THE SECURITIES REPRESENTED BY THIS CONVERTIBLE PROMISSORY NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.
CONVERTIBLE PROMISSORY NOTE
---------------------------
US$397,566.29 June 21, 2005
For value received, RAPIDTRON, INC., a Nevada corporation (the "Company"),
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promises to pay to CERES FINANCIAL LIMITED, a BVI company, of Walkers Chambers,
P.O. Box 92, Mill Mall, Road Town, Tortola, British Virgin Islands (the
"Holder"), the principal sum of U.S. Three Hundred Ninety-Seven Thousand Five
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Hundred Sixty-Six and 29/100 Dollars (US$397,566.29). Interest shall accrue
from the date of this Convertible Promissory Note (this "Note") on the unpaid
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principal amount at a rate equal to eight percent (8%) per annum, compounded
annually. This Note is subject to the following terms and conditions.
1. MATURITY. Unless converted as provided in Section 2, this Note will
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automatically mature and be due and payable on September 30, 2005 (the "Maturity
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Date"). Subject to Section 2 below, interest shall accrue on this Note but
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shall not be due and payable until the Maturity Date. Notwithstanding the
foregoing, the entire unpaid principal sum of this Note, together with accrued
and unpaid interest thereon, shall become immediately due and payable upon the
insolvency of the Company, the commission of any act of bankruptcy by the
Company, the execution by the Company of a general assignment for the benefit of
creditors, the filing by or against the Company of a petition in bankruptcy or
any petition for relief under the federal bankruptcy act or the continuation of
such petition without dismissal for a period of ninety (90) days or more, or the
appointment of a receiver or trustee to take possession of the property or
assets of the Company.
2. CONVERSION; PAYMENT; ETC.
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(a) This Note shall be convertible at any time, in whole or in
part, at the option of the Holder, into such number of fully paid and
nonassessable shares of Common Stock of the Company ("Common Stock") as is
determined by dividing (i) the entire principal amount of, and at the Holder's
option accrued interest on, this Note on the date of such optional conversion,
by (ii) a conversion price equal to the lesser of (i) US$0.175 per share or (ii)
seventy-five percent (75%) of the lowest closing bid price for the Common Stock
(as reported by Bloomberg) in any of the five (5) trading days immediately
preceding the conversion date.
(b) The conversion price shall be subject to adjustment from time
to time as hereinafter provided in this Section 2(b):
(i) If the Company at any time divides the outstanding shares of its
Common Stock into a greater number of shares (whether pursuant to
a stock split, stock dividend or otherwise), and conversely, if
the outstanding shares of its Common Stock are combined into a
smaller number of shares, the conversion price in effect
immediately prior to
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such division or combination shall be proportionately adjusted to
reflect the reduction or increase in the value of each such
common share.
(ii) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all
of its assets to another corporation shall be effected in such a
way that holders of the Company's Common Stock shall be entitled
to receive stock, securities or assets with respect to or in
exchange for such Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale,
Holder shall have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this
debenture and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby, such shares of
stock, other securities or assets as would have been issued or
delivered to Holder if Holder had exercised this debenture and
had received such shares of Common Stock immediately prior to
such reorganization, reclassification, consolidation, merger or
sale. The Company shall not effect any such consolidation, merger
or sale unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets
shall assume by written instrument executed and mailed to the
Holder at the last address of the Holder appearing on the books
of the Company the obligation to deliver to the Holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase.
(iii) If and whenever the Company shall (1) issue or sell any shares
of its Common Stock for a consideration per share less than the
conversion price in effect immediately prior to the time of such
issuance or sale, (2) issue or sell any warrants, options or
other rights to acquire shares of its Common Stock at a purchase
price less than the conversion price in effect immediately prior
to the time of such issuance or sale or (3) issue or sell any
other securities that are convertible into shares of its Common
Stock for a purchase or exchange price less than the conversion
price in effect immediately prior to the time of such issuance or
sale then, upon such issuance or sale, the conversion price shall
be reduced to the price at which such shares of Common Stock are
being issued or sold by the Company or the price at which such
other securities are exercisable or convertible into shares of
the Company's Common Stock.
(c) No fractional shares of the Company's capital stock will be
issued upon conversion of this Note. In lieu of any fractional share to which
the Holder would otherwise be entitled, the Company will pay to the Holder in
cash the amount of the unconverted principal and interest balance of this Note
that would otherwise be converted into such fractional share. Upon conversion
of this Note pursuant to this Section 2, the Holder shall surrender this Note,
duly endorsed, at the principal offices of the Company or any transfer agent of
the Company. At its expense, the Company will, as soon as practicable
thereafter, issue and deliver to such Holder, at such principal office, a
certificate or certificates for the number of shares to which such Holder is
entitled upon such conversion, together with any other securities and property
to which the
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Holder is entitled upon such conversion under the terms of this Note, including
a check payable to the Holder for any cash amounts payable as described herein.
Upon conversion of this Note and the deliveries required pursuant to this
Section 2 in connection with such conversion, the Company will be forever
released from all of its obligations and liabilities under this Note with regard
to that portion of the principal amount and accrued interest being converted
including without limitation the obligation to pay such portion of the principal
amount and accrued interest.
NOTWITHSTANDING ANY OTHER PROVISION HEREOF, NO HOLDER SHALL CONVERT THIS NOTE OR
ANY PORTION THEREOF, IF AS A RESULT OF SUCH CONVERSION THE HOLDER WOULD THEN
BECOME A "TEN PERCENT BENEFICIAL OWNER" (AS DEFINED IN RULE 16A-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) OF COMMON STOCK. FOR GREATER
CERTAINTY, THE NOTE SHALL NOT BE CONVERTIBLE BY THE HOLDER TO THE EXTEND THAT,
IF, AFTER GIVING EFFECT TO SUCH CONVERSION, THE HOLDER OF SUCH SECURITIES,
TOGETHER WITH ITS AFFILIATES, WOULD IN AGGREGATE BENEFICIALLY OWN, OR EXERCISE
CONTROL OR DIRECTION OVER THAT NUMBER OF VOTING SECURITIES OF THE COMPANY WHICH
IS 10% OR GREATER OF THE TOTAL ISSUED AND OUTSTANDING VOTING SECURITIES OF THE
COMPANY, IMMEDIATELY AFTER GIVING EFFECT TO SUCH CONVERSION.
(d) PAYMENT OF INTEREST. Upon conversion of the entire principal
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amount of this Note into the Company's capital stock, any interest accrued on
this Note that is not by reason of Section 2 hereof simultaneously converted
into Common Stock shall be immediately paid to the Holder.
(e) PAYMENT. All payments shall be made in lawful money of the
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United States of America at such place as the Holder hereof may from time to
time designate in writing to the Company. Payment shall be credited first to
the accrued interest then due and payable and the remainder applied to
principal. This Note may not be prepaid at any time without the prior written
consent of the Holder.
(f) SECURITY. This Note is secured by a security interest in
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substantially all of the Company's tangible and intangible assets (including
intellectual property) (collectively, the "Collateral"), granted to the Holder
under a Security Agreement dated June 21, 2005. A default under the terms of
this Note shall also constitute a default under the Security Agreement.
3. DUE ON SALE CLAUSE. The Holder shall have the right, at its sole
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option, to declare this Note immediately due and payable irrespective of the
Maturity Date specified herein, upon the following events:
(a) Twenty business days prior to the effective date of any Change
of Control transaction undertaken without the prior written consent of the
Holder, which consent the Holder shall have no obligation to give. A "Change of
Control Transaction" means (i) any sale of equity securities or securities
convertible into equity securities of the Company; (ii) any merger,
consolidation, statutory share exchange or acquisition transaction involving the
Company; (iii) any sale of substantially all of the assets of the Company; or
(iv) any similar transaction involving the issuance, cancellation or
restructuring of equity securities of the Company unless, following the
completion of such transaction, the then existing shareholders of Company own or
control, directly or indirectly, at least 50% of the voting power or liquidation
rights of Company or the successor of such merger, consolidation or statutory
share exchange.
(b) If the Company shall sell, convey, transfer, assign or further
encumber the Collateral or any part thereof or any interest therein, whether
legal or equitable, in any manner (whether voluntarily or involuntarily) not
permitted under the Security Agreement, without the prior written consent of the
Holder, which consent the Holder shall have no obligation to give. Any consent
by the Holder to such a transfer may be predicated upon such terms, conditions
and
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covenants as may be deemed advisable or necessary in the sole discretion of the
Holder, including, but not limited to, the right to (i) require the transferee's
assumption of personal liability on the debt hereunder, (ii) approve the form
and substance of all transfer and assumption documents, (iii) change the
interest rate, date of maturity and amount and/or schedule of payments hereunder
and (iv) charge a fee based on a percentage of the original principal amount of
this Note. The granting of permission for a transferee of the Collateral to
assume this Note shall not in any manner be deemed a consent to any subsequent
transfer, and the Holder shall retain the right to consent to such subsequent
transfer or transfers on the terms and conditions stated above. Consent to one
such transfer shall not be deemed to be a waiver of the right of such consent to
further or successive transfers. No assumption or consent to any subsequent
transfer shall be deemed to constitute a release of the Company's obligations
hereunder.
4. TRANSFER; SUCCESSORS AND ASSIGNS.
-----------------------------------
(a) The terms and conditions of this Note shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. This Note may be transferred, or divided into two or more Notes of
smaller denomination, subject to the following conditions. The Holder, by
acceptance hereof, agrees to give written notice to the Company before
transferring this Note of such Holder's intention to do so, describing briefly
the manner of the proposed transfer. Promptly upon receiving such written
notice, the Company shall present copies thereof to the Company's counsel. If
in the opinion of the Company's counsel the proposed transfer may be effected
without constituting a violation of the applicable U.S. state or federal
securities laws, then the Company, as promptly as practicable, shall notify the
Holder of such opinion, whereupon the Holder shall be entitled to transfer this
Note, provided that an appropriate legend may be endorsed on this Note
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel satisfactory to the Company to prevent further transfers
which would be in violation of such securities laws or adversely affect the
exemptions relied upon by the Company. To such effect, the Company may request
that the intended transferee execute an investment letter satisfactory to the
Company and its counsel.
(b) A register of the issuance and transfer of this Note shall be
kept at the office of the Company, and this Note may be transferred only on the
books of the Company maintained at its office. Each transfer shall be in
writing signed by the then registered Holder hereof or the Holder's legal
representatives or successors, and no transfer hereof shall be binding upon the
Company unless in writing and duly registered on the register maintained at the
Company's office. Upon transfer of this Note, the transferee, by accepting the
Note, agrees to be bound by the provisions, terms, conditions and limitations of
this Note and the Convertible Note and Warrant Purchase Agreement between the
Company and the Holder dated effective as of June 21, 2005.
(c) If in the opinion of the counsel referred to in this Section
4, the proposed transfer or disposition of the Note described in the Holder's
written notice given pursuant to this Section 4 may not be effected without
registration or without adversely affecting the exemptions relied upon by the
Company, the Company shall promptly give written notice to the Holder and the
Holder will limit its activities and restrict its transfer accordingly.
5. GOVERNING LAW. This Note and all acts and transactions pursuant
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hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
6. NOTICES. Any notice required or permitted by this Note shall be in
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writing and shall be deemed sufficient upon delivery, when delivered personally
or by a nationally-
-4-
recognized delivery service (such as Federal Express or UPS), or seventy-two
(72) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth herein or as subsequently modified by written
notice.
7. AMENDMENTS AND WAIVERS. Any term of this Note may be amended only
------------------------
with the written consent of the Company and the Holder. Any amendment or waiver
effected in accordance with this Section 7 shall be binding upon the Company,
the Holder and each transferee of the Note.
Company hereby waives presentment for payment, notice of dishonor, protest
and notice of protest. If this Note is not paid when due, the Company agrees to
pay all costs of collection, including reasonable attorneys' fees.
THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
RAPIDTRON, INC.
By:
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Its:
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Address: 3151 Airway Ave., Bldg. Q,
Costa Mesa, CA 92626
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