INDEPENDENT CONSULTING AGREEMENT
Exhibit
10.18
This
Independent Consulting Agreement (“Agreement”), effective as of the
1st
day of
November, 2008 (“Effective Date”) is entered into by and between Capital
Growth Systems, Inc., a
Florida
corporation (herein referred to as the “Company”), and Xxxxxxxxx
Financial Communications, Inc.,
an
Oregon corporation (herein referred to as the “Consultant”).
RECITALS:
WHEREAS,
the Company is a publicly-held corporation with its common stock traded on
the
OTCBB;
WHEREAS,
Company desires to engage the services of Consultant to represent the Company
in
investors' communications and public relations with existing shareholders,
brokers, dealers and other investment professionals as to the Company's current
and proposed activities, and to consult with management concerning such Company
activities;
NOW
THEREFORE, in consideration of the promises and the mutual covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Term
of Consultancy.
Company
hereby agrees to retain the Consultant to act in a consulting capacity to
the
Company, and the Consultant hereby agrees to provide services to the Company
commencing immediately and ending on October 30th, 2009 unless otherwise
terminated earlier as provided herein.
2. Duties
of Consultant.
The
Consultant agrees that it will generally provide the following specified
consulting services through its officers and employees during the term specified
in Section 1, above.
(a) Consult
with and assist the Company in developing and implementing appropriate plans
and
means for presenting the Company and its business plans, strategy and personnel
to the financial community, establishing an image for the Company in the
financial community, and creating the foundation for subsequent financial
public
relations efforts;
(b) Introduce
the Company to the financial community, including, but not limited to, retail
brokers, buy side and sell side institutional managers, portfolio managers,
analysts and financial public relations professionals;
(c) With
the
cooperation of the Company, maintain an awareness during the term of this
Agreement of the Company's plans, strategy and personnel, as they may evolve
during such period, and consult and assist the Company in communicating
appropriate information regarding such plans, strategy and personnel to the
financial community;
(d) Assist
and consult the Company with respect to its (i) relations with stockholders,
(ii) relations with brokers, dealers, analysts and other investment
professionals, and (iii) financial public relations generally;
(e) Perform
the functions generally assigned to stockholder relations and public relations
departments in major corporations, including responding to telephone and
written
inquiries (which may be referred to the Consultant by the Company); reviewing
press releases before they are released by the Company as well as reports
and
other communications with or to shareholders, the investment community and
the
general public; consulting with respect to the timing, form, distribution
and
other matters related to such releases, reports and communications; and,
at the
Company’s request and subject to the Company’s securing its own rights to the
use of its names, marks and logos, consulting with respect to corporate symbols,
logos, names, the presentation of such symbols, logos and names, and other
matters relating to corporate image;
(f) Upon
and
with the Company's direction and written approval, disseminate information
regarding the Company to shareholders, brokers, dealers, other investment
community professionals and the general investing public;
(g) Upon
and
with the Company's direction, conduct meetings, in person or by telephone,
with
brokers, dealers, analysts and other investment professionals to communicate
with them regarding the Company's plans, goals and activities, and assist
the
Company in preparing for press conferences and other forums involving the
media,
investment professionals and the general investment public;
(h) At
the
Company's request, review business plans, strategies, mission statements
budgets, proposed transactions and other plans for the purpose of advising
the
Company of the public relations implications thereof; and
(i) Otherwise
perform as the Company's consultant for public relations and relations with
financial professionals.
3. Allocation
of Time and Energies.
The
Consultant hereby promises to perform and discharge faithfully the
responsibilities which may be assigned to the Consultant from time to time
by
the officers and duly authorized representatives of the Company in connection
with the conduct of its financial and public relations and communications
activities, so long as such activities are in compliance with applicable
securities laws and regulations. Consultant and staff shall diligently and
thoroughly provide the consulting services required hereunder. Although no
specific hours-per-day requirement will be required, Consultant and the Company
agree that Consultant will perform the duties set forth herein above in a
diligent and professional manner. The parties acknowledge and agree that
a
disproportionately large amount of the effort to be expended and the costs
to be
incurred by the Consultant and the benefits to be received by the Company
are
expected to occur within or shortly after the first two months of the
effectiveness of this Agreement. It is explicitly understood that neither
the
price of the Company’s common stock, nor the trading volume of the Company’s
common stock hereunder measure Consultant’s performance of its duties. It is
also understood that the Company is entering into this Agreement with
Consultant, a corporation and not any individual member or employee thereof,
and, as such, Consultant will not be deemed to have breached this Agreement
if
any member, officer or director of the Consultant leaves the firm or dies
or
becomes physically unable to perform any meaningful activities during the
term
of the Agreement, provided the Consultant otherwise performs its obligations
under this Agreement.
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4. Remuneration.
4.1 (a) For
undertaking this engagement, for previous services rendered, and for other
good
and valuable consideration, the Company agrees to issue, or have issued,
to the
Consultant a “Commencement Bonus” of:
(i) two
million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and
such shares, collectively, the “Shares”); and
(ii) a
5-year
warrant to purchase fifteen million (15,000,000)shares of Common Stock at
$0.24
per share, in the form attached as Exhibit A.
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This
Commencement Bonus shall be fully paid and non-assessable and stock
certificates representing the Commencement Bonus shall be issued
and
delivered to Consultant as promptly as the Company increases its
authorized common stock to permit the issuance of the Shares after
giving
effect to reserved shares underlying existing options, warrants
and
conversion rights (which in all events shall be within 180 days
following
the date first set forth above), it being understood and agreed
that as of
the date of this Agreement the Company has an obligation to reserve
from
its authorized but unissued common stock all remaining outstanding
shares
to meet its obligations to its secured lenders and others for whom
options, warrants or convertible debt is outstanding. Additionally
the
Company agrees to pay Consultant the sum of $8000.00 cash per month
due
and payable on the 1st of each month of this Agreement. The issuance
of
the Shares and Warrant is further contingent upon the approval
of the
holders of subordinated debentures issued by the Company in March,
2008.
Should such approval not be obtained by November 30, 2008, Consultant
shall have no obligation to perform the Services called for
hereunder.
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(b) Consultant
agrees that the Company may, in its sole discretion, cause one or more
shareholders of the Company to deliver any of or all of the Shares to be
issued
and delivered to Consultant hereunder.
4.2 The
Company understands and agrees that Consultant has foregone significant
opportunities to accept this engagement and that the Company derives substantial
benefit from the execution of this Agreement and the ability to announce
its
relationship with Consultant. The Commencement Bonus, therefore, constitutes
payment for Consultant’s agreement to consult to the Company and is a
nonrefundable, non-apportionable, and non-ratable retainer and is not a
prepayment for future services. If the Company decides to terminate this
Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed
and
understood that Consultant will not be requested or demanded by the Company
to
return any of the Shares paid to it as Commencement Bonus referred to in
paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired
during the term of this Agreement, it is agreed and understood Consultant
will
not be requested or demanded by the Company to return any of the Shares paid
to
it hereunder. Consultant agrees and understands that if during the term of
this
Agreement, Consultant performs substantial services for any direct competitor
of
the Company, then the Shares issued to Consultant hereunder will be
forfeited.
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4.3 [Intentionally
Deleted].
4.4 Company
warrants that the Shares issued to Consultant under this Agreement by the
Company shall be or have been validly issued, fully paid and non-assessable
and
that the Company’s board of directors has or shall have duly authorized the
issuance and any transfer of them to Consultant.
4.5 Consultant
acknowledges that the Shares to be issued pursuant to this Agreement have
not
been registered under the Securities Act of 1933, as amended (the “Securities
Act”) and accordingly are “restricted securities” within the meaning of Rule 144
of the Act. As such, the Shares may not be resold or transferred unless the
Company has received an opinion of counsel and in form reasonably satisfactory
to the Company that such resale or transfer is exempt from the registration
requirements of that Securities Act. Consultant agrees that during the term
of
this Agreement, that it will not sell or transfer any of the Shares issued
to it
hereunder, except to the Company; nor will it pledge or assign such Shares
as
collateral or as security for the performance of any obligation, or for any
other purpose.
4.6 In
connection with the acquisition of the Shares, Consultant represents and
warrants to Company, to the best of its/his knowledge, as follows:
(a) Consultant
has been afforded the opportunity to ask questions of and receive answers
from
duly authorized officers or other representatives of the Company concerning
an
investment in the Shares, and any additional information that the Consultant
has
requested.
(b) Consultant’s
investment in restricted securities is reasonable in relation to the
Consultant’s net worth. Consultant has had experience in investments in
restricted and publicly traded securities, and Consultant has had experience
in
investments in speculative securities and other investments that involve
the
risk of loss of investment. Consultant acknowledges that an investment in
the
Shares is speculative and involves the risk of loss. Consultant has the
requisite knowledge to assess the relative merits and risks of this investment
without the necessity of relying upon other advisors, and Consultant can
afford
the risk of loss of his entire investment in the Shares. Consultant is an
accredited investor, as that term is defined in Regulation D promulgated
under
the Securities Act.
(c) Consultant
is acquiring the Shares for the Consultant’s own account for long-term
investment and not with a view toward resale or distribution thereof except
in
accordance with applicable securities laws.
5. [Intentionally
Deleted]
6. [Intentionally
Deleted]
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7. Non-Assignability
of Services.
Consultant’s services under this contract are offered to the Company only and
may not be assigned by the Company to any entity with which the Company merges
or which acquires the Company or substantially all of its assets wherein
the
Company becomes a minority constituent of the combined Company. In the event
of
such merger or acquisition, all compensation to Consultant herein under the
schedules set forth herein shall remain due and payable, and any compensation
received by the Consultant may be retained in the entirety by Consultant,
all
without any reduction or pro-rating and shall be considered and remain fully
paid and non-assessable. Notwithstanding the non-assignability of Consultant’s
services, the Company shall assure that in the event of any merger, acquisition,
or similar change of form of entity, that its successor entity shall agree
to
complete all obligations to Consultant, including the provision and transfer
of
all compensation herein, and the preservation of the value thereof consistent
with the rights granted to Consultant by the Company herein. Consultant shall
not assign its rights or delegate its duties hereunder without the prior
written
consent of the Company.
8. Expenses.
Consultant agrees to pay for all its expenses (phone, labor, etc.), other
than
extraordinary items (travel and entertainment required by/or specifically
requested by the Company, luncheons or dinners to large groups of investment
professionals, mass faxing to a sizable percentage of the Company's
constituents, investor conference calls, print advertisements in publications,
etc.) approved by the Company prior to its incurring an obligation for
reimbursement. The Company agrees and understands that Consultant will not
be
responsible for preparing or mailing due diligence and/or investor packages
on
the Company, and that the Company will have some means to prepare and mail
out
investor packages at the Company’s expense.
9. Indemnification.
The
Company warrants and represents that all oral communications, written documents
or materials furnished to Consultant or the public by the Company with respect
to financial affairs, operations, profitability and strategic planning of
the
Company are accurate in all material respects and Consultant may rely upon
the
accuracy thereof without independent investigation. The Company will protect,
indemnify and hold harmless Consultant against any claims or litigation
including any damages, liability, cost and reasonable attorney's fees as
incurred with respect thereto resulting from Consultant's communication or
dissemination of any said information, documents or materials excluding any
such
claims or litigation resulting from Consultant's communication or dissemination
of information not provided or authorized by the Company.
10. Representations.
Consultant represents that it is not required to maintain any licenses and
registrations under federal or any state regulations necessary to perform
the
services set forth herein. Consultant acknowledges that, to the best of its
knowledge, the performance of the services set forth under this Agreement
will
not violate any rule or provision of any regulatory agency having jurisdiction
over Consultant. Consultant acknowledges that, to the best of its knowledge,
Consultant and its officers and directors are not the subject of any
investigation, claim, decree or judgment involving any violation of the SEC
or
securities laws. Consultant further acknowledges that it is not a security
Broker Dealer or a registered investment advisor. Company acknowledges that,
to
the best of its knowledge, that it has not violated any rule or provision
of any
regulatory agency having jurisdiction over the Company. Company acknowledges
that, to the best of its knowledge, Company is not the subject of any
investigation, claim, decree or judgment involving any violation of the SEC
or
securities laws.
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11. Legal
Representation.
Each of
Company and Consultant represents that they have consulted with independent
legal counsel and/or tax, financial and business advisors, to the extent
that
they deemed necessary.
12. Status
as Independent Contractor.
Consultant's engagement pursuant to this Agreement shall be as independent
contractor, and not as an employee, officer or other agent of the Company.
Neither party to this Agreement shall represent or hold itself out to be
the
employer or employee of the other. Consultant further acknowledges the
consideration provided hereinabove is a gross amount of consideration and
that
the Company will not withhold from such consideration any amounts as to income
taxes, social security payments or any other payroll taxes. All such income
taxes and other such payment shall be made or provided for by Consultant
and the
Company shall have no responsibility or duties regarding such matters. Neither
the Company nor the Consultant possesses the authority to bind each other
in any
agreements without the express written consent of the entity to be
bound.
13. Attorney's
Fee.
If any
legal action or any arbitration or other proceeding is brought for the
enforcement or interpretation of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with or related
to
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs in connection with that action
or
proceeding, in addition to any other relief to which it or they may be
entitled.
14. Waiver.
The
waiver by either party of a breach of any provision of this Agreement by
the
other party shall not operate or be construed as a waiver of any subsequent
breach by such other party.
15. Notices.
All
notices, requests, and other communications hereunder shall be deemed to
be duly
given if sent by U.S. mail, postage prepaid, addressed to the other party
at the
address as set forth herein below:
To
the Company:
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Capital
Growth Systems, Inc.
Attention:
Xxxxxxx
X. Xxxxx, CEO
000
Xxxx Xxxxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx,
XX 00000
Facsimile:
(000)
000-0000
E-Mail:
XXxxxx@xxxxxxxxxxxxxx.xxx
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To
the Consultant:
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Xxxxxxxxx
Financial Communications, Inc.
Attention:
Xxxxxxx
X. Xxxxxxxxx, President
0000
XX Xxxxxxxxxxx Xxxx - Xxxxx 000
Xxxx
Xxxx, XX 00000
Facsimile:
(000)
000-0000
E-Mail:
Xxxx@xxxxxx.xxx
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It
is
understood that either party may change the address to which notices for
it
shall be addressed by providing notice of such change to the other party
in the
manner set forth in this paragraph.
16. Choice
of Law, Jurisdiction and Venue.
This
Agreement shall be governed by, construed and enforced in accordance with
the
laws of the State of Oregon. The parties agree that the state or federal
courts
located closest to West Linn, Oregon, will be the venue of any dispute and
will
have jurisdiction over all parties.
17. Arbitration.
Any
controversy or claim arising out of or relating to this Agreement, or the
alleged breach thereof, or relating to Consultant's activities or remuneration
under this Agreement, shall be settled by binding arbitration in Xxxx County,
Illinois in accordance with the applicable rules of the American Arbitration
Association, Commercial Dispute Resolution Procedures, and judgment on the
award
rendered by the arbitrator(s) shall be binding on the parties and may be
entered
in any court having jurisdiction.
18. Complete
Agreement.
This
Agreement contains the entire agreement of the parties relating to the subject
matter hereof. This Agreement and its terms may not be changed orally but
only
by an agreement in writing signed by the party against whom enforcement of
any
waiver, change, modification, extension or discharge is sought.
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year
first above written.
CONSULTANT:
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AGREED
TO:
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Xxxxxxxxx
Financial Communications, Inc.
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COMPANY:
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Capital
Growth Systems, Inc.
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By:
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Xxxxxxx
X. Xxxxxxxxx
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President
and its Duly Authorized Agent
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By:
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Its:
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8
EXHIBIT
A
THE
SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR
ITS
OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE
A
PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS
AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO
AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
No.
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Xxxxxxxxx-1
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As
of November __, 2008
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Chicago,
Illinois
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CAPITAL
GROWTH SYSTEMS, INC.
FORM
OF CGSI TERM NOTE WARRANT TO PURCHASE
$0.24
PER COMMON SHARE ON
Void
after December 31, 2013, Unless Extended
Capital
Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies
that, for value received, Xxxxxxxxx Financial Communications, Inc. (including
any successors and assigns, “Holder”), is entitled, subject to the terms set
forth below, to purchase from the Company at any time or from time to time
before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully
paid and nonassessable shares of the Company’s $0.0001 par value Common Stock
(the “Warrant Shares”) under the terms set forth herein
1. Number
of Warrant Shares; Exercise Price.
This
Warrant shall evidence the right of the Holder to purchase up to 15,000,000
Warrant Shares (which number of Warrant Shares will remain fixed and is not
subject to any adjustment except as provided in Section
5
below)
at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise
Price”), subject to adjustment as provided in Section
5 below.
2. Definitions.
As used
herein the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The
term
“Common Stock” shall mean the common stock, par value $0.0001 of the
Company.
(b) The
term
“Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and
shall include any company which shall succeed to or assume the obligations
of
the Company hereunder.
A-1
(c) The
term
“Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of
all or substantially all of the assets of the Company; (ii) a consolidation
of
the Company with, or merger of the Company with or into, another corporation
or
other business entity in which the stockholders of the Company immediately
prior
to such consolidation or merger own less than 50% of the voting power of
the
surviving entity immediately after such consolidation or merger; or (iii)
any
transaction or series of related transactions to which the Company is a party
in
which in excess of 50% of the Company’s voting power is transferred, excluding
any consolidation or merger effected exclusively to change the domicile of
the
Company and/or an effective change of the number of issued and outstanding
shares of the Company (i.e.,
reverse
or forward split).
3. Exercise
Date; Expiration.
Subject
to the terms hereof, this Warrant may be exercised by the Holder at any time
following the “Amendment Date,” or from time to time thereafter before the
Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date
following the date of this Warrant that the Company amends its articles of
incorporation to authorize the issuance of not less than 600,000,000 shares
of
common stock.
4. Exercise
of Warrant; Partial Exercise.
This
Warrant may be exercised in full or in part by the Holder by: (i) surrender
of
this Warrant, together with the Holder’s duly executed form of subscription
attached hereto as Exhibit A,
to the
Company at its principal office, accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, of the aggregate
exercise price (as determined above) of the number of Warrant Shares to be
purchased hereunder (with a replacement warrant to be issued as necessary
to
reflect the unexercised portion of this Warrant if exercised in part and
not in
full); or (ii) by way of cashless exercise as provided in Section
6
of this
Warrant. The exercise of this Warrant pursuant to this Section 4
shall be
deemed to have been effected immediately prior to the close of business on
the
business day on which this Warrant is surrendered to the Company as provided
in
this Section 4,
and at
such time the person in whose name any certificate for Warrant Shares shall
be
issuable upon such exercise shall be deemed to be the record holder of such
Warrant Shares for all purposes. As soon as practicable after the exercise
of
this Warrant, the Company at its expense will cause to be issued in the name
of
and delivered to the Holder, or as the Holder may direct, a certificate or
certificates for the number of fully paid and nonassessable full shares of
Warrant Shares to which the Holder shall be entitled on such exercise, together
with cash, in lieu of any fraction of a share, equal to such fraction of
the
current fair market value of one full Warrant Share as determined in good
faith
by the board of directors of the Company and as set forth in Section
7,
and, if
applicable, a new warrant evidencing the balance of the shares remaining
subject
to the Warrant.
5. Weighted
Average Anti-Dilution Price Protection.
The
purchase price of Warrant Shares (or any shares of stock or other securities
which may be) issuable upon the exercise of this Warrant shall be subject
to
adjustment from time to time, as follows:
(a) “New
Securities” shall mean any Common Stock or preferred stock of Company issued
during the term of this Warrant, whether now authorized or not, and rights,
options or warrants to purchase said Common Stock or preferred stock, and
securities of any type whatsoever that are, or may become, convertible into
said
Common Stock or preferred stock (including but not limited to convertible
debt
or any other instrument exercisable for or convertible into Common Stock);
provided, however, that “New Securities” does not include (i) any securities
which are deemed to constitute an “Exempt Issuance” as that term is defined in
the Securities Purchase Agreement (from October or November 2008) for the
issuance of convertible debentures and warrants, the proceeds of which have
been
used in whole or part for the purchase of limited liability company interests
of
Vanco Direct USA, LLC.
A-2
(b) In
the
event that Company issues New Securities for a consideration of less than
$0.24
per share of Common Stock (on an as converted to Common Stock basis, as adjusted
per this Section
5
hereof)
(the “Original Purchase Price”), or if the Original Purchase Price shall have
been adjusted hereunder, and the Company issues New Securities for a purchase
price below the adjusted Purchase Price, then the then-current Purchase Price
shall be adjusted downward to a price determined by dividing
(i) the
sum
of (w) the Purchase Price in effect before the issuance of such New Securities
multiplied by the number of shares of the Company’s Common Stock then issued and
outstanding plus the number of shares of Company preferred stock then issued
as
converted into shares of Common Stock (including shares of common stock reserved
pursuant to the issued Offering Warrants) immediately prior to the issuance
of
such New Securities and (x) the consideration, if any, received by or deemed
to
have been received by the Company on the issue of such New Securities
by:
(ii) the
sum
of (y) the number of shares of the Company’s Common Stock then issued and
outstanding plus the number of shares of the Company’s preferred stock then
issued as converted into shares of Common Stock (including shares of Common
Stock reserved pursuant to the issued Offering Warrants) immediately prior
to
the issuance of such New Securities and (z) the number of Additional Shares
of
Common Stock issued or deemed to have been issued in the issuance of such
New
Securities.
(c) In
the
case of the issuance of Common Stock for cash, the consideration shall be
deemed
to be the amount of cash paid.
(d) In
the
case of the issuance of Common Stock for a consideration in whole or in part
other than cash, the consideration other than cash shall be deemed to be
the
fair value thereof as reasonably determined by the Company’s board of directors
consistent with its fiduciary duties irrespective of any accounting
treatment.
(e) The
Company will not by reorganization, transfer of assets, consolidation, merger,
dissolution, or otherwise, avoid or seek to avoid observance or performance
of
any of the terms of this Section
5,
but
will at all times in good faith assist in the carrying out and performance
of
all provisions of this Section
5
in order
to protect the rights of the Holder against impairment.
6. Adjustments
to Number of Warrants and Conversion Price.
The
number and kind of Warrant Shares or any shares of stock or other securities
which may be issuable upon the exercise of this Warrant and the exercise
price
hereunder shall be subject to adjustment from time to time upon the happening
of
certain events, as follows:
A-3
(a) Splits
and Subdivisions.
In the
event the Company should at any time or from time to time fix a record date
for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock, with the entitlement for the holder thereof to receive
directly or indirectly, additional shares of Common Stock, hereinafter referred
to as the “Common Stock Equivalents”) without payment of any consideration by
such Holder for the additional shares of Common Stock or the Common Stock
Equivalents, then, as of such record date (or the date of such distribution,
split or subdivision if no record date is fixed), the Exercise Price shall
be
appropriately decreased and the number of Warrant Shares for which this Warrant
is exercisable shall be appropriately increased in proportion to such increase
of outstanding shares.
(b) Combination
of Shares.
If the
number of shares of Common Stock outstanding at any time after the date hereof
is decreased by a combination of the outstanding shares of Common Stock,
the
Exercise Price shall be appropriately increased and the number of Warrant
Shares
for which this Warrant is exercisable shall be appropriately decreased in
proportion to such decrease in outstanding shares.
(c) Reclassification
or Reorganization.
If the
Warrant Shares issuable upon the exercise of this Warrant shall be changed
into
the same or different number of shares of any class or classes of stock,
whether
by capital reorganization, reclassification or otherwise (other than a split,
subdivision or stock dividend provided for in Section 6(a)
above or
a combination of shares provided for in Section 6(b)
above,
or a reorganization, merger or consolidation provided for in Section 6(d)
below,
then and in each such event the Holder shall be entitled to receive upon
the
exercise of this Warrant the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification
or
other change, to which a holder of the number of Warrant Shares issuable
upon
the exercise of this Warrant would have received if this Warrant had been
exercised immediately prior to such reorganization, reclassification or other
change, all subject to further adjustment as provided herein.
A-4
(d) Merger
or Consolidation.
If at
any time or from time to time there shall be a capital reclassification or
reorganization of the Warrant Shares or a Corporate Transaction (other than
a
subdivision, combination, reclassification or exchange of shares provided
for
elsewhere in this Section 6) of the Company, then as a part of such
reorganization or Corporate Transaction, adequate provision shall be made
so
that the Holder shall thereafter be entitled to receive upon the exercise
of
this Warrant, the number of shares of stock or other securities or property
of
the Company, resulting from such reorganization, recapitalization or Corporate
Transaction to which a holder of the number of Warrant Shares issuable upon
the
exercise of this Warrant would have received if this Warrant had been exercised
immediately prior to such reorganization or Corporate Transaction. In any
such
case, the Company will make appropriate provision to insure that the provisions
of this Section 6(d) hereof will thereafter be applicable as nearly as may
be in
relation to any shares of stock or securities thereafter deliverable upon
the
exercise of this Warrant. The Company shall not effect any such Corporate
Transaction unless prior to or simultaneously with the consummation thereof
the
successor corporation (if other than the Company) resulting from such Corporate
Transaction or the corporation purchasing or acquiring such assets or other
appropriate corporation or entity shall assume the obligation to deliver
to the
Holder, at the last address of the Holder appearing on the books of the Company,
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase, and the other obligations
under this Warrant. The provisions of this paragraph 6(d) shall similarly
apply
to successive reorganizations, reclassifications, or Corporate Transactions.
Notwithstanding anything to the contrary contained herein, in the event at
least
30 days prior to the closing of the reorganization or Corporate Transaction
the
Company receives the written consent from holders of “Offering Warrants” (as
defined below) outstanding which represent the right to purchase fifty-one
percent (51%) of the shares of Common Stock purchasable under the Offering
Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be
cancelled effective as of the closing of the reorganization or Corporate
Transaction, then provided the Company provides notice to the Holder of this
Warrant at least 20 days prior to the closing of such reorganization or
Corporate Transaction of such approval, then effective upon the closing of
such
reorganization or Corporate Transaction, this Warrant shall be cancelled.
For
purposes hereof, the term “Offering Warrants” shall mean all of the outstanding
warrants that were issued to any of the following persons or entities (or
their
designees) by the Company in November, 2008 in connection with the transactions
associated with the proposed purchase of 100% of the limited liability company
interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated
convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Xxxxxxxxx
Financial Communications, Inc. and (iv) Capstone Investments, Inc.
(e) Notice
of Record Dates; Adjustments.
The
Company shall promptly notify the Holder in writing of each adjustment or
readjustment of the Exercise Price hereunder and the number of Warrant Shares
issuable upon the exercise of this Warrant. Such Notice shall state the
adjustment or readjustment and show in reasonable detail the facts on which
that
adjustment or readjustment is based, as well as whether this Warrant will
be
cancelable as specified above.
7. Registration
Rights and Cashless Exercise.
The
Company shall have the obligation to file a piggyback registration statement
with respect to the shares underlying this Warrant with respect to any
subsequent registration statement filed by the Company, subject to the caveats
that: (i) no registration obligation shall exist to the extent that the shares
underlying this Warrant if purchased by cashless exercise, would be eligible
for
resale pursuant to Rule 144 promulgated under the Securities Act of 1933
as
amended (or the functional equivalent of such Rule), or (ii) should the
investor(s) requiring such registration statement prohibit the registration
of
the shares underlying this Warrant, then in such event the shares underlying
this Warrant shall not be subject to the requirement that they be registered
and
provided further that should the SEC require as a condition to the declaration
of effectiveness of such registration statement that the number of shares
registrable in such registration statement be less than the full amount sought
for such registration statement, then priority for registration shall be
given
first to the Investors’ shares subject to the registration statement and next
pro rata to the shares represented by this Warrant and any other shares subject
to piggyback registration rights with the Company (pro rata if not all of
such
shares can be registered). Should the Company elect to file a registration
statement covering some or all of the shares underlying this Warrant, the
Holder
of this Warrant as a condition to such registration shall provide such
information as is necessary to effect a registration of the shares. In all
events, Holder shall have the right to effect a cashless exercise of the
shares
subject to this Warrant pursuant to the following process.
A-5
(a) Upon
execution of the cashless exercise of the shares subject to this Warrant
(the
“Converted Warrant Shares”), the Company shall deliver to the Holder (without
payment by the Holder of any exercise price or any cash or other consideration)
that number of fully paid and nonassessable Warrant Shares computed using
the
following formula:
X
=
|
Y
(A – B)
|
A
|
Where:
|
X
=
|
the
number of shares of Warrant Shares to be delivered to the
Holder;
|
Y
=
|
the
number of Converted Warrant Shares;
|
|
A
=
|
the
fair market value of one Warrant Share on the Conversion Date (as
defined
below); and
|
|
B
=
|
the
Exercise Price (as adjusted to the Conversion
Date).
|
(b) No
fractional shares shall be issuable upon cashless exercise of the Warrant,
and
if the number of shares to be issued, determined in accordance with the
foregoing formula, is other than a whole number, the Company shall pay to
the
Holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as defined below).
(i) Method
of Exercise.
The
Holder may execute the cashless exercise by the surrender of this Warrant
at the
principal office of the Company together with a written statement specifying
that the Holder thereby intends to execute a cashless exercise and indicating
the total number of shares under this Warrant that the Holder is exercising
through the cashless exercise. Such conversion shall be effective upon receipt
by the Company of this Warrant together with the aforesaid written statement,
or
on such later date as is specified therein (the “Conversion Date”). Certificates
for the shares issuable upon execution of the cashless exercise shall be
delivered to the Holder within three business days following the Conversion
Date.
(ii) Determination
of Fair Market Value.
For
purposes of this Section 6,
fair
market value of a Warrant Share on the Conversion Date shall be determined
as
follows:
(1) If
the
Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or
a
similar national quotation system), the fair market value of a Warrant Share
shall be deemed to be the average of the closing selling prices of the Common
Stock on the stock exchange or system determined by the Board to be the primary
market for the Common Stock over the ten (10) trading day period ending on
the
date prior to the Conversion Date, as such prices are officially quoted in
the
composite tape of transactions on such exchange or system;
A-6
(2) If
the
Common Stock is traded over-the-counter, the fair market value of a Warrant
Share shall be deemed to be the average of the closing bid prices (or, if
such
information is available, the closing selling prices) of the Common Stock
over
the ten (10) trading day period ending on the date prior to the Conversion
Date,
as such prices are reported by the National Association of Securities Dealers
through its NASDAQ system or any successor system; and
(3) If
there
is no public market for the Common Stock, then the fair market value of a
Warrant Share shall be determined by the board of directors of the Company
in
good faith, and, upon request of the Holder, the Board (or a representative
thereof) shall, as promptly as reasonably practicable but in any event not
later
than 15 days after such request, notify the Holder of the Fair Market Value
per
share of Common Stock.
Notwithstanding
anything to the contrary contained herein, at any time following the date
of the
issuance of this Warrant, if the Holder hereof would be eligible for the
resale
of all of the shares of Common Stock purchasable by way of the cashless exercise
rights hereunder pursuant to Rule 144, then the piggyback registration rights
contained herein shall lapse as of that date.
8. Replacement
of Warrant.
On
receipt by the Company of evidence reasonably satisfactory to the Company
of the
loss, theft, destruction or mutilation of this Warrant and, in the case of
any
such loss, theft or destruction of this Warrant, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in
the
case of any such mutilation, on surrender and cancellation of such Warrant,
the
Company at its expense will execute and deliver to the Holder, in lieu thereof,
a new Warrant of like tenor.
9. No
Rights or Liability as a Stockholder.
This
Warrant does not entitle the Holder hereof to any voting rights or other
rights
as a stockholder of the Company. No provisions hereof, in the absence of
affirmative action by the Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder as a stockholder of the Company.
10. No
Impairment.
The
Company will not, by amendment of its charter or through reorganization,
consolidation, merger, dissolution, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms
of this Warrant but will at all times carry out all such terms and take all
such
action as may be reasonably necessary or appropriate in order to protect
the
rights of the holder of this Warrant against impairment, subject to any
amendment or waiver as permitted pursuant to Section
10(e).
A-7
11. Miscellaneous.
(a) Transfer
of Warrant.
The
Holder agrees not to make any disposition of this Warrant, the Warrant Shares
or
any rights hereunder without the prior written consent of the Company. Any
such
permitted transfer must be made by the Holder in person or by duly authorized
attorney, upon delivery of this Warrant and the form of assignment attached
hereto as Exhibit B
to any
such permitted transferee. As a condition precedent to such transfer, the
transferee shall sign an investment letter in form and substance satisfactory
to
the Company. Subject to the foregoing, the provisions of this Warrant shall
inure to the benefit of and be binding upon any successor to the Company
and
shall extend to any holder hereof.
(b) Titles
and Subtitles.
The
titles and subtitles used in this Warrant are for convenience only and are
not
to be considered in construing or interpreting this Warrant.
(c) Notices.
Any
notice required or permitted to be given to a party pursuant to the provisions
of this Warrant shall be in writing and shall be effective and deemed delivered
to such party under this Warrant on the earliest of the following: (a) the
date
of personal delivery; (b) two (2) business days after transmission by facsimile,
addressed to the other party at its facsimile number, with confirmation of
transmission; (c) four (4) business days after deposit with a return receipt
express courier for United States deliveries; or (d) five (5) business days
after deposit in the United States mail by registered or certified mail (return
receipt requested) for United States deliveries. All notices not delivered
personally or by facsimile will be sent with postage and/or other charges
prepaid and properly addressed to such party at the address set forth on
the
signature page hereto, or at such other address as such party may designate
by
ten (10) days advance written notice to the other party hereto. Notices to
the
Company will be marked “Attention: Chief Financial Officer.”
(d) Attorneys’
Fees.
If any
action at law or in equity is necessary to enforce or interpret the terms
of
this Warrant, 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.
(e) Amendments
and Waivers.
Any
term of this Warrant may be amended and the observance of any term of this
Warrant may be waived (either generally or in a particular instance and either
retroactively or prospectively) with the written consent of the Holder and
the
Company. Any amendment or waiver effected in accordance with this Section 10(e)
shall be
binding upon the Holder of this Warrant (and of any securities into which
this
Warrant is convertible), each future holder of all such securities, and the
Company.
(f) Severability.
If one
or more provisions of this Warrant are held to be unenforceable under applicable
law, such provision shall be excluded from this Warrant and the balance
of the
Warrant shall be interpreted as if such provision were so excluded and
shall be
enforceable in accordance with its terms.
A-8
(g) Governing
Law.
This
Warrant shall be governed by and construed and enforced in accordance with
the
laws of the State of Illinois, without giving effect to its conflicts of
laws
principles.
(h) Counterparts.
This
Warrant may be executed in any number of counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
A-9
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly
authorized officer as of the date first written above.
CAPITAL
GROWTH SYSTEMS, INC.
|
|||||
By:
|
|||||
Name:
|
|||||
Title:
|
|||||
HOLDER
NAME:
|
Xxxxxxxxx
Financial Communications, Inc.
|
||||
Address:
|
0000
Xxxx Xxxxxxxxxxx Xxxx - Xxxxx 000
|
||||
|
Xxxx
Xxxx, Xxxxxx 00000
|
A-10
EXHIBIT
A
FORM
OF SUBSCRIPTION OF $0.24 WARRANT
(To
be signed only on exercise of Warrant)
To:
|
CAPITAL
GROWTH SYSTEMS, INC.
|
The
undersigned, pursuant to the provisions set forth in the attached Warrant,
hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common
Stock covered by such Warrant and herewith makes payment of $ _________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise
option contained in the Warrant a total of __________ shares of Common Stock
covered by the Warrant, after giving effect to cancellation of _______shares
of
Common Stock covered by the Warrant due to the cashless exercise provisions
of
the Warrant.
Please
issue a certificate or certificates representing ________ shares in the name
of
the undersigned or in such other name or names as are specified
below:
(Name)
|
||
(Address)
|
The
undersigned represents that the aforesaid shares are being acquired for the
account of the undersigned for investment and not with a view to, or for
resale
in connection with, the distribution thereof and that the undersigned has
no
present intention of distributing or reselling such shares, all except as
in
compliance with applicable securities laws.
Dated:
|
||||
(Signature
must conform in all respects to name of the Holder as specified
on the
face of the Warrant)
|
||||
(Print
Name)
|
||||
Address:
|
A-A-1
EXHIBIT
B
FORM
OF ASSIGNMENT OF $0.50 WARRANT
(To
assign the foregoing Warrant, execute this form and supply
required
information. Do not use this form to purchase shares.)
FOR
VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
assigned to:
Name:
|
|||
(Please
Print)
|
|||
Address:
|
|||
(Street)
|
|||
(City)
|
(State)
|
(Zip
Code)
|
|
Date:
|
|||
Holder’s
Signature:
|
|||
Holder’s
Address:
|
|||
(Street)
|
|||
(City)
|
(State)
|
(Zip
Code)
|
NOTE:
The
signature to this Form of Assignment must correspond with the name as it
appears
on the face of the Warrant, without alteration or enlargement or any change
whatever. Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the
foregoing Warrant.
A-B-1