EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May
5, 2005, is among LOCAL TELECOM SYSTEMS, INC. (the "CORPORATION"), and _
XXXXXXXXX INVESTMENT MANAGEMENT, LLC., a Delaware limited liability company
("PURCHASER").
RECITALS
A. The Corporation is seeking a loan to fund working capital and other
needs of the Corporation.
B. The Purchaser is willing to lend certain sums of money to the
Corporation in exchange for the rights granted hereunder and under a Secured
Promissory Note (the "NOTE") in the form of EXHIBIT A attached hereto and
incorporated herein by this reference.
C. The Corporation is willing to accept the Purchaser's funds and to
grant certain rights provided Purchaser makes the representations and warranties
contained herein and Purchaser otherwise agrees to the terms hereof.
D. Purchaser is willing to purchase 550,000 shares (the "SHARES")
post-reverse split of the Corporation's common stock, $.0167 par value per share
(the "COMMON STOCK"), of the Corporation in exchange for $1.00.
E. Purchaser is willing to purchase a warrant (the "WARRANT") to
acquire 250,000 post-reverse split shares of the Corporation's common stock,
$.0167 par value per share (the "COMMON STOCK"), of the Corporation in
exchange for $1.00. The Warrant shall be in the form attached hereto as EXHIBIT
B.
F. The Corporation is willing to sell and issue the Shares and the
Warrant to Purchaser.
NOW, THEREFORE, Purchaser and the Corporation hereby covenant and agree
as follows:
1. EXTENSION OF CREDIT, RIGHTS GRANTED, AND SUBSCRIPTION
1.1. EXTENSION OF CREDIT. Purchaser hereby agrees to lend to the
Corporation on Closing Date, and the Corporation hereby agrees to accept the
principal amount of Two Hundred Fifty Thousand Dollars ($250,000). Purchaser
specifically agrees to the terms of the Note and the terms hereunder and agrees
to accept, and the Corporation agrees to issue, the Note in such principal
amount in exchange for such principal amount. The Closing Date shall be May
5, 2005.
1.2. ISSUANCE OF SHARES AND WARRANT. The Corporation hereby agrees to
sell and issue to Purchaser the Shares and the Warrant in exchange for the sum
of $2.00.
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1.3. SUBSCRIPTION. Purchaser hereby subscribes for the Note, the
Shares, the Warrant and all other rights granted hereunder. Purchaser further
agrees to fulfill all of its obligations under this Agreement. The purchase
price for the Note , the Shares and the Warrant together shall be $250,000.
Subject to all of the terms and conditions of this Agreement, the
Corporation will issue to Purchaser the Note, the Shares and the Warrant and
Purchaser will purchase the same from the Corporation on the Closing Date at the
principal offices of the Corporation, or such other place as they mutually
agree.
2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
As an inducement to Purchaser to enter into this Agreement, the
Corporation represents and warrants that:
2.1. AUTHORITY FOR AGREEMENT. This Agreement has been duly authorized
by all necessary corporate action of the Corporation and, when executed and
delivered by the Corporation, will be a legal, valid, and binding obligation of
the Corporation, enforceable in accordance with its terms, except to the extent
that the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
or by general principles of equity.
2.2. VALIDITY OF NOTE. The Note, when delivered pursuant to this
Agreement, will be the legal, valid, and binding obligation of the Corporation,
enforceable by Purchaser in accordance with its terms, except to the extent that
the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
or by general principles of equity.
2.3. VALIDITY OF SHARES. The Shares of the Common Stock to be issued
pursuant hereto, will constitute duly authorized, legally and validly issued,
and fully paid and non-assessable shares of the Common Stock.
2.4. VALIDITY OF WARRANT AND SHARES UNDERLYING WARRANT. The Warrant is
duly authorized, legally and validly issued and the shares of the Common Stock
to be issued upon the due exercise of the Warrant, when issued in accordance
with the terms of the Warrant, will constitute duly authorized, legally and
validly issued, and fully paid and non-assessable shares of the Common Stock.
2.5 NO CONFLICTING RIGHTS. The holders of the outstanding shares of
Common Stock are not entitled to preemptive or other rights to subscribe for the
Note ,the Shares , the Warrant or the Common Stock issued thereunder.
2.6 SHARES FOR ISSUANCE. The Corporation covenants and agrees to have a
sufficient number of shares of Common Stock available for issuance upon the due
exercise of the exercise of the Warrant such that the number of issued and
outstanding shares of Common Stock, including all shares of Common Stock
reserved for issuance, shall not exceed the authorized number of shares of
Common Stock. In connection therewith, the Corporation covenants to file the
necessary documentation with the Securities and Exchange Commission (the "SEC")
to effect a 1-for-50 reverse split of the Corporation's currently issued and
outstanding shares of Common Stock within 30 days of the date of this agreement.
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2.7 ORGANIZATION. The Corporation is a duly organized, validly existing
and in good standing under the laws of Nevada
2.8 NO DEFAULTS. The Corporation is not in default under any agreements
(i) between the Corporation and third parties or (ii) among the Corporation,
third parties, and others and is not in default under any notes, mortgages, or
other financing documents. No event has occurred that, with the giving of
notice, the passage of time, or both, would cause the Corporation to be in
default under any of the foregoing. This Agreement, the Note and the issuance of
the Shares will not violate any agreements of the Corporation. The Corporation
has filed all tax returns and paid all taxes owed by the Corporation. The
Corporation operates its business in compliance with all applicable laws.
2.9 LIABILITIES AND LITIGATION. Other than as disclosed to Purchaser in
writing, the Corporation (i) has no liabilities or obligations and (ii) is not
the subject of any pending or threatened litigation.
2.10 CAPITALIZATION. The authorized capital stock of the Corporation
consists of 100,000,000 shares of Common Stock, of which 79,959,923 shares are
issued and outstanding on the date hereof, and includes the Shares (but not the
stock to be issued under the Warrants). There are no plans, agreements, options,
rights, warrants, convertible securities, or other arrangements or instruments
providing for the issuance of additional capital stock of the Corporation. The
Corporation has reserved for issuance sufficient shares to effect exercise of
the Warrant
2.11 APPROVAL. This Agreement, the Note, the Shares, the Warrant and
the issuance of the Common Stock upon exercise of the Warrant have been approved
by all necessary corporate action on the part of the Corporation and there are
no approvals, filings with, or consents of third parties necessary for the
Corporation's performance of this Agreement and the Note.
2.12 ARTICLES AND BYLAWS. Attached hereto as EXHIBIT B are true,
correct, and complete copies of the Articles of Incorporation, as amended, and
the Bylaws, as amended, of the Corporation.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY PURCHASER
Purchaser hereby represents, warrants and agrees that:
3.1. Purchaser has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in the Note, the Shares, the Warrant and the shares to be issued upon
exercise thereunder. Purchaser is an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the "ACT").
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3.2. Purchaser and its advisors have received such information and
documents from the Corporation, and have had a reasonable opportunity to ask
questions of and receive answers from its executive officers, with respect to
the business, affairs, financial condition, and prospects of the Corporation and
with respect to the Note, the Shares and the Warrant as Purchaser has requested,
and all such questions have been answered to Purchaser's full satisfaction.
3.3. Purchaser has such knowledge and experience in business and
financial matters as will enable it to utilize the information made available in
connection with the offering of the Note and the Warrant to evaluate the merits
and risks of the prospective investment and to make an informed investment
decision. Purchaser is also aware that no state or Federal agency has reviewed
or endorsed the Note, the Warrant or the offering thereof, and that the Note,
the Warrant and the shares issuable upon exercise of the conversion rights
thereunder or the exercise of the Warrant involve a high degree of economic
risk.
3.4. Purchaser is aware that it must bear the economic risk of
investment in the Note, the Shares and the Warrant (or the Common Stock which
may be issued pursuant to exercise of the Warrant) for an indefinite period of
time since the issuance and delivery of the Note and the Shares has not been
registered under the Act, and that, theretofore, Purchaser may not, and the
undersigned hereby agrees and covenants that Purchaser will not, transfer or
otherwise dispose of the Note, the Shares or the Warrant (or the Common Stock
which may be issued pursuant to exercise of the Warrant) unless, in the opinion
of counsel, which opinion shall be reasonably satisfactory to counsel for the
Corporation, such Note, the Shares or the Warrant may be legally transferred or
otherwise disposed of without registration under the Act, and/or registration
and/or qualification under the applicable state and/or other federal statutes,
or such Note or the Shares shall have been so registered or qualified and an
appropriate prospectus shall then be in effect.
3.5. Purchaser is acquiring the Note, the Shares and the Warrant for
its own account for investment and not with a view to distribution, assignment,
resale or otherwise and no other person has a direct or indirect beneficial
interest in such Note, the Shares or the Warrant.
3.6. All information which Purchaser has provided concerning Purchaser
and its financial position and Purchaser's knowledge of financial and business
matters is correct and complete as of the date hereof, and if there should be
any material change in such information prior to the acceptance of the
subscription, Purchaser will immediately provide the Corporation with such
information.
4. FURTHER AGREEMENTS
4.1. RESTRICTIVE LEGEND. Purchaser hereby acknowledges and consents to
the placement of the following restrictive legend on the Note and a
substantially similar restrictive legend on the Warrant and a similar
restrictive legend on the Shares issued pursuant to this Agreement or the Common
Stock issuable upon exercise of the Warrant:
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THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION,
THIS NOTE MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED, EXCEPT UPON DELIVERY TO THE CORPORATION OF AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO COUNSEL FOR THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
4.2. INDEMNIFICATION. Purchaser agrees to indemnify and hold harmless
the Corporation and its affiliates from and against all damages, losses, costs
and expenses (including reasonable attorneys' fees) which Purchaser may incur by
reason of Purchaser's failure to fulfill any of the terms or conditions of this
Agreement, or by reason of any breach of the representations and warranties made
by Purchaser herein. The Corporation hereby agrees to indemnify and hold
harmless Purchaser from and against all damages, losses, costs, and expenses
(including reasonable attorneys' fees) which Purchaser may incur by reason of
the Corporation's failure to fulfill any of the terms or conditions of this
Agreement, or by reason of any breach of the representations and warranties made
by the Corporation herein.
4.3. NO ASSIGNMENT. Purchaser agrees not to transfer or assign this
Agreement, or any of its interest herein, and Purchaser further agrees that the
transfer or assignment of the Note, the Shares or the Warrant acquired pursuant
to this Agreement shall be made only in accordance with this Agreement and all
applicable laws, other than to a partnership, corporation, or other entity
controlled by Purchaser or to Purchaser's immediate family or a trust for their
benefit.
4.4. IRREVOCABILITY, BINDING EFFECT. Purchaser agrees that it may not
cancel, terminate or revoke this Agreement or any agreement of the undersigned
made hereunder and that this Agreement shall survive Purchaser's death or
disability and shall be binding upon Purchaser's heirs, executors,
administrators, successors and assigns.
4.5. COVENANTS OF THE CORPORATION. The Corporation hereby covenants and
agrees to (i) use the proceeds of the Note to acquire MBI in Houston and (ii)
furnish Purchaser with annual and quarterly financial information and all other
information furnished to the Corporation's Shareholders in its public filings
with the Securities and Exchange Commission.
4.6. REIMBURSEMENT OF LENDER'S EXPENSES. The Corporation hereby
covenants and agrees to reimburse Lender's actual expenses (including attorneys'
fees and expenses) incurred in connection with the transactions contemplated by
this Agreement, not to exceed 10,000.00.
5. GENERAL
5.1. SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the parties contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing.
5.2. GOVERNING LAWS. This Agreement shall be governed by and construed
under the laws of the State of Texas.
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5.3. SEVERABILITY. If one or more provision of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall remain in full force and
effect and shall be interpreted as if such provision were so excluded.
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LOCAL TELECOM SYSTEMS, INC.
By: /S/ XXXXXXX XXXXXXXXXX
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XXXXXXX XXXXXXXXXX,
Chief Executive Officer
XXXXXXXXX INVESTMENT MANAGEMENT, LLC
By: /S/ XXXXXX XXXXXXXXX
---------------------------------------------
XXXXXX XXXXXXXXX,
Manager
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EXHIBIT A
THIS SECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES, OR DELIVERY TO THE COMPANY OF AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT
OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 000 XXXXX XXX XXX.
Xxxx Xxxxx, Xxxxx
May ____, 2005
LOCAL TELECOM SYSTEMS, INC.
SECURED PROMISSORY NOTE
Local Telecom Systems, Inc., a Nevada corporation (the "COMPANY"), for
value received, hereby promises to pay to Xxxxxxxxx Investment Management, LLC,
a Delaware limited liability company, (the "HOLDER"), located at 000 Xxxxxx
Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000 (the "HOLDER"), the principal amount of Two
Hundred Fifty Thousand and no/100 Dollars ($250,000) (the "ISSUE PRICE"),
together with interest on the unpaid amount thereof in accordance with the terms
hereof, from the date hereof until paid or converted in accordance with the
terms hereof.
1. Terms of the Promissory Note (the "NOTE").
1.1. INTEREST RATE. The rate of interest hereunder ("INTEREST
RATE") shall be ten percent (10%) per annum and shall be computed on the basis
of a 365 day year for the actual number of days elapsed.
1.2. PAYMENT. The Issue Price plus all accrued but previously
unpaid interest thereon shall become due and payable on the earliest of (i)
November __, 2005 (the "MATURITY DATE"), (ii) immediately prior to the closing
of the acquisition of a majority of stock of the Company by another entity by
means of a transaction or a series of related transactions, (iii) the closing of
a financing by the Company which results in at least $500,000 in net proceeds to
the Company or (iv) the closing of the sale of all or substantially all of the
assets of the Company, unless the Company stockholders of record prior to such
acquisition or sale set forth in (ii) and (iv) above shall hold at least fifty
percent (50%) of the voting power of the acquiring or surviving entity
immediately after such acquisition or sale ("DUE DATE"). Payment shall be made
at the offices or residence of the Holder, or at such other place as the Holder
shall have designated to the Company in writing, in lawful money of the United
States of America.
1.3. PREPAYMENT. The Company may elect to repay this Note with
no premium or penalty.
1.4. DEFAULT INTEREST. From and after the Due Date, the
Company shall pay interest on the unpaid principal balance of this Note at
fifteen percent (15%) per annum.
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1.5. EVENTS OF DEFAULT. If any of the events specified in this
Section 1.5 shall occur (herein individually referred to as an "EVENT OF
DEFAULT"), then the Holder may declare the entire principal and all accrued and
unpaid interest hereon immediately due and payable, by notice in writing to the
Company:
(i) Default in the payment of any principal or
interest on this Note when due and payable; or
(ii) The institution by the Company of proceedings to
be adjudicated as bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
federal Bankruptcy Act, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official for the
Company, or for any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Corporation in furtherance of any such action; or
(iii) If, within sixty (60) days after the
commencement of an action against the Company (and service of process in
connection therewith on the Company) seeking any bankruptcy, insolvency,
reorganization, liquidation, dissolution, or similar relief under any present or
future statute, law, or regulation, such action shall not have been resolved in
favor of the Company or all orders or proceedings thereunder affecting the
operations or the business of the Company stayed, or if the stay or any such
order or proceeding shall thereafter be set aside, or if, within sixty (60) days
after the appointment without the consent or acquiescence of the Company of any
trustee, receiver, or liquidator of the Company or of all or any substantial
part of the properties of the Company, such appointment shall not have been
vacated.
The Company waives any and all notices in connection with this Note, including
but not limited to notice of intent to accelerate, notice of acceleration, and
notice of nonpayment.
1.6. SECURITY. The indebtedness evidenced by this Note shall
be secured by a pledge of the following collateral:
1. Shares representing 51% of the outstanding shares of LTSI
common stock, par value $___________ per share, registered in the name(s) of
___________________.; and
2. 400,000 shares of RG America, Inc., common stock registered
in the name of Rea Brothers, Ltd.
2. PRIORITY. The indebtedness evidenced by this Note shall be senior in
right of payment to any prior payment of the Company's existing Indebtedness, as
hereinafter defined.
2.1. INDEBTEDNESS. As used in this Note, the term
"Indebtedness" shall mean the principal of and accrued and unpaid interest on
all indebtedness of the Company to banks, insurance companies, other financial
institutions or other lenders, which is for money borrowed by the Company.
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2.2. DEFAULT ON INDEBTEDNESS. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an Event of Default with respect to any Indebtedness,
then no amount shall be paid by the Company in respect of the principal of or
interest of its Indebtedness at the time outstanding, unless and until the
principal of and interest on the Note then outstanding shall be paid in full. If
there occurs an event of default that has been declared in writing with respect
to any Indebtedness, or in the instrument under which any Indebtedness is
outstanding, permitting the holder of such Indebtedness to accelerate the
maturity thereof, then, unless and until such event of default shall have been
cured or waived or shall have ceased to exist, or all Indebtedness shall have
been paid in full, no payment shall be made in respect of the principal of or
interest on this Note, unless within three (3) months after the happening of
such event of default, the maturity of such Indebtedness shall not have been
accelerated.
3. MISCELLANEOUS.
3.1. TRANSFER OF NOTE. This Note shall not be transferable or
assignable in any manner, except to affiliates of Holder, and no interest shall
be pledged or otherwise encumbered by the Holder without the express written
consent of the Company, and any such attempted disposition of this Note or any
portion hereof shall be of no force or effect.
3.2. TITLES AND SUBTITLES. The titles and subtitles used in
this Note are for convenience only and are not to be considered in construing or
interpreting this Note.
3.3. NOTICES. Any notice required or permitted under this Note
shall be deemed delivered if in writing and delivered personally or three (3)
days after being sent by certified mail, return receipt requested, to the
Holder. For purposes hereof, the address of the Holder shall be Xxxxxxxxx
Investment Management, a Delaware limited liability company, (the "HOLDER"),
located at 000 Xxxxxx Xxx., Xxxxxxxxxx, XX 00000 and the address for the Company
shall be ______________________________, Attn.: President. The Company and the
Holder may each change their respective address effective ten (10) days
following notice of such change provided in accordance with this Section 3.3.
3.4. ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Note, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and disbursements in
addition to any other relief to which such party may be entitled.
3.5. AMENDMENTS AND WAIVERS. This Note may be amended and the
observance of any term of this Note may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Holder. Any amendment or waiver effected in
accordance with this Section 3.5 shall be binding upon the Holder of this Note,
each future holder of all such securities and the Company.
3.6. SEVERABILITY. If one or more provisions of this Note are
held to be unenforceable under applicable law, such provision shall be excluded
from this Note and the balance of the Note shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
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3.7. GOVERNING LAW. This Note shall be governed by and
construed and enforced in accordance with the laws of the State of Texas,
without giving effect to its conflicts of laws principles.
3.8. USURY. It is the intention of the parties hereto to
conform strictly to applicable usury laws as in effect from time to time during
the term of this Note. Accordingly, if any transaction or transactions
contemplated hereby would be usurious under applicable law (including the laws
of the United States of America, or of any other jurisdiction whose laws may be
mandatorily applicable), then, in that event, notwithstanding anything to the
contrary in this Note, it is agreed as follows: (i) the provisions of this
paragraph shall govern and control; (ii) the aggregate of all interest under
applicable laws that is contracted for, charged or received under this Note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be promptly credited to the Holder by the
Company (or, if such consideration shall have been paid in full, such excess
shall be promptly refunded to the Holder by the Company) (iii) neither the
Company nor any other person or entity now or hereafter liable in connection
with this Note shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum interest permitted by the applicable
usury laws; and (iv) the effective rate of interest shall be IPSO FACTO reduced
to the maximum lawful interest rate.
Date: May ___, 2005 LOCAL TELECOM SYSTEMS, INC.,
a Nevada corporation
By:
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Name:
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Title:
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EXHIBIT B
LOCAL TELECOM SYSTEMS, INC.
(A NEVADA CORPORATION)
================================================================================
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
================================================================================
Effective May ___, 2005 (the "EFFECTIVE DATE")
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS.
THIS CERTIFIES THAT, for value received, XXXXXXXXX INVESTMENT
MANAGEMENT, LLC, or its registered assigns ("HOLDER"), is entitled to purchase,
subject to the conditions set forth below, at any time or from time to time
during the Exercise Period (as defined in SUBSECTION 1.2 below), TWO HUNDRED
FIFTY THOUSAND (250,000) shares ("SHARES") of fully paid and non-assessable
common stock, par value $_____ per share (the "COMMON STOCK"), of LOCAL TELECOM
SYSTEMS, INC., a Nevada corporation (the "COMPANY"), at the per share purchase
price (the "WARRANT PRICE") set forth in SUBSECTION 1.1 below, subject to the
further provisions of this Warrant.
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and
the Shares subject hereto may be purchased, are as follows:
1.1 WARRANT PRICE. The Warrant Price shall be USD $0.20 per Share,
subject to adjustment as provided in SECTION 4 below.
1.2 METHOD OF EXERCISE. Holder may at any time from the Effective Date
and for three (3) years thereafter, or such later date as the Company may in its
sole discretion determine (the "EXERCISE PERIOD"), exercise in whole or in part
the purchase rights evidenced by this Warrant. Such exercise shall be effected
by:
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(a) the surrender of this Warrant, together with a duly
executed copy of the form of subscription attached hereto as EXHIBIT A,
to the Secretary of the Company at its principal offices;
(b) the payment to the Company, by cash, certified or
cashier's check payable to Company's order or wire transfer to the
Company's account, of an amount equal to the aggregate Warrant Price
for the number of Shares for which the purchase rights hereunder are
being exercised. Alternatively if then permitted under applicable
securities laws, Holder may exercise this Warrant by delivering to the
Company: (i) a properly executed notice of exercise together with
irrevocable instructions to a NASD-member securities broker to promptly
deliver to the Company cash or a check payable and acceptable to the
Company in the full amount of the exercise price for the total number
of Shares being purchased (if the Holder and the securities broker
comply with such procedures and enter into such agreements of indemnity
and other agreements as the Company may prescribe as a condition of
that payment procedure) or (ii) shares of Common Stock, free and clear
of any and all liens, claims and encumbrances, having an aggregate Fair
Value (as defined herein below) equal to the full amount of the
exercise price for the total number of Shares being purchased. The
Holder may also make payment in any combination of the permissible
forms of payment described in the preceding sentence. Fair Value of a
share of Common Stock (for purposes of this section) means (a) if the
primary market for the Shares is a National Securities Exchange, the
NASDAQ National Market System, or any other market or quotation system
in which last sale transactions are reported on a contemporaneous
basis, the last reported sales price of such Shares, as of the time of
authorization of the transaction giving rise to the right to receive
such Shares; or (b) if the primary market for such Shares is not an
exchange or quotation system, the fair value thereof as shall be
determined in good faith by the Board of Directors of the Company at
the time of authorization of the transaction giving rise to the right
to receive such Shares; and
(c) the delivery to the Company, if necessary in the
discretion of counsel for the Company, to assure compliance with the
Securities Act, and applicable state securities laws, of an instrument
executed by holder certifying that the Shares are being purchased
solely for the account of Holder and not with a view to any resale or
distribution in violation of the Securities Act or applicable state
securities laws.
1.3 ISSUANCE OF SHARES AND NEW WARRANT. If the purchase rights
evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to Holder. If the purchase rights evidenced by this Warrant are
exercised only in part, the Company shall also deliver to Holder at such time a
new Warrant evidencing the purchase rights regarding the number of Shares (if
any) for which the purchase rights under this Warrant remain unexercised and
continue in force and effect. All new Warrants issued in connection with the
provisions of this SECTION 1.3 shall bear the same date as this Warrant and
shall be substantially identical in form and provisions to this Warrant except
for the number of Shares purchasable thereunder. Each person in whose name any
certificate for Shares is to be issued shall for all purposes be deemed to have
become the holder of record of such Shares on the date on which this Warrant was
surrendered and payment of the Warrant Price was made, irrespective of the date
of delivery of such stock certificate, except that if the date of such surrender
and payment is a date when the stock transfer books of the Company are closed,
such person shall be deemed to have become the holder of such Shares at the
close of business on the next succeeding date on which the stock transfer books
are open.
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2. TRANSFERS
2.1 TRANSFERS. As long as it does not constitute an illegal public
distribution, this Warrant and all rights hereunder are transferable in whole or
in part by the Holder. The transfer shall be recorded on the books of the
Company upon (i) the surrender of this Warrant (together with a duly executed
and endorsed copy of the form of transfer certificate attached hereto as EXHIBIT
B) to the Secretary of the Company at its principal offices, and (ii) the
payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer. In the event of a partial transfer, the Company shall
issue to the several holders one or more appropriate new Warrants.
2.2 REGISTERED HOLDER. Each holder of this Warrant agrees that until
such time as any transfer pursuant to SUBSECTION 2.1 above is recorded on the
books of the Company, the Company may treat the registered Holder of this
Warrant as the absolute owner.
2.3 FORM OF NEW WARRANTS. All new Warrants issued in connection with
transfers of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provisions to this Warrant except for the
number of Shares purchasable thereunder.
3. NO FRACTIONAL SHARES
Notwithstanding any adjustment (as required hereby) to the number of
Shares purchasable upon the exercise of this Warrant, the Company shall not be
required to issue any fraction of a Share upon exercise of this Warrant. If, by
reason of any change made pursuant to SECTION 4 below, the Holder would be
entitled, upon the exercise of any rights evidenced hereby, to receive a
fractional interest in a Share, the Company shall, upon such proper exercise of
this Warrant, purchase such fractional interest for an amount in cash equal to
the Fair Market Value of such fractional interest, determined as of the date of
such exercise of this Warrant. For purposes of this SECTION 3, the term "Fair
Market Value" means (a) if the primary market for the Shares is a National
Securities Exchange, the NASDAQ National Market System, or any other market or
quotation system in which last sale transactions are reported on a
contemporaneous basis, the last reported sales price of such Shares, as of the
time of authorization of the transaction giving rise to the right to receive
such Shares; or (b) if the primary market for such Shares is not an exchange or
quotation system, the fair value thereof as shall be determined in good faith by
the Board of Directors of the Company at the time of authorization of the
transaction giving rise to the right to receive such Shares.
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4. ANTIDILUTION PROVISIONS
4.1 STOCK SPLITS AND COMBINATIONS. If the Common Stock shall at any
time be subdivided into a greater number of shares, then the number of Shares
purchasable upon exercise of this Warrant shall be proportionately increased and
the Warrant Price shall be proportionately decreased. If the Common Stock shall
at any time be combined into a smaller number of Shares, the number of Shares
purchasable upon exercise of this Warrant shall be unaffected and the Warrant
Price shall be proportionally increased. Any adjustments under this SUBSECTION
4.1 shall become effective at the close of business on the date the subdivision
or combination becomes effective.
4.2 RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock
shall be changed into shares of any other class or classes of stock or other
securities of the Company, whether by capital reorganization, reclassification,
or otherwise, Holder shall, upon exercise of this Warrant, be entitled to
purchase for the same aggregate consideration, in lieu of the Shares that Holder
would have become entitled to purchase but for such change, a number of shares
of such other class or classes of stock or other securities of the Company
equivalent to the number of Shares that would have been subject to purchase by
Holder on exercise of this Warrant immediately before that change. Any
adjustments under this SUBSECTION 4.2 shall become effective at the close of
business on the date such change of the Common Stock into shares of any other
class or classes of stock or other securities of the Company becomes effective.
4.3 REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALE OF ASSETS. If at
any time there shall be a reorganization involving the Common Stock (other than
a stock split, combination, reclassification, exchange, or subdivision of shares
provided for in SUBSECTIONS 4.1 and 4.2 above) or a merger or consolidation of
the Company with or into another corporation, or the sale of all or
substantially all of the Company's assets to any other person, then, as a part
of such reorganization, merger, consolidation or sale, lawful provision shall be
made so that Holder shall thereafter be entitled to receive upon exercise of
this Warrant, in accordance with the terms hereof, in lieu of the Shares that
Holder would have become entitled to purchase but for such event, such other
securities or property of the Company, or of the successor corporation resulting
from such event, to which Holder would have been entitled in such
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that reorganization, merger, consolidation or sale. In any
such case, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of Holder after the
reorganization, merger, consolidation, or sale to the end that the provisions of
this Warrant (including adjustment of the Warrant Price then in effect and
number of Shares purchasable upon exercise of this Warrant) shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
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4.4 ADJUSTMENTS OF OTHER DISTRIBUTIONS. If the Company shall at any
time declare and pay or deliver to the holders of Common Stock a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Company or other persons, assets (excluding cash dividends) or options or
rights, in any case of a kind not referred to above, then, upon exercise of this
Warrant, Holder shall be entitled to receive a proportionate share of any such
distribution as though Holder was the holder of the number of shares of Common
Stock into which this Warrant may be exercised as of the record date fixed for
the determination of the holders of Common Stock entitled to receive such
distribution.
4.5 CERTIFICATE AS TO ADJUSTMENTS. In the case of each adjustment
(including a readjustment) under this SECTION 4, the Company will promptly, and
in any event within thirty (30) days after the event requiring the adjustment,
compute such adjustment in accordance with the terms hereof and deliver or cause
to be delivered to Holder a certificate describing in reasonable detail the
event requiring the adjustment and setting forth such adjustment and the
calculations and results of such adjustment.
4.6 RESERVATION OF STOCK ISSUABLE UPON EXERCISE. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock such number of shares of Common Stock as shall from time to time
be sufficient to effect the exercise of this Warrant. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
4.7 METHOD OF CALCULATION. All calculations under this SECTION 4 shall
be made to the nearest one hundredth of a share.
5. RIGHTS PRIOR TO EXERCISE OF WARRANT
5.1 This Warrant does not entitle Holder to any of the rights of a
stockholder of the Company, including (without limitation) the right to receive
dividends or other distributions, to vote or consent, or to receive notice as a
stockholder of the Company. If, however, at any time prior to the expiration of
this Warrant and prior to its exercise,
(a) the Company shall declare any dividend payable in any
securities upon outstanding shares of Common Stock or make any other
distribution (other than a regular cash dividend) to the holders of
shares of Common Stock;
(b) the Company shall offer to the holders of shares of Common
Stock any additional shares of Common Stock or securities convertible
into or exchangeable for shares of Common Stock or any right to
subscribe for or purchase any thereof; or
(c) a dissolution, liquidation or winding-up of the Company
(other than in connection with a reorganization, consolidation, merger,
or sale of all or substantially all of its assets as an entirety) shall
be approved by the Company's Board of Directors,
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then, in any one or more of such events the Company shall give notice in writing
of such event to Holder, at its address as it shall then appear on the Company's
records, at least twenty (20) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the stockholders
entitled to such dividends, distribution, or subscription rights, or for the
determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding-up. Such notice shall specify such record date or the
date of closing the transfer books, as the case may be.
Any failure to give such notice or any defect therein, however, shall
not affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or such proposed dissolution, liquidation
or winding-up.
6. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and its successors and assigns and Holder and
its successors and permitted assigns.
7. REGISTRATION RIGHTS
Holder and Company acknowledge that in the event the Company files a
registration statement registering the resale of shares of its Common Stock
statement with the Securities and Exchange Commission (the "SEC"), the Holder
shall be eligible to include the Shares issuable upon exercise of this Warrant
in such registration statement.
8. LOSS OR MUTILATION
Upon receipt by the Company of satisfactory evidence of the ownership
of and the loss, theft, destruction, or mutilation of this Warrant, and (i) in
the case of loss, theft, or destruction, upon receipt by the Company of
indemnity satisfactory to it, or (ii) in the case of mutilation, upon receipt of
this Warrant and upon surrender and cancellation of this Warrant, the Company
shall execute and deliver in lieu thereof a new Warrant representing the right
to purchase an equal number of Shares.
9. EXPENSES OF REGISTRATION
The Company shall bear all expenses incurred in connection with each
registration pursuant to SECTION 7 of this Warrant, excluding underwriters'
discounts and commissions, but including, without limitation, all registration,
filing and qualification fees, word processing, duplicating, printers' and
accounting fees (including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance), exchange
listing fees or National Association of Securities Dealers fees, messenger and
delivery expenses, all fees and expenses of complying with securities or blue
sky laws, fees and disbursements of counsel for the Company.
-16-
10. NOTICES
All notices, requests, demands and other communications under this
Warrant shall be in writing and shall be deemed to have been duly given on the
date of receipt (or refusal of receipt) if delivered personally or by courier by
the party to whom notice is to be given, or on the earlier of the third business
day after the date of mailing or receipt if mailed to the party to whom notice
is to be given by first class mail, registered or certified, postage prepaid,
and properly addressed as follows: if to Holder, at its address as shown in the
Company's records; and if to the Company, at its principal office. Either party
may change its address for purposes of this SECTION 10 by giving the other party
written notice of the new address in the manner set forth above.
11. GOVERNING LAW
This Warrant and any dispute, disagreement or issue of construction or
interpretation arising hereunder, whether relating to its execution, its
validity, the obligations provided herein or performance, shall be governed or
interpreted according to the laws of the State of Delaware, without regard to
conflicts of law.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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DATED AS OF May __, 2005.
LOCAL TELECOM SYSTEMS, INC.
By:___________________________________
XXXXXXX XXXXXXXXXX,
Chief Executive Officer
EXHIBIT "A"
SUBSCRIPTION
Local Telecom Systems, Inc.
------------------------------
------------------------------
Fort Worth, Texas _______
Gentlemen:
The undersigned, _______________________, hereby elects to purchase, pursuant to
the provisions to the foregoing Warrant held by the undersigned,
____________shares of the Common Stock, $______ (the "COMMON STOCK"), of Local
Telecom Systems, Inc.
The undersigned herewith encloses the Warrant and:
(1) a certificate representing the number of shares of Common Stock
having an aggregate current fair market value of USD $_________ in payment of
the Warrant Price; and/or
(2) cash or a certified or cashier's check (drawn in favor of the
Company) in the amount of USD $__________ in payment of the Warrant Price.
DATED:______________, ___________.
Signature:
----------------------------------
Address:
------------------------------------
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EXHIBIT "B"
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
Shares of Common Stock set forth below:
NO. OF SHARES
NAME AND ADDRESS OF ASSIGNEE COMMON STOCK
and does hereby irrevocably constitute and appoint as Attorney
________________________________ to register such transfer on the books of
_______________________________________ maintained for the purpose, with full
power of substitution in the premises.
Dated: __________________________, _______.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alternation or enlargement or any change whatsoever.
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EXHIBIT C
ARTICLES OF INCORPORATION, AS AMENDED
AND BYLAWS
-20-
