LOAN AGREEMENT
Exhibit 10.4
This Loan Agreement (“Agreement”) is entered into by and between MBI Mortgage, Inc.
(“Borrower”), a Texas corporation with its principal place of business located at 0000 Xxxxxxx
Xxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, XXXXXXX X. XxXXXXXX, whose principal place of business is
the same as Borrower (“Guarantor”), and CHARTER PRIVATE EQUITY, L.P. (“Lender”), a Texas limited
partnership whose address is 0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000.
R E C I T A L S:
WHEREAS, Borrower is in need of financing to provide funding of its acquisition and working
capital needs ; and
WHEREAS, pursuant to the terms of this Agreement, Lender has agreed to lend Borrower the sum
of Three Hundred Twenty Five Thousand and No/100 Dollars ($325,000.00) to provide the financing
for Borrower’s needs.
Now therefore, in consideration of the promises, payments, covenants, representations and
warranties hereinafter set forth, the parties hereto agree as follows:
1. Loan Amount. Pursuant to the terms of this Agreement and satisfaction of the conditions
set forth below, Lender agrees to fund Borrower at closing the sum of Three Hundred Twenty Five
and No/100 Dollars ($325,000.00).
2. Consideration. In consideration for such loan, Borrower agrees to execute at closing a
promissory note (the “Note”) bearing interest at the rate of eighteen percent (18%) per annum
which Note shall be payable, principal and interest, in currency of the United States of America on
June 20, 2006 (“Maturity Date”). The Note shall be pre-payable without penalty and contain usual
and customary language concerning default, post default interest, attorney’s fees and court costs,
and shall be in the form attached hereto as Exhibit “A.” The Note shall be payable by wire transfer
to an account designated in writing by Lender or such other method of payment, address or account
as Lender shall indicate in writing.
As additional consideration for the loan, Borrower shall cause Local Telecom Systems, Inc., a
Nevada corporation (“LTSY”), issue warrants (“Warrants”) to purchase 1,200,000 shares (the “Warrant
Shares”) of common stock (the “Common Stock”) of, LTSY at a 50% discount from the fair market value
of the Common Stock at the time the Warrants are exercised, which shall be no later than the fifth
(5th) anniversary of the date of the maturity date of the Note. The Company agrees to
undertake to have the Warrant Shares registered for offer and sale to the Lender within twelve (12)
months from the date of the Warrant so that the Warrant Shares shall not be restricted securities
under the federal securities law, and may be sold by the Lender at any time or times thereafter
without first filing a registration statement under the Securities Act of 1933, as amended (the
“Act”) in connection with the sale of the Warrant Shares.
Warrants evidencing the right to purchase Eighty Thousand (80,000) shares of Common Stock
covered by the Warrants (the “Specific Warrants”) shall be subject to a “put” whereby, within
thirty (30) days following the Maturity Date of the Note, Lender may, by sending written notice to
Borrower, require Borrower to purchase the Specific Warrants from Lender for the sum of Ninety
Thousand Five Hundred Fifty Four and No/100 Dollars ($90,554.00) and, in the event Lender does not
exercise such option, Borrower may, by sending written notice to Lender, within thirty (30) days
after the expiration of the “put,” require Lender to sell the Specific Warrants to Borrower for
the sum of Ninety Thousand Five Hundred Fifty Four and No/100 Dollars ($90,554.00). If either the
“put” or the “call” is exercised, the purchase and sale of the Specific Warrants shall occur in the
Lender’s offices within ten (10) days after exercise. Lender shall execute an assignment of the
Warrants and Borrower shall deliver the amount of the purchase price therefor to Lender in cash in
good current funds. In the event Lender does not exercise its “put” option and Borrower does not
exercise its “call” option, such options expire automatically and the Specific Warrants may be
exercised on the terms and during the period as the other Warrants granted to Lender. Unless a
current registration statement under the 1933 Act shall become effective with respect to the
Warrant Shares within twelve (12) months from the date of this Agreement, a put with respect to an
additional 40,000 shares of Common Stock shall be activated, with the put price being $40,000.00;
with second put being effective for a period of thirty (30) days beginning April 1, 2007 and
continuing until April 30, 2007.
3. Collateral. As collateral to secure repayment of the Note and the obligations of Borrower
under this Agreement and the other documents executed in connection herewith, including, without
limitation, the obligations of Borrower pursuant to the “put” and “call” referred to in Paragraph
2, Borrower shall provide Lender a Security Agreement covering all of Borrower’s assets which shall
constitute a first lien against such assets. Additionally, Xxxxxxx X. XxXxxxxx (a member of the
Board of directors of Borrower) (“Guarantor”), shall personally guarantee the Note and the
obligations of Borrower under this Agreement and the other documents executed in connection
herewith, including, without limitation, the obligations of Borrower pursuant to the “put” and
“call” referred to in Paragraph 2, pursuant to the terms of a guaranty agreement containing terms
and conditions acceptable to Lender.
4. Use of Funds. The proceeds of the Loan shall be used only for the following purposes and
no other use of funds is permitted.
5. Affirmative Covenants. Borrower shall, unless Lender consents otherwise in writing:
a. Pay all of Borrower’s taxes, assessments and other obligations, including, but not limited
to taxes and assessments and lawful claims which, if unpaid, might by law become a lien against the
assets of Borrower, as the same become due and payable, except to the extent the same are being
contested in good faith.
b. Comply with all applicable laws, rules, regulations and orders of any governmental
authority.
c. Comply in all respects with all existing and future agreements, indentures, mortgages, or
documents which are binding upon it or affect any of its properties or business.
d. Keep at all times books and records of account in accordance with GAAP in which full, true
and correct entries will be made of all dealings or transactions in relation to the business and
affairs of Borrower.
e. Upon reasonable notice allow any representative of Lender to inspect Borrower’s books of
record and accounts and to discuss its affairs, finances and accounts with any of its partners,
officers, directors, employees and agents, all at such reasonable times and as often as Lender may
request.
f. Preserve and maintain its existence and good standing in Texas and in each other
jurisdiction in which qualification is required.
g. Make, execute or endorse, acknowledge and deliver or file or cause the same to be done, all
such vouchers, invoices, notices, certifications and additional agreements, undertakings,
conveyances, assignments, financing statements or other assurances, and take any and all such other
action as Lender may from time to time deem necessary or appropriate in connection with this
Agreement or any of the other documents related to this transaction, (i) to cure any defects in the
creation of the documents related to this transaction, or (ii) to evidence further or more fully
describe, perfect or realize on the collateral intended as security, or (iii) to correct any
omissions in the documents related to this transaction, or (iv) to state more fully the security
for the Borrower’s obligations, or (v) to perfect, protect or preserve any liens pursuant to any of
the documents related to this transaction, or (vi) for better assuring and confirming unto Lender
all or any part of the security for any of the Borrower’s obligations.
6. Negative Covenants of Borrower. Borrower shall not:
x. Xxxxx, suffer or permit, any contractual or noncontractual lien on or security interest in
any of its other assets.
b. Enter into any merger or consolidation or liquidation or dissolution.
c. Make any loan or advance to any individual, partnership, corporation or other entity
without consent of Lender.
d. Create, incur, assume or become liable in any manner for any indebtedness (for borrowed
money, deferred payment for the purchase of assets, lease payments, as surety or guarantor for the
debt for another, or otherwise) other than to Lender, except for normal trade debts incurred in the
ordinary course of Borrower’s
business.
e. Do any of the following if an Event of Default has occurred and is continuing or will
result therefrom: (a) declare or pay any dividends or distributions; or (b) purchase, redeem,
retire or otherwise acquire for value any of its stock now or hereafter outstanding; (c) or make
any distribution of assets to its shareholders as such, whether in cash, assets, or in obligations
of Borrower; or (d) allocate or otherwise set apart any sum for the payment of any dividend or
distribution on, or for the purchase, redemption, or retirement of any partnership interests; or
(e) make any other distribution by reduction of capital or otherwise.
f. Convey, assign, transfer, sell, lease or otherwise dispose of, in one transaction or a
series of transactions (or agree to do any of the foregoing at any future time), all or
substantially all or a substantial part of its properties or assets (whether now owned or hereafter
acquired) or any part of such properties or assets which are essential to the conduct of its
business substantially as now conducted.
g. Permit the change of control of Borrower.
h. Conduct any business other than, or make any material change in the nature of, its business
as carried on as of the date hereof.
i. Form or acquire any subsidiaries.
7. Negative Covenants of Guarantor. Guarantor shall not:
a. Sell, transfer, assign, or otherwise dispose of any of Guarantor’s stock or other interest
in Borrower.
x. Xxxxx, suffer or permit, any contractual or noncontractual lien on or security interest in
any of its other assets.
c. Make any loan or advance to any individual, partnership, corporation or other entity
without consent of Lender.
d. Create, incur, assume or become liable in any manner for any indebtedness (for borrowed
money, deferred payment for the purchase of assets, lease payments, as surety or guarantor for the
debt for another, or otherwise) other than to Lender.
7. Representations and Warranties. Borrower and Guarantor each hereby represents and warrants
to Lender as follows, which representations and warranties shall be deemed to be made at and as of
the date hereof and in all instances shall be true and correct in all material respects:
a. Borrower has good and defensible title to all of its assets, and none of such
assets are subject to any security interest, mortgage, deed of trust, pledge, lien, title
retention document or encumbrance of any character.
b. The financial statements of Borrower and Guarantor heretofore delivered to Lender have been
prepared in accordance with GAAP (or other sound accounting practices acceptable to Lender) and
fairly present such party’s financial condition as of the date or dates thereof, and there have
been no material adverse changes in such party’s financial condition or operation since the date or
dates thereof.
c. Borrower is a corporation, duly organized, validly existing and in good standing under the
laws of Texas and has the power and authority to own its property and to carry on its business in
Texas and in each other jurisdiction in which Borrower does business.
d. Each of Borrower and Guarantor has full power and authority to execute, deliver and perform
the documents to which it is a party and to incur and perform the obligations provided for therein.
No consent or approval of any public authority or other third party is required as a condition to
the validity or performance of any document relating to this transaction, and each of Borrower and
Guarantor is in compliance with all laws and regulatory requirements to which it is subject.
e. This Agreement and the other documents executed in connection with this transaction by
Borrower and Guarantor constitute valid and legally binding obligations of such party, enforceable
in accordance with their terms.
f. There is no charter, bylaw, stock provision, partnership agreement or other document
pertaining to the power or authority of Borrower and no provision of any existing agreement,
mortgage, indenture or contract binding on Borrower or Guarantor or affecting any property of such
party, which would conflict with or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the other documents executed in connection with this transaction.
8. Closing. Closing shall occur in Borrower’s offices at a mutually agreeable date and time
but no later than March 20, 2006
(i) At the closing, following execution of the closing documents, Lender shall provide a
cashier’s check or other certified funds in the amount of Three Hundred Twenty-Five Thousand
Dollars ($325,000.00).
(ii) At the closing, Borrower shall deliver to Lender the following:
| 1. | The Note dated the day of closing in the original principal sum of $325,000 bearing interest at the rate of 18% per annum and being due and payable as described in paragraph 2 above The Note shall contain customary default and other provisions and |
| be in the form attached hereto as Exhibit “B;” | |||
| 2. | Personal Guaranty of Guarantor in the form attached hereto as Exhibit “C;” | ||
| 3. | Warrant Agreement in the form attached hereto as Exhibit “D;” and, | ||
| 4. | Security Agreement executed by Borrower for the benefit of Lender securing payment of the Note covering all of Borrower’s personal property, tangible and intangible in the form attached hereto as Exhibit “E.” | ||
| 5. | Security Agreement executed by Guarantor for the benefit of Lender securing Guarantor’s obligations under the Guaranty, covering all of the shares of LTSY or Borrower hereafter acquired by Guarantor. |
9. Events of Default. Any of the following shall constitute events of default (each an
“Event of Default”):
a. Borrower or Guarantor shall default in the due and punctual payment of any principal or
interest of the Note when due and payable, whether at maturity or otherwise, or in the due and
punctual payment of any of the other obligations of such party when due and payable.
b. Any representation, warranty or statement made by any Borrower or Guarantor herein or
otherwise in writing in connection herewith or in connection with any of the other documents
executed in connection herewith, and the agreements referred to herein or therein or in any
financial statement, certificate or statement signed by any officer or employee of any Borrower or
Guarantor and furnished pursuant to any provision of the documents executed in connection herewith
shall be breached, or shall be materially false, incorrect or incomplete when made.
c. Borrower or Guarantor shall default in the due performance or observance of any term,
covenant or agreement contained in this Agreement or the Guaranty, respectively.
d. Any of the documents executed in connection with this Transaction shall cease to be a
legal, valid and binding agreement enforceable against any party executing the same in accordance
with the respective terms thereof, or shall in any way be terminated, or become or be declared
ineffective or inoperative, or shall in any way whatsoever cease to give or provide the respective
rights, remedies, powers and privileges intended to be created thereby
e. Borrower, Guarantor, or LTSY shall suspend or discontinue its business
operations, or shall generally fail to pay its debts as they mature, or shall file a petition
commencing a voluntary case concerning it under any chapter of the United States Bankruptcy Code;
or any involuntary case shall be commenced against any of them under the United States Bankruptcy
Code; or any of them shall become insolvent (howsoever such insolvency may be evidenced).
10. Remedies. Upon the occurrence of an Event of Default, the entire principal of and accrued
interest on the Note shall forthwith be due and payable without demand, presentment for payment,
notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of
acceleration and all other notices and further actions of any kind, all of which are hereby
expressly waived by Borrower. Borrower waives demand, presentment for payment, notice of
nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and
all other notices and further actions of any kind, all of which are hereby expressly waived by
Borrower. Upon the occurrence and during the continuance of any Event of Default, Lender may (a)
exercise any and all rights under or pursuant to any of the documents executed in connection with
this transaction, and (b) exercise any and all rights afforded to Lender by the laws of the State
of Texas or any other applicable jurisdiction or in equity or otherwise, as Lender may deem
appropriate.
11. Costs/Indemnity. Borrower shall pay to Lender immediately upon demand the full amount of
all costs and expenses, including reasonable attorneys’ fees, incurred by Lender in connection with
(a) the negotiation, preparation and delivery of this Agreement and each of the documents executed
in connection herewith, and all other costs and attorneys’ fees incurred by Lender for which
Borrower is obligated to pay in accordance with the terms of the Loan Documents, and (b) any
modifications of or consents or waivers under or amendments to or interpretations of this
Agreement, the Note, or the other documents related thereto. Borrower further agrees to pay on
demand all costs and expenses of Lender, if any, in connection with the enforcement (whether
through negotiations, arbitration proceedings, legal proceedings or otherwise) of the documents
relating to this transaction. Borrower further agrees to indemnify Lender and its employees and
agents, from and hold them harmless against any and all losses, liabilities, claims, damages or
expenses which any of them suffers or incurs as a result of Lender’s entering into this Agreement
and the documents relating hereto, or the consummation of the transactions contemplated by this
Agreement, or the use or contemplated use of the proceeds of the loan. IT IS THE INTENTION OF THE
PARTIES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO LOSSES, LIABILITIES, CLAIMS, DAMAGES OR
EXPENSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF AN INDEMNIFIED
PARTY. No such indemnified party, however, shall be entitled to be indemnified for its or his own
gross negligence or willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section applies, such indemnities shall be effective
whether or not such investigation, litigation or proceeding is brought by Borrower, its directors,
shareholders or creditors, or by an indemnified party and whether or not the transactions hereby
are consummated. Borrower shall defend any claim for which an indemnified party is
entitled to seek indemnity pursuant to the preceding sentence, and the indemnified party shall
cooperate with the defense. The indemnified party may have separate counsel, and Borrower will pay
the expenses and reasonable fees of such separate counsel if either counsel for Borrower or counsel
for the indemnified party shall advise the indemnified party that the interests of both Borrower
and the indemnified party with respect to such claim are or with reasonable certainty will become
adverse. The agreements and obligations of Borrower contained in this Section shall survive payment
in full of the Obligations.
12. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the
parties, their successors, assigns and/or affiliates.
13. Waiver of Jury Trial. BORROWER AND LENDER IRREVOCABLY WAIVE ANY AND ALL RIGHT
EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE
RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. BORROWER AND LENDER ACKNOWLEDGE THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
14. Arbitration; Venue; Jurisdiction. The parties acknowledge and agree that this
Agreement is being entered into in Dallas County, Texas and that venue over any disputes shall be
in Dallas County, Texas and that the laws of the State of Texas shall apply to the construction,
interpretation, and/or application of this Agreement. The parties agree that any disputes that may
arise concerning the construction, interpretation or application of this Agreement which cannot be
amicably resolved between the parties shall be resolved through mandatory arbitration conducted by
three arbitrators in accordance with the rules and pursuant to the administration of the American
Arbitration Association. Such arbitration shall be conducted in Dallas County, Texas and shall be
final and binding upon the parties. Any party seeking to reduce an award to a final judgment shall
do so through initiating litigation in a Dallas County Judicial District Court located in Dallas
County, Texas.
7. Notices. All notices required by this Agreement shall be effective if provided in
writing and mailed to the other party by certified mail, return receipt requested to the following
address or such other address as either party may provide to the other party in writing in the
manner required by this paragraph:
A. If to Lender:
Charter Private Equity, L.P.
0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
with a copy to:
Xxxxx X. Xxxxxxxxxx
Vial, Hamilton, Xxxx & Xxxx, L.L.P.
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Vial, Hamilton, Xxxx & Xxxx, L.L.P.
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
B. If to Borrower:
MBI Mortgage, Inc.
0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. XxXxxxxx
0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. XxXxxxxx
11. Multiple Counterparts. This Agreement may be executed in multiple counterparts,
any of which shall be deemed an original.
This
Agreement is entered into on this the 22 day of March, 2006.
| LENDER: Charter Private Equity, L.P. |
||||
| By: Charter Private Equity GP, Inc., a Texas corporation, general partner |
||||
| By: | /s/ Xxxxxxx Xxxxx | |||
| Name: | Xxxxxxx Xxxxx | |||
| Its: | VP | |||
| GUARANTOR: |
||||
| /s/ P.A. XxXxxxxx | ||||
| Xxxxxxx X. XxXxxxxx | ||||
LOAN AGREEMENT
| BORROWER: MBI Mortgage, Inc. |
||||
| By: | /s/ Xxxx X. Xxxxxx | |||
| Name: | Xxxx X. Xxxxxx | |||
| Its: | President/Secretary | |||
LOAN AGREEMENT
