ii) each monthly anniversary of the receipt by the Company of the
Buyer's Notice of Conversion or Notice of Exercise, as the case may be. Nothing
herein shall limit the Buyer's right to pursue actual damages for the Company's
failure to issue and deliver certificates to the Buyer in accordance with the
terms of this Agreement or for breach by the Company of this Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
------------------------------------------------
the Company hereunder to sell the Note and the Warrant at the Closing is subject
to the satisfaction, on or before the Closing Date, of each of the following
conditions; provided, however, that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion:
(a) The Buyer shall have (i) executed the Agreements (to the extent
required thereby) and (ii) delivered such documents or signature pages thereof
(via facsimile or as otherwise provided in the Escrow Agreement), together with
such other items as may be required by this Agreement, to the Escrow Agent.
(b) The Buyer shall have delivered to the Escrow Agent on behalf of the
Company the Purchase Price by wire transfer of immediately available funds
pursuant to the wiring instructions provided by the Escrow Agent.
(c) The representations and warranties of the Buyer in this Agreement
shall be true and correct in all material respects as of the date made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Closing Date.
(d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered or issued by any court or
governmental authority of competent jurisdiction or any self- regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The obligation of
------------------------------------------------
the Buyer to purchase the Note and Warrant is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions; provided, however,
that these conditions are for the sole benefit of the Buyer and may be waived by
the Buyer at any time in its sole discretion:
(a) The Company shall have (i) executed the Agreements and (ii)
delivered such documents and the executed Pledge Agreements and the SVB
Subordination Agreement, or signature pages thereof (via overnight delivery or
as otherwise provided in the Escrow Agreement), together with such other items
as may be required by this Agreement, to the Escrow Agent.
(b) The Company shall have issued and have duly executed by the
authorized officers of the Company, and delivered to the Escrow Agent on behalf
of the Buyer, the original Note and Warrant (via overnight delivery or as
otherwise provided by the Escrow Agreement).
(c) The representations and warranties of the Company in this Agreement
shall be true and correct in all material respects as of the date made and as of
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer may
require a certificate, executed by the Chief Executive Officer of the Company
and dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Buyer.
(d) The Common Stock shall be authorized for quotation on the OTC
Bulletin Board (or listing on a national securities exchange or other market)
and trading in the Common Stock on such market shall not have been suspended by
the SEC or other relevant regulatory agency.
(e) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered or issued by any court or
governmental authority of competent jurisdiction or any self- regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
8. GOVERNING LAW; MISCELLANEOUS.
------------------------------
(a) Governing Law. This Agreement shall be governed by and interpreted
--------------
in accordance with the laws of the State of Kansas without regard to the
principles of conflict of laws. Service of process in any civil action relating
to or arising out of this Agreement (including all Exhibits or Schedules or any
addenda hereto) or the transactions contemplated herein may be accomplished in
any manner provided 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.
(b) Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and signature pages from such counterparts have been delivered to the
Escrow Agent.
(c) Headings; Interpretation. The headings of this Agreement are for
-------------------------
convenience of reference and shall not form a part of, or affect the
interpretation of this Agreement. As used herein, the masculine shall refer to
the feminine and neuter, and vice versa, as the context may require. As used
herein, unless the context clearly requires otherwise, the words "herein,"
"hereunder" and "hereby," shall refer to this entire Agreement and not only to
the Section or paragraph in which such word appears. If any date specified
herein falls on a Saturday, Sunday or public or legal holiday, the date shall be
construed to mean the next business day following such Saturday, Sunday or
public or legal holiday. For purposes of this Agreement, a "business day" is
any day other than a Saturday, Sunday or public or legal holiday. Each party
intends that this Agreement be deemed and construed to have been jointly
prepared by the parties. As a result, the parties agree that any uncertainty or
ambiguity existing herein shall not be interpreted against either of them.
(d) 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 in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the documents
------------------------------
referenced herein (which are incorporated herein by reference) contain the
entire understanding of the parties with respect to the matters covered herein
and supercede all prior agreements, negotiations and understandings, written or
oral, with respect to such subject matter. Except as specifically set forth
herein, neither the Company nor the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement shall be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement. No delay or omission of
either party hereto in exercising any right or remedy hereunder shall constitute
a waiver of such right or remedy, and no waiver as to any obligation shall
operate as a continuing waiver or as a waiver of any subsequent breach.
(f) Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement shall be in writing and sent by U. S. Mail or delivered
personally or by overnight courier or via facsimile (if via facsimile, to be
followed within one (1) business day by an original of the notice document via
overnight courier) and shall be effective (i) five (5) days after being placed
in the mail, if mailed, certified or registered, return receipt requested, (ii)
upon receipt, if delivered personally or (iii) one (1) day after facsimile
transmission or delivery to a courier service for overnight delivery, in each
case properly addressed to the party to receive the same. The addresses for such
communications shall be as follows:
If to the Company: Rapidtron, Inc.
0000 Xxxxxx Xxxxxx, Xxxxxxxx X
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxx
If to the Buyer: Oceanus Value Fund, L.P.
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxxx
Each party shall provide written notice to the other party of any change in
address.
(g) Successors and Assigns. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties and their respective successors and
permitted assigns. Neither the Company nor the Buyer shall assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
other (which consent shall not be unreasonably withheld) and, in any event, any
assignee of the Buyer shall be an accredited investor (as defined in Regulation
D), in the written opinion of counsel who is reasonably satisfactory to the
Company and in form, substance and scope reasonably satisfactory to the Company.
Notwithstanding the foregoing, if applicable, the Buyer may assign its rights
hereunder to any of its "affiliates," as that term is defined in Rule 405 of the
1933 Act, without the consent of the Company; provided, however, that (i) any
such assignment shall not release the Buyer from its obligations hereunder
unless such obligations are assumed by such affiliate and (ii) no such
assignment shall be made unless it is made in accordance with any applicable
securities laws. Any request for consent to an assignment made hereunder by the
Buyer shall be accompanied by a legal opinion in form, substance and scope
reasonably satisfactory to the Company that such assignment is proper under
applicable law. Notwithstanding anything herein to the contrary, the Buyer may
pledge all or any part of the Securities as collateral for a bona fide loan
pursuant to a security agreement with a third party lender, and such pledge
shall not be considered an assignment in violation of this Agreement so long as
it is made in compliance with all applicable laws.
(h) No 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.
(i) Survival. Unless this Agreement is terminated under Section 8(l)
--------
below, the representations and warranties of the Company and the Buyer contained
herein, and the agreements and covenants set forth herein, shall survive the
Closing.
(j) Publicity. The Company and the Buyer shall have the right to
---------
review, before issuance by the other, any press releases or other public
statements with respect to the transactions contemplated hereby; provided,
however, that (i) the Company shall be entitled, without prior consultation with
or approval of the Buyer, to make any press release or other public disclosure
with respect to such transactions that is required by applicable law or
regulations and (ii) the Buyer and it affiliates shall be entitled, without
prior consultation with or approval of the Company, to publish a
"tombstone" describing the financing provided pursuant to this Agreement.
(k) Further Assurance. Each party shall do and perform, or cause to be
-----------------
done and performed, at its expense, all such further acts and things, and shall
execute and deliver all such
other agreements, certificates, instruments and documents, as the other party
may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(l) Termination. In the event that the Closing shall not have occurred
-----------
on or before December 15, 2004, this Agreement may be terminated at any time
thereafter by written notice from one party to the other. Such termination
shall not be the sole remedy for a breach of this Agreement by the non-breaching
party, and each party shall retain all of its rights hereunder at law or in
equity. Notwithstanding anything herein to the contrary, a party whose breach of
a covenant or representation and warranty or failure to satisfy a condition
prevented the Closing shall not be entitled to terminate this Agreement.
(m) Remedies. No provision of this Agreement providing for any
--------
specific remedy to a party shall be construed to limit such party to the
specific remedy described, and that any other remedy that would otherwise be
available to such party at law or in equity shall also be available. The
parties also intend that the rights and remedies hereunder be cumulative, so
that exercise of any one or more of such rights or remedies shall not preclude
the later or concurrent exercise of any other rights or remedies.
(n) Attorney's Fees. If any party to this Agreement shall bring any
----------------
action for relief against the other arising out of or in connection with this
Agreement, in addition to all other remedies to which the prevailing party may
be entitled, the losing party shall be required to pay to the prevailing party a
reasonable sum for attorney's fees and costs incurred in bringing such action
and/or enforcing any judgment granted therein, all of which shall be deemed to
have accrued upon the commencement of such action and shall be paid whether or
not such action is prosecuted to judgment. Any judgment or order entered in
such action shall contain a specific provision providing for the recovery of
attorney's fees and costs incurred in enforcing such judgment. For the purposes
of this Section, attorney's fees shall include, without limitation, fees
incurred with respect to the following: (i) post-judgment motions, (ii)
contempt proceedings, (iii) garnishment, levy and debtor and third party
examinations, (iv) discovery and (v) bankruptcy litigation.
IN WITNESS WHEREOF, the Buyer and the Company have caused this Agreement to
be duly executed by their respective authorized persons on the date first
written above.
RAPIDTRON, INC.
By:
----------------------------
President
By:
Secretary
OCEANUS VALUE FUND, L.P.
By: Oceanus Asset Management, L. L. C.,
General Partner
By:
------------------------------
Xxxx X. Xxxxxxx, Member
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby agree to be bound by the terms
of Section 4(d)(ii) above as it relates to them personally.
----------------------------
Xxxx Xxxxx, individually Xxxxx Xxxxxxx, individually
LIST OF EXHIBITS AND SCHEDULES
---------------------------------
Exhibit A 15% Secured Convertible Promissory Note
Exhibit B Warrant to Purchase Common Stock
Exhibit C Security Agreement
Exhibit D Subordination Agreement with Silicon Valley Bank
Exhibit E Form of Guaranty, Pledge and Security Agreement
Exhibit F Registration Rights Agreement
Exhibit G Disbursement Instructions
Exhibit H Escrow Agreement
Schedule 3(c)
Schedule 3(g)
Schedule 3(h)
Schedule 3(j)
Schedule 3(l)
Schedule 3(m)
Schedule 3(o)
SCHEDULE 3(C)
CAPITALIZATION
--------------
None other than what has been reflected in the SEC Documents.
SCHEDULE 3(G)
NO CONFLICTS
------------
None
SCHEDULE 3(H)
SEC DOCUMENTS; FINANCIAL STATEMENTS
-----------------------------------
None
SCHEDULE 3(J)
ABSENCE OF LITIGATION
---------------------
None
SCHEDULE 3(L)
BROKERS; NO GENERAL SOLICITATION
--------------------------------
Xxxxx Xxxxxxx - Xxxxxxxx Capital - 2% commission based on agreement signed
on
October 22, 2003.
SCHEDULE 3(M)
STATUS OF ASSETS
----------------
None other than those disclosed in the SEC Documents filed prior to or for
the quarter ended September 30, 2004. The LDM Enterprises agreement will be
terminated at the Closing.
SCHEDULE 3(O)
NO ENCUMBRANCES ON SHARES
-------------------------
None other than those disclosed in the SEC Documents.
