LOAN AGREEMENT
This LOAN AGREEMENT (this "Agreement") is entered into effective as of October
9, 2004 (the "EFFECTIVE DATE") by and between LDM ENTERPRISES, LLC, a California
limited liability company ("LENDER"); Rapidtron, Inc., a Nevada corporation
("BORROWER"); and Xxxx Xxxxx, an individual ("GUARANTOR"), with reference to the
following recitals:
A. Borrower is currently a party to a Memorandum of Understanding ("MOU")
with Smart Card Integrators, Inc. ("SCI"), pursuant to which Borrower is
obligated to provide $350,000 of financing to SCI in accordance with the terms
of the MOU (the "SCI LOAN").
B. The following parties have made financing available to Borrower (each
such loan, a "BRIDGE LOAN"): (i) Bathgate Capital Partners LLC in the amount of
$600,000 pursuant to a Sale Of Secured Convertible Bridge Notes Summary of
Terms, dated September 28, 2004; (ii) Oceanus Value Fund, LP in the amount of
$400,000 pursuant to a Draft Term Sheet dated September 22, 2004; and (iii)
affiliates of Xxxx Xxxxxxxxxx in the amount of $1,000,000. Borrower intends to
accept one or more of the Bridge Loans as soon as possible and use the proceeds
thereof to finance the SCI Loan, but pursuant to the MOU, Borrower must finance
the SCI Loan prior to the expected closing of any one of the Bridge Loans.
C. Borrower has requested, and Lender has agreed to provide, a short-term
loan to Borrower to fund a portion of the SCI Loan intended to be repaid from
the proceeds of the first Bridge Loan.
D. As of the Effective Date hereof, Borrower is a client of Xxxxxxxxx
Xxxxxxx LLP ("GT") and Xxxxxxx X. Xxx ("RAL"), a shareholder of GT and former
partner of Xxx & Xxxxx LLP ("LR"). RAL is an affiliate of Lender.
E. Lender has agreed to loan to Borrower up to $350,000, to be used
solely for the purpose of funding of $250,000 of the SCI Loan, provided SCI
agrees to amend the MOU to permit Borrower to fund a portion of the SCI Loan
pending the closing of the Bathgate Bridge Loan, and payment of $100,000 towards
outstanding invoices owed to GT and LR.
F. Borrower shall secure the loan by granting Lender an assignment of the
SCI Loan and a security interest in all of the assets of Borrower.
G. Guarantor is an owner, officer and director of Borrower. Guarantor
shall guaranty Borrower's repayment of the loan and shall secure such guaranty
by granting a deed of trust upon his personal residence (the "RESIDENCE") for
the benefit of Lender.
H. Borrower and Guarantor understand that because RAL is an affiliate of
Lender and GT, GT is unable to represent Borrower or Guarantor with respect to
this Agreement and the related transactions, and Borrower and Guarantor have
agreed to obtain separate legal counsel to represent them with respect to this
Agreement and the related transactions. Further, GT shall represent Lender in
connection with the Loan and related transactions, and each of
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Borrower and Lender has agreed to waive any actual or potential conflict of
interest that may exists with respect to GT's representation of Lender in this
matter and GT's ongoing and future representation of Borrower with respect to
other matters.
NOW, THEREFORE, for and in consideration of the foregoing recitals and the
mutual covenants, promises and agreements set forth herein, the parties hereto
agree as follows:
1. The Loan. Borrower agrees to accept and Lender agrees to make, upon
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the terms and conditions contained in this Agreement, a loan in the principal
sum of up to Three Hundred Fifty Thousand Dollars ($350,000.00) (the "LOAN"), at
an interest rate of the lesser of ten percent (10%) per annum or the highest
rate permitted by law, and due and payable on or before the earlier of (a)
October 29, 2004, or (b) closing of the first Bridge Loan. If the total
outstanding balance of the Loan is not repaid on or before November 14, 2004,
then Lender shall have the option, but not the obligation, to covert the total
balance of the Loan or any portion thereof into common stock of Borrower at any
time until such balance is paid in full, at a conversion rate of the lesser of
$0.33 per share or the average closing bid price during the five trading days
prior to and including November 14, 2004. Lender's election to so convert the
outstanding balance of the Note shall not be deemed a waiver of any right or
remedy Lender may have for breach of this Agreement or any Loan Document.
2. Security for the Loan. As collateral for repayment of the Loan and
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Borrower's performance of the other "Loan Documents" (defined below), Borrower
shall execute and deliver to Lender a Security Agreement in the form attached
hereto as Exhibit "A" (the "SECURITY AGREEMENT"), assigning to Lender all right,
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title and interest in and to the SCI Loan and the Bathgate Bridge Loan, and
granting a security interest in all other existing or hereinafter acquired
assets of Borrower, to be perfected by the filing of a UCC-1 financing
statement.
3. Personal Guaranty. As a condition to the Loan, Guarantor shall
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execute and deliver the Guaranty in the form attached hereto as Exhibit "B" (the
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"GUARANTY") and the Deed of Trust attached hereto as Exhibit "C" (the "DEED OF
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TRUST"). If Borrower fails to repay the Loan on or before October 29, 2004,
then Guarantor shall obtain a new loan secured by the Residence and use the
proceeds thereof to satisfy the Loan and Guaranty. If Borrower has failed to
repay the entire balance of the Loan on or before October 22, 2004, then
Guarantor shall promptly make a good faith application for such new loan with an
available bank or other mortgage lender on or before October 25, 2004. Failure
by Guarantor to satisfy the obligation to apply for such new loan shall be
deemed a material default of this Agreement and the Guaranty, and Lender shall
have all rights and remedies for default under the Guaranty.
4. Loan Documents. In order to consummate the Loan, Borrower shall
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execute and/or deliver to Lender the following documents (collectively, together
with this Agreement, the "LOAN DOCUMENTS"):
(a) Convertible Secured Promissory Note (the "NOTE") in the principal
amount of up to $350,000.00, with a maturity date of November 8, 2004, and in
the form attached hereto as Exhibit "D";
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(b) the Security Agreement;
(c) the Guaranty, duly executed and delivered by Guarantor; and
(d) the Deed of Trust.
5. Closing. Closing of the Loan shall occur within one business day
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following Borrower's delivery of the original Loan Documents to Lender. At
closing, Lender shall disburse the proceeds of the Loan on behalf of Borrower as
provided in Section 6 below.
6. Use of Loan Proceeds. Borrower hereby covenants to Lender that
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Borrower shall use the proceeds of the Loan only in accordance with Schedule 1,
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attached hereto. Borrower hereby authorizes and directs Lender to disburse the
proceeds of the Loan directly to the third-party payees identified on Schedule
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1, in the amounts shown thereon, for and on behalf of Borrower.
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7. Covenant to Accept Bridge Loans. Rapidtron shall in good faith
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proceed to apply for the Bridge Loans as soon as possible and diligently pursue
the closing of such Bridge Loans, and Rapidtron shall apply any such funds to
the repayment of the Loan.
8. Lender's Costs and Expenses. At closing, Borrower shall reimburse
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Lender for its legal fees and other out-of-pocket expenses in connection with
the preparation of the Loan Documents and other matters related to the
transactions contemplated herein, not to exceed $3,500, from funds separate and
apart from the proceeds of the Loan.
9. Default. The occurrence of any of the following events shall
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constitute an "EVENT OF DEFAULT" under this Agreement:
9.1 Nonpayment. Borrower fails to pay, within five (5) calendar days
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after demand or after the date when due, any payment obligation in accordance
with the terms of the Note.
9.2 Other Provisions of Loan Documents. Except for payment
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obligations under the Note or Guaranty, either Borrower or Guarantor fails to
comply with or perform any agreement, covenant, condition or provision of this
Agreement or any other Loan Document and such failure shall remain uncured for a
period of thirty (30) days following delivery of written notice of default by
Lender to Borrower or Guarantor, as the case may be.
10. Further Assurances. Each party hereto also agrees to provide further
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assurances; to take further actions; and to make, execute, acknowledge, certify,
verify, enter into, deliver, record and/ or file any and all documents as are
necessary and appropriate to the Loan or to the closing, consummation,
confirmation and perfection of any and all transactions contemplated by this
Agreement.
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11. General Provisions.
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11.1 No Modifications. No supplement, modification or amendment of
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this Agreement shall be binding unless executed in writing by all parties.
11.2 Binding Agreement. Neither party shall assign any right, power,
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privilege or authority or delegate any duty, liability or obligation under this
Agreement to any person or entity without the prior written consent of the other
party, such consent not to be unreasonably withheld or delayed. No such
assignment or delegation shall release the assigning party from any duty,
liability or obligation under this Agreement unless expressly provided to the
contrary in a written instrument signed by all parties. Subject to the
foregoing restrictions and limitations, this Agreement shall be binding on, and
shall inure to the benefit of, the parties and their respective heirs,
representatives, successors and assigns.
11.3 Attorneys Fees. If either party commences any mediation,
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arbitration, administrative proceeding or judicial proceeding (each, a
"PROCEEDING") to enforce or interpret any term, condition or other provision of
this Agreement, then the prevailing party in such Proceeding shall be entitled
to recover reasonable attorneys fees, expert witness fees, accounting fees and
related costs incurred by such prevailing party in such Proceeding from the
non-prevailing party, in addition to any other relief to which such prevailing
party may be entitled.
11.4 Enforceability. In the event that the application of any of the
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provisions of this Agreement is held to be unenforceable or invalid by a court
of competent jurisdiction, the validity and enforceability of other applications
of that provision and of the remaining provisions shall not be affected.
11.5 Counterparts and Execution. This Agreement may be executed in
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any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same document. Each signatory
may affix its respective signatures to this Agreement in any manner so long as
such signatory acknowledges such signature as its own. Executed signature pages
from separate counterpart originals may be attached to a single counterpart
copy. The parties hereby agree that facsimile signatures may be used in order
to close the transactions contemplated hereby (other than with respect to the
Purchase Note); provided, however, that original signatures shall promptly
follow (by Federal Express, other overnight messenger or courier service) the
delivery of such facsimile signatures.
11.6 Construction. As used in this Agreement, masculine, feminine or
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neuter gender and the singular or plural number shall each be deemed to include
the others where and when the context so dictates.
11.7 Governing Law. This Agreement shall be governed by and construed
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and interpreted in accordance with the internal laws of the State of California,
as applied to contracts between California residents entered into and to be
performed wholly within the State of California.
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11.8 Legal Representation and Acknowledgement and Waiver of Conflict.
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Lender and Borrower hereby acknowledge that RAL is the principal of Lender, is
an attorney licensed to practice law in the State of California and a
shareholder with GT and former partner of LR, which has been dissolved. Lender
and Borrower further acknowledge that Xxxxxx X. Xxxxx ("DJR") is an associate
attorney with GT and a former partner of LR. LR has in the past represented
Borrower, and GT has in the past and continues to represent Borrower in
connection with general business and securities matters. Borrower acknowledges
that neither RAL, DJR nor GT is representing Borrower, its representatives or
advisors with respect to this Agreement or any transaction related thereto.
Borrower acknowledges that RAL has disclosed to Borrower a conflict of interest
between RAL, DJR and GT on the one hand, and Borrower on the other, with respect
to the terms of this Agreement. Borrower further acknowledges that RAL, DJR and
GT have advised Borrower to obtain independent legal counsel to represent
Borrower in connection with this Agreement and to advise Borrower with respect
to any conflict this Agreement may present with respect to RAL's, DJR's and GT's
current and future representation of Borrower. Further, Borrower and Lender
acknowledge that DJR and GT are representing Lender with respect to this
transaction and that each of Lender and Borrower has reviewed and executed a
separate waiver of conflict of interest with respect to such representation.
IN WITNESS WHEREOF, Borrower and Lender have executed, delivered and
entered into this Agreement as of the Effective Date hereof.
"BORROWER"
RAPIDTRON, INC., a Nevada corporation
By:______________________________________
Xxxx Xxxxx
President & Chief Executive Officer
"LENDER"
LDM ENTERPRISES, LLC,
a California limited liability company
By:_______________________________________
Xxxxxxx X. Xxx, Manager
By:_______________________________________
Xxxxxxx Xxx, Manager
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Schedule 1
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Use of Proceeds
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SCI $250,000.00
GT $ 80,000.00
LR $ 20,000.00
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(1) Discounted from $32,528.56.
Schedule 1 to Loan Agreement
Exhibit "A" to Loan Agreement
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Form of Security Agreement
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SEE ATTACHED
Exhibit "A" to Loan Agreement
Exhibit "B" to Loan Agreement
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Form of Guaranty
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SEE ATTACHED
Exhibit "B" to Loan Agreement
Exhibit "C" to Loan Agreement
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Form of Deed of Trust
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SEE ATTACHED
Exhibit "C" to Loan Agreement
Exhibit "D" to Loan Agreement
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Form of Convertible Secured Promissory Note
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SEE ATTACHED
Exhibit "D" to Loan Agreement
