EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May
24, 2005, is among LOCAL TELECOM SYSTEMS, INC. (the "CORPORATION"), and SOS
RESOURCE SERVICES, INC., a Florida corporation ("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
Subordinated 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 95,000 shares (the "SHARES") of the
Corporation's common stock, $0.0167 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 200,000 shares of the Corporation's common stock, $0.0167 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 Fifty Thousand Dollars ($50,000). 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 24, 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 $1.00.
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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
$50,001.
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
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 conversion rights under the Note and/or 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.
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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 79,959,423
shares are issued and outstanding on the date hereof. 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 Warrant and the
issuance of the Common Stock upon conversion of the Note and/or 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").
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.
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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 conversion under the Note or 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:
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.
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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 for working capital 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.
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.
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 X. XXXXXXXXXX
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XXXXXXX XXXXXXXXXX,
Chief Executive Officer
SOS RESOURCE SERVICES, INC.
By: /s/ XXXXXXXXX XXXXX
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XXXXXXXXX XXXXX, President
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EXHIBIT A
THIS SECURED SUBORDINATED 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 24, 2005
LOCAL TELECOM SYSTEMS, INC.
SECURED SUBORDINATED PROMISSORY NOTE
Local Telecom Systems, Inc., a Nevada corporation (the "COMPANY"), for
value received, hereby promises to pay to SOS Resource Services Inc., a
Florida corporation, (the "HOLDER"), located at 000 Xxxx Xxxx Xxxxxx, Xxxx
Xxxxxxxxx, XX 00000 (the "HOLDER"), the principal amount of Fifty Thousand and
no/100 Dollars ($50,000) (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 24, 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 or (iii) 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 (iii) 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.
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1.4. DEFAULT INTEREST. From and after the Due Date, the
Corporation shall pay interest on the unpaid principal balance of this Note at
fifteen percent (15%) per annum.
1.5. EVENTS OF DEFAULT. If any of the events specified in this
Section 2 shall occur (herein individually referred to as an "EVENT OF
DEFAULT"), then the Agent may declare the entire principal and all accrued and
unpaid interest hereon immediately due and payable, by notice in writing to the
Corporation:
(i) Default in the payment of any principal or
interest on this Note when due and payable; or
(ii) The institution by the Corporation 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
Corporation, 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 Corporation (and service of process in
connection therewith on the Corporation) 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 Corporation or all orders or proceedings thereunder affecting the
operations or the business of the Corporation 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 Corporation of
any trustee, receiver, or liquidator of the Corporation or of all or any
substantial part of the properties of the Corporation, such appointment shall
not have been vacated.
The Corporation 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. 930,000 shares of LTSI common stock, par value $ 0.0167 per
share, registered in the name(s) of Xxxx Xxxx;
2. A second lien on shares representing 51% of the outstanding
shares of LTSI common stock, par value $ 0.0167 per share, registered in the
name(s) of Corriente Rope Co. and Concord Creek Corp.; and
3. A second lien on 400,000 shares of RG America, Inc., common
stock registered in the name of J2 Family Partnership, L.P.
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2. PRIORITY. The indebtedness evidenced by this Note shall be senior in
right of payment to any prior payment of the Corporation'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 Corporation to banks, insurance companies, other
financial institutions or other lenders, which is for money borrowed by the
Corporation; provided, however that Indebtedness shall not mean that certain
debt of $250,000 owed by the Corporation to Xxxxxxxxx Investment Management, LLC
and to which the Holder of this Note is expressly subordinated.
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 Corporation, 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 Corporation 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 SOS Resource
Services Inc., a Florida corporation, (the "HOLDER"), located at 000 Xxxx Xxxx
Xxxxxx, Xxxx Xxxxxxxxx, XX 00000 and the address for the Company shall be 0000
Xxxxxx Xxxx #000, Xxxxxx Xxxxx 00000, 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.
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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.
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 24, 2005 LOCAL TELECOM SYSTEMS, INC.,
a Nevada corporation
By: /s/ XXXXXXX X. XXXXXXXXXX
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Name: Xxxxxxx X. Xxxxxxxxxx
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Title: President/CEO
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EXHIBIT B
LOCAL TELECOM SYSTEMS, INC.
(A NEVADA CORPORATION)
================================================================================
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
================================================================================
Effective May 24, 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, SOS RESOURCE SERVICES, INC, 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), FIFTY THOUSAND (50,000) shares
("SHARES") of fully paid and non-assessable common stock, par value $ 0.0167 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.
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:
WARRANT PRICE. The Warrant Price shall be USD $0.20 per Share, subject
to adjustment as provided in SECTION 4 below.
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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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;
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
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.
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
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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.
TRANSFERS
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.
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.
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.
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.
-13-
ANTIDILUTION PROVISIONS
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.
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 th e Common Stock into shares of any other
class or classes of stock or other securities of the Company becomes effective.
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.
-14-
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.
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.
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.
METHOD OF CALCULATION. All calculations under this SECTION 4 shall be
made to the nearest one hundredth of a share.
RIGHTS PRIOR TO EXERCISE OF WARRANT
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,
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;
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
-15-
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,
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.
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.
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
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.
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-
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.
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]
-17-
DATED AS OF May 24, 2005.
LOCAL TELECOM SYSTEMS, INC.
By:________________________________________
XXXXXXX X. XXXXXXXXXX,
Chief Executive Officer
-18-
EXHIBIT "A"
SUBSCRIPTION
Local Telecom Systems, Inc.
0000 Xxxxxx Xxxx #000
Xxxxxx, Xxxxx 00000
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:
-------------------------------------
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.
EXHIBIT C
ARTICLES OF INCORPORATION, AS AMENDED
AND BYLAWS
