PLACEMENT AGENCY AGREEMENT November 14, 2006
November
14, 2006
National
Securities Corporation
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Re:
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Capital
Growth Systems, Inc.
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Ladies
and Gentlemen:
This
Placement Agency Agreement ("Agreement") sets forth the terms upon which
National Securities Corporation, a Washington corporation, registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. ("NASD") (together with its dealers, the “Placement Agent”), shall be
engaged by Capital Growth Systems, Inc., a Florida corporation (“Capital Growth”
or the “Company”), to act as exclusive Placement Agent in connection with the
private placement (the “Offering”) of a minimum of 100 units ($10,000,000) (the
“Minimum Amount”) and a maximum of 150 units ($15,000,000) (the “Maximum
Amount”). Each unit (a “Unit”) shall consist of (i) 100 Shares of Series AA
Preferred Stock (the “Series AA Preferred Stock” or the “Shares”)
(ii) a
warrant (the “$0.45 Warrant”) to purchase 50 shares of Series AA Preferred Stock
at an exercise price of $1,000 per share, exercisable on or before December
31,
2008 and exercisable as described below on an as-converted to Common Stock
price
of $0.45 per share and (iii) a warrant (the “$0.65 Warrant” - together with the
$0.45 Warrant, collectively referred to as the “Warrants”) to purchase 50 shares
of Series AA Preferred Stock, at an exercise price of $1,444.43 per share,
exercisable on or before December 31, 2009 and exercisable as described below
on
an as-converted to Common Stock price of $0.65 per share (subject to possible
extension of the exercise periods of the Warrants in certain circumstances
as
described in the Memorandum). Each share of Series AA Preferred Stock is
convertible into 2,222.2 shares of common stock, $0.0001 par value per share
(the “Common Stock”) of the Company (an effective price of $0.45 per share of
Common Stock) and shall automatically convert into such number of shares of
Common Stock upon the filing of an Amendment to the Articles of Incorporation
of
the Company (“Charter Amendment”) authorizing the issuance of not less than
200,000,000 shares of Common Stock. Each $0.45 Warrant issued per Unit shall,
upon the filing of the Charter Amendment, provide the holder with the right
to
acquire up to 111,111.1 shares of Common Stock at an exercise price of $0.45
per
share. Each $0.65 Warrant issued per Unit shall, upon the filing of
the Charter Amendment, provide the holder with the right to acquire up to
111,111.1 shares of Common Stock at an exercise price of $0.65 per share. The
Company has also commenced an interim offering of convertible promissory notes,
bearing interest at 8% per annum, which by their terms shall convert into the
securities issued by the Company on the terms of its next equity placement.
All
of such notes will upon the first closing of the Private Placement be converted
into Units and applied toward satisfaction of the Minimum Amount; similarly,
any
other outstanding debt securities which convert to Units on a discretionary
basis by such holders will be applied toward satisfaction of the Minimum Amount
(all of such notes or other debt securities are hereinafter sometimes
collectively referred to as the “Converting Debt Securities”).
The
minimum investment will be one Unit ($100,000); provided, however, that
subscriptions in lesser amounts may be accepted in the Company’s and Placement
Agent’s discretion. The Placement Agent shall not tender to the Company
subscriptions for any persons or entities who do not qualify as “accredited
investors,” as such term is defined in Rule 501 of Regulation D (“Regulation D”)
as promulgated under Section 4(2) of the Securities Act of 1933, as amended
(the
“Act”). The Units will be offered until the earlier of the time that all Units
offered in the Offering are sold or January 25, 2007 (“Initial Offering
Period”), which date may be extended by the Company and the Placement Agent to a
date not later than April 10, 2007 (this additional period and the Initial
Offering Period shall be referred to as the “Offering Period”). The date on
which the Offering is terminated shall be referred to as the “Termination
Date.”
With
respect to the Offering, the Company shall provide the Placement Agent, on
terms
set forth herein, the right to offer and sell all of the Units being offered.
It
is understood that no sale shall be regarded as effective unless and until
accepted by the Company. The Company may, in its sole discretion, accept or
reject in whole or in part any prospective investment in the Units or allot
to
any prospective subscriber less than the number of Units that such subscriber
desires to purchase. Purchases of Units may be made by the Placement Agent
and
its officers, directors, employees and affiliates. All such purchases, together
with purchases by officers, directors, employees and affiliates of the Company,
may be used to satisfy the Minimum Amount if the Minimum Amount has not been
subscribed for on or before the end of the Offering Period.
The
Offering will be made by the Company solely pursuant to the Memorandum, which
at
all times will be in form and substance reasonably acceptable to the Company,
the Placement Agent and their respective counsel and contain such legends and
other information as the Company, the Placement Agent and their respective
counsel may, from time to time, deem necessary and desirable to be set forth
therein. “Memorandum” as used in this Agreement means the Company’s Confidential
Private Placement Memorandum dated November 14, 2006, inclusive of all annexes,
and all amendments, supplements and appendices thereto.
1. Appointment
of Placement Agent.
On the
basis of the representations and warranties provided herein, and subject to
the
terms and conditions set forth herein, the Placement Agent is appointed as
the
exclusive agent of the Company during the Offering Period to assist the Company
in finding qualified subscribers for the Offering. The Placement Agent may
sell
Units through other broker-dealers that it selects who are NASD members and
may
reallow all or a portion of the compensation it receives hereunder to such
other
broker-dealers. On the basis of such representations and warranties and subject
to such terms and conditions, the Placement Agent hereby accepts such
appointment and agrees to perform its services hereunder in a professional
and
businesslike manner and to use its reasonable efforts to assist the Company
in
finding subscribers of Units who qualify as “accredited investors,” as such term
is defined in Rule 501 of Regulation D and to complete the Offering. The
Placement Agent has no obligation to purchase any of the Units. Unless sooner
terminated in accordance with this Agreement, the engagement of the Placement
Agent hereunder shall continue until the later of the Termination Date or the
Final Closing (as defined below).
2. Representations
and Warranties.
The
representations and warranties contained in this Section 2
are true
and correct as of the date of this Agreement, except as set forth in the
disclosure schedule attached hereto as Schedule 1.
2
(a) Capital
Growth is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Capital Growth is
duly
qualified to transact business as a foreign corporation and is in good standing
under the laws of each jurisdiction where the location of its properties or
the
conduct of its business makes such qualification necessary, except where the
failure to be so qualified would not, or could not reasonably be expected to,
have a material adverse effect on the (i) assets, liabilities, results of
operations, condition (financial or otherwise), business or business prospects
of Capital Growth and the Subsidiaries (as hereinafter defined), taken as a
whole or (ii) ability of Capital Growth to perform its obligations under this
Agreement (hereinafter referred to as a “Material Adverse Effect”). Capital
Growth does not directly or indirectly control or own any interest in any other
corporation, partnership, joint venture or other business association or entity
(a “Subsidiary”), other than those listed in Schedule 1.
Except
as disclosed in Schedule 1,
Capital
Growth owns, directly or indirectly, all of the capital stock of each Subsidiary
free and clear of any lien, charge, claim, security interest, encumbrance,
right
of first refusal or other restriction (collectively, “Liens”), and all the
issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights.
(b) Each
of
Capital Growth and its Subsidiaries have requisite corporate power and authority
to conduct their respective businesses as presently conducted and as proposed
to
be conducted. Capital Growth has all requisite corporate power and authority
to
enter into and perform its obligations under this Agreement and, immediately
prior to the Initial Closing (as hereinafter defined), the other agreements
contemplated hereby and by the Memorandum (collectively, the “Transaction
Documents”). Immediately prior to each Closing, Capital Growth will have all
requisite power and authority to issue, sell and deliver the Shares, the
Warrants and the shares of Preferred Stock issuable upon exercise of the
Warrants (the “Warrant Preferred Shares”), the Placement Agent Warrants (as
hereinafter defined), the shares of Preferred Stock issuable upon exercise
of
the Placement Agent Warrants (the “Placement Agent Warrant Preferred Shares”).
Immediately following the filing of the Charter Amendment, Capital Growth will
have all requisite power and authority to issue and deliver the shares of Common
Stock issuable upon conversion of Shares (“Conversion Shares”), the shares of
Common Stock issuable upon conversion of the Warrant Preferred Shares (the
“Warrant Common Shares”) and the shares of Common Stock issuable upon conversion
of the Placement Agent Warrant Preferred Shares (the “Placement Agent Warrant
Common Shares”). Upon due execution and delivery, this Agreement and the
Subscription Agreements in the form annexed to the Memorandum (collectively,
“Subscription Agreements”) will constitute the valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms, subject to any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect affecting the rights
of creditors generally and to general equitable principles and the availability
of specific performance. Upon due execution and delivery, the Placement Agent
Warrants will constitute the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
subject to any applicable bankruptcy, insolvency, reorganization, moratorium
or
other similar laws now or hereafter in effect affecting the rights of creditors
generally and to general equitable principles and the availability of specific
performance.
3
(c) None
of
the execution and delivery of, or performance by, the Company under this
Agreement or, immediately prior to each Closing, the Subscription Agreements,
the Placement Agent Warrants will conflict with or violate any material term
or
provision of, or will result in the creation or imposition of any lien, charge
or other encumbrance upon any of the assets of the Company under, any other
agreement or other instrument to which the Company is a party or by which the
Company or its assets is bound, or any term of the charter or by-laws of the
Company, or any license, permit, statute, rule or regulation applicable to
the
Company or any of its assets, or any judgment, decree, or order of any court
or
governmental body having jurisdiction over the Company.
(d) None
of
the Shares, the Conversion Shares, the Warrants, the Warrant Preferred Shares,
the Warrant Common Shares, the Placement Agent Warrants, the Placement Agent
Warrant Preferred Shares and the Placement Agent Warrant Common Shares will
be
subject to preemptive or similar rights of any stockholder or security holder
of
the Company or an adjustment under the anti-dilution or exercise rights of
any
holders of any outstanding shares of capital stock, options, warrants or other
rights to acquire any securities of the Company, except that the holders of
up
to $7,000,000 of convertible bridge notes of the Company (the “Bridge Notes”)
and Mandatory Notes (as defined in the Memorandum), if any, shall have the
right
to cause their conversions into Common Stock to be reduced to an effective
price
of $0.45 per share.
(e) No
consent, authorization or filing of or with any federal court or government
authority of the United States is required in connection with the consummation
of the transactions contemplated herein, except for required filings with the
United States Securities and Exchange Commission (the “SEC”) and applicable
“Blue Sky” or state securities commissions relating specifically to the
Offering.
(f) The
Memorandum as of November 14, 2006 did not, and as of the date of any amendment
or supplement thereto, will not, include any untrue statement of a material
fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(g) The
Memorandum has been prepared in conformity in all material respects with all
federal law applicable to the Offering and is in compliance with Rule 506 of
Regulation D, the Act and the requirements of all other rules and regulations
of
the SEC relating to offerings of the type contemplated by the Offering, and
the
applicable state securities laws and the rules and regulations of those
jurisdictions in the United States wherein the Placement Agent has informed
the
Company the Units are to be offered and sold. The Company has not taken, nor
will it take, any action which conflicts with the conditions and requirements
of, or which would make unavailable with respect to the Offering, the
exemption(s) from registration available pursuant to Rule 506 of Regulation
D or
Section 4(2) and/or Section 4(6) of the Act. None of the Company or, to the
Company’s knowledge, its affiliates, has been subject to any order, judgment or
decree of any court of competent jurisdiction temporarily, preliminarily or
permanently enjoining such person for failing to comply with Rule 503 of
Regulation D.
4
(h) The
Company has authorized and outstanding the capital stock as set forth in the
Memorandum as of the date set forth therein. All outstanding shares of capital
stock of the Company are duly authorized, validly issued and outstanding, fully
paid and non-assessable. Except as set forth in the Memorandum: (i) there are
no
outstanding options, warrants or other rights permitting or requiring the
Company or others to purchase or acquire any shares of capital stock or other
equity securities of the Company or to pay any dividend or make any other
distribution in respect thereof; (ii) there are no securities issued or
outstanding which are convertible into or exchangeable for shares of capital
stock or other equity securities of the Company and there are no contracts,
commitments or understandings to which the Company is a party, whether or not
in
writing, to issue or grant any such option, warrant, right or convertible or
exchangeable security; (iii) no shares of stock or other securities of the
Company are reserved for issuance for any purpose; (iv) there are no voting
trusts or other contracts, commitments, understandings, arrangements or
restrictions of any kind to which the Company is a party with respect to the
ownership, voting or transfer of shares of stock or other securities of the
Company, including without limitation, any preemptive rights, rights of first
refusal, proxies or similar rights and (v) no person holds a right to require
the Company to register any securities of the Company under the Act or to
participate in any such registration. The issued and outstanding shares of
capital stock of the Company conform to all statements in relation thereto
contained in the Memorandum and the Memorandum describes all material terms
and
conditions thereof. Except as set forth in the Memorandum or the SEC Filings
(as
hereinafter defined), all offers and sales of capital stock of the Company
prior
to the date hereof were at all relevant times duly registered or exempt from
the
registration requirements of the Act and were duly registered or subject to
an
available exemption from the registration requirements of the applicable state
securities or blue sky laws.
(i) The
financial statements, together with the related notes, of the Company included
in the Memorandum present fairly in all material respects the financial position
of the Company as of the respective dates specified and the results of its
operations and cash flow for the respective periods covered thereby. Except
as
set forth in such financial statements, the Memorandum or the SEC Filings,
the
Company has not incurred any material liabilities of any kind, whether accrued,
absolute, contingent or otherwise or entered into any material transactions
subsequent to December 31, 2005 except in the ordinary course of its business.
(j) The
conduct of business by the Company and its Subsidiaries as presently and
proposed to be conducted is not subject to continuing oversight, supervision,
regulation or examination by any governmental official or body of the United
States or any other jurisdiction wherein the Company conducts or proposes to
conduct such business, except as described in the Memorandum and except such
regulation as is applicable to commercial enterprises generally. Except as
described in the Memorandum, the Company and its Subsidiaries have complied
with
all applicable laws, regulations, judgments, decrees or orders of any court
or
governmental agency or entity except where the failure to so comply would not
have a Material Adverse Effect and has obtained all requisite licenses, permits
and other governmental authorizations to conduct its business as presently
conducted, except to the extent the failure to so obtain and maintain would
not
have a Material Adverse Effect. Neither the Company or its Subsidiaries have
received any notice of any violation of, or noncompliance with, any federal,
state, local or foreign laws, ordinances, regulations and orders (including,
without limitation, those relating to environmental protection, occupational
safety and health, federal securities laws, equal employment opportunity,
consumer protection, credit reporting, "truth-in-lending", and warranties and
trade practices) applicable to its business, the violation of, or noncompliance
with, which would have a Material Adverse Effect, and the Company knows of
no
facts or set of circumstances which would give rise to such a
notice.
5
(k) The
Company and its Subsidiaries own their respective properties and assets free
and
clear of all Liens, except such Liens which are either disclosed in the
Memorandum or otherwise arise in the ordinary course of business and do not,
or
could not reasonably be expected to, materially impair the Company’s or its
Subsidiaries’ ownership or use of such property or assets. The Company and its
Subsidiaries are in compliance in all material respects with any leases to
which
it is a party and, to its knowledge, with respect to any such leases, holds
a
valid leasehold interest free of any Liens. Except as set forth in the
Memorandum, no default by the Company or, to the knowledge of the Company,
any
other party exists in the due performance under any of the agreements referred
to in the Memorandum to which the Company is a party or to which any of its
assets are subject, other than defaults that would not have a Material Adverse
Effect.
(l) Except
as
set forth in the Memorandum, there are no actions, suits, claims, hearings,
or
proceedings pending before any court or governmental authority or, to the
knowledge of the Company, threatened, against the Company, or involving its
assets or any of its officers or directors (in their capacity as such) which,
if
determined adversely to the Company or such officer or director, would have
a
Material Adverse Effect or adversely affect the transactions contemplated by
this Agreement or the other Transaction Documents or the enforceability
thereof.
(m) The
Company is not: (i) in violation of its charter or By-laws; (ii) except as
set
forth in the Memorandum, in default of any indenture, mortgage, deed of trust,
note or other agreement or instrument to which the Company is a party or by
which it is or may be bound or to which any of its assets may be subject; (iii)
in violation of any statute, rule or regulation which violation would have
a
Material Adverse Effect; or (iv) in violation of any judgment, decree or order
of any court or governmental body having jurisdiction over the Company and
specifically naming the Company, which violation or violations individually,
or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(n) Subsequent
to the respective dates as of which information is given in the Memorandum,
except as may otherwise be set forth in the Memorandum, there has been no:
(i)
material adverse change in the financial condition of the Company and its
Subsidiaries as a whole; (ii) damage, loss or destruction, whether or not
covered by insurance, with respect to any material asset or property of the
Company or its Subsidiaries; or (iii) agreement to permit any of the
foregoing.
(o) Each
description of each material contract in the Memorandum reflects in all material
respects the material terms of such material contract. Each material contract
is
in full force and effect and is valid and enforceable by and against the Company
or its Subsidiaries, as the case may be, in accordance with its terms. Except
as
provided in the Memorandum: (i) neither the Company nor any of its Subsidiaries,
if a subsidiary is a party, nor to the Company's knowledge, any other party
is
in default in the observance or performance of any term or obligation to be
performed by it under any material contract; and (ii)no event has occurred
which
with notice or lapse of time or both would constitute such a default, in any
such case which default or event, individually or in the aggregate, would result
in a Material Adverse Effect. Except as provided in the Memorandum, no default
exists, and no event has occurred which with notice or lapse of time or both
would constitute a default, in the due performance and observance of any term,
covenant or condition, by the Company or its subsidiaries, if a subsidiary
is a
party thereto, of any other agreement or instrument to which the Company or
any
of its subsidiaries is a party or by which Company or its properties or business
or a subsidiary or its properties or business is bound which default or event,
individually or in the aggregate, would result in a Material Adverse
Effect.
6
(p) Since
January 1, 2004 the Company has filed all reports required to be filed by it
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
including pursuant to Section 13(a) or 15(d) thereof (the foregoing materials
being collectively referred to herein as the “SEC Filings”) on a timely basis or
has received a valid extension of such time of filing and has filed any such
SEC
reports prior to the expiration of any such extension. As of their respective
dates, the SEC Filings complied in all material respects with the requirements
of the Act and the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and none of the SEC Filings, when filed, contained
any
untrue statement of a material fact or omitted a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party have been filed as exhibits to the
SEC Filings to the extent required. The financial statements of the Company
included in the SEC Filings comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect
thereto as in effect at the time of filing.
(q) Except
as
disclosed in the Memorandum, as of the date of this Agreement no current or
former stockholder, director, officer or employee of the Company, nor any
affiliate of any such person is presently, directly or indirectly through his
or
her affiliation with any other person or entity, a party to any loan from the
Company or any other transaction (other than as an employee) with the Company
providing for the furnishing of services by, or rental of any personal property
from, or otherwise requiring cash payments to any such person (other than with
respect to loans to the Company by such persons which by their terms require
repayment as set forth in the Memorandum).
(r) Since
the
adoption of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 (the “New Act”), the Company has
complied in all material respects with the laws, rules and regulations
applicable to the Company under the New Act.
(s) The
Company has made or filed all federal, state and foreign income and all other
tax returns, reports and declarations required by any jurisdiction to which
it
is subject and which are due (unless and only to the extent that the Company
has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes or has obtained an extension of the deadline for
such filing) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment
of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. To the Company’s knowledge, there are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
statue or local tax. To the Company’s knowledge, none of the Company’s tax
returns is presently being audited by any taxing authority.
7
(t) Neither
the sale of the Units nor its use of the proceeds thereof will violate the
Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto. Without limiting the foregoing, neither the Company nor any of its
subsidiaries (a) is a person whose property or interests in property are blocked
pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking
Property and Prohibiting Transactions With Persons Who Commit, Threaten to
Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) or (b) engages in
any
dealings or transactions, or be otherwise associated, with any such person.
The
Company and its subsidiaries are in compliance with the USA Patriot Act of
2001
(signed into law October 26, 2001).
(u) Each
of
the Company and each of its Subsidiaries is in compliance in all material
respects with all rules, laws and regulation relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Law") which are applicable to its business. Neither
the Company nor its Subsidiaries has received any notice from any governmental
authority or third party of an asserted claim under Environmental Laws. Each
of
the Company and each of its Subsidiaries has received all permits required
of it
under applicable Environmental Laws to conduct its business and is in compliance
with all terms and conditions of any such permit, license or approval (except
where failure to receive such permits, licenses or approvals would not have
a
Material Adverse Effect). No facts currently exist that will require the Company
or any of its Subsidiaries to make future material capital expenditures to
comply with Environmental Laws. No property which is or has been owned, leased
or occupied by the Company or its Subsidiaries has been designated as a
Superfund site pursuant to the Comprehensive Environmental Response,
Compensation of Liability Act of 1980, as amended (42 D.S.C. Section 9601,
et.
seq.) (“CERCLA”) or otherwise designated as a contaminated site under applicable
state or local law. Neither the Company nor any of its subsidiaries has been
named as a "potentially responsible party" under CERCLA.
(v) To
the
knowledge of the Company, except as disclosed in the Memorandum, neither the
Company, its Subsidiaries nor their respective officers or directors, have
been
subject to or suffered any of the following: (i) any bankruptcy petition filed
by or against any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two (2) years
prior to that time; (ii) any conviction in a criminal proceeding or being
subject to a pending criminal proceeding (excluding traffic violations and
other
misdemeanor offenses) within ten (10) years from the date hereof; (iii) any
order, judgment or decree, not subsequently reversed, suspended or vacated,
of
any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting such Person's involvement in any
type
of business, securities or banking activities; or (iv) being found guilty by
a
court of competent jurisdiction (in a civil action), the SEC or the Commodity
Futures Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended or
vacated.
8
(w) Neither
the Company nor any of its Subsidiaries has, nor to the best of the knowledge
of
the Company, any director, officer, agent, employee or other person acting
on
behalf of the Company or any Subsidiary has in the course of his actions for
or
on behalf of the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated
or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of
1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback
or
other unlawful payment to any foreign or domestic government official or
employee. Without limiting the generality of the foregoing, to the best of
the
knowledge of the Company, the Company and its Subsidiaries have not directly
or
indirectly made or agreed to make (whether or not said payment is lawful) any
payment to obtain, or with respect to, sales other than usual and regular
compensation to its or their employees and sales representatives with respect
to
such sales.
(x) No
individual or entity will have, as a result of the transactions contemplated
by
this Agreement, any valid right, interest or claim against or upon the Company
for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding entered into by or on behalf of the Company, other
than in favor of the Placement Agent.
(y) To
the
best of the Company’s knowledge, the Company has appropriate casualty and
liability insurance coverage, in scope and amounts reasonable and to the
Company’s knowledge, customary for similar businesses.
(z) The
Company has fulfilled its obligations, if any, under the minimum funding
standards of Section 302 of the U.S. Employee Retirement Income Security Act
of
1974 ("ERISA") and the regulations and published interpretations thereunder
with
respect to each "plan" as defined in Section 3(3) of ERISA and such regulations
and published interpretations in which its employees are eligible to participate
and each such plan is in compliance in all material respects with the presently
applicable provisions of ERISA and such regulations and published
interpretations. No "Reportable Event" (as defined in 12 ERISA) has occurred
with respect to any "Pension Plan" (as defined in ERISA) for which the Company
could have any liability.
(aa) Neither
the Company, its affiliates, nor any person acting on its or their behalf,
has
knowingly, either directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would cause the offer of the Units pursuant to this Agreement to be integrated
with prior offerings by the Company for purposes of the Act, or any applicable
stockholder approval provisions, which would impair the exemptions relied upon
in this Offering or the Company's ability to timely comply with its obligations
hereunder. Nor will the Company or its affiliates take any action or steps
that
would knowingly cause the offer or issuance of the Units to be integrated with
other offerings which would impair the exemptions relied upon in this Offering
or the Company's ability to timely comply with its obligations hereunder. The
Company will not knowingly conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Units, which would impair the exemptions relied upon in this Offering or the
Company's ability to timely comply with its obligations hereunder. In addition,
neither the Company nor its affiliates nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the ▇▇▇▇ ▇▇▇)
in
connection with the offer or sale of the Units.
9
(bb) Except
as
disclosed in the Memorandum, the Company's Common Stock is quoted on OTC
Bulletin Board under the symbol CGSY.OB. The Company has not received any oral
or written notice that the Common Stock is not eligible nor will become
ineligible for quotation on the OTC Bulletin Board nor that the Common Stock
does not meet all requirements for the continuation of such quotation. To the
best of its knowledge, the Company satisfies all the requirements for the
continued quotation of the Common Stock on the OTC Bulletin Board.
3. Placement
Agent Compensation.
(a) As
compensation for its services under this Agreement, at each Closing, the
Placement Agent will receive, subject to the terms of the last sentence of
this
paragraph: (i) a cash fee (the “Selling Commissions”) equal to six percent (6%)
of the gross proceeds of the Offering, (ii) a nonaccountable marketing allowance
of 1% of the gross proceeds of the Offering to defray marketing expenses
(“Marketing Allowance”), and (iii) a management fee of 3% of the gross proceeds
of the Offering for providing certain services as lead placement agent
(“Management Fee”). With respect to investors who purchase Units through the
conversion to equity of some or all of the indebtedness evidenced by their
Bridge Notes or Mandatory Notes (which the Company shall be permitted to
continue to sell through the date of the Initial Closing) or unsecured
promissory notes issued by 20/20 Technologies, Inc., the Placement Agent will
be
entitled to a selling commission equal to 1% of the gross proceeds invested
by
such persons in the purchase of Units, and the Placement Agent shall be entitled
to no other fees or compensation (including but not limited to Marketing
Allowance, Management Fee or Placement Agent Warrants) with respect to any
such
purchases of Units; for purposes hereof, all investors in the Offering other
than investors referenced in this sentence are collectively referred to as
the
“Offering New Investors.” In addition, to the extent the Company sells Units to
one or more offshore investors independent of the Placement Agent and pays
a fee
in connection therewith comparable or less than the compensation that it would
have paid to the Placement Agent if it had made the placement of such Units,
the
Company will pay the Placement Agent a reduced fee of cash compensation of
not
less than 2%.
(b) As
additional compensation hereunder, the Placement Agent will be entitled (i)
to
reimbursement of all reasonable, actual out-of-pocket expenses, including,
without limitation, the travel expenditures and expenses of counsel (inclusive
of work performed in connection with the Offering and blue sky services and
related fees) (the “Expense Reimbursement”); provided that no other expense for
the Placement Agent shall be paid by the Company and provided further that
any
single or related series of non-legal expenses of Placement Agent involving
$1,000 or more shall require the prior consent of the Company, which consent
shall not be unreasonably withheld; (ii) to receive the $0.45 Warrant to
purchase up to 5% of the shares of Series AA Preferred Stock underlying the
Units sold in the Offering to Offering New Investors; and (iii) to receive
the
$0.65 Warrant to purchase up to 5% of the shares of Series AA Preferred Stock
underlying the Units sold in the Offering to Offering New Investors
substantially in the form of the corresponding warrants to be issued per the
Memorandum (“Placement Agent Warrants”). The shares Common Stock issuable upon
conversion of the Series AA Preferred Stock underlying the Placement Agent
Warrants shall have the same registration rights as those afforded to investors
in the Offering and the Placement Agent Warrants shall contain a cashless
exercise provision.
10
(c) The
Company shall also pay to the Placement Agent the Selling Commissions, Marketing
Allowance, Management Fee and Placement Agent Warrants with respect to, and
based on, any Company securities sold to any party introduced to the Company
by
Placement Agent (“Post Closing Investor”) at any time prior to the date twelve
(12) months after the later to occur of the Termination Date or the Final
Closing (as hereinafter defined). In that regard, the Placement Agent shall
provide a written list of all investors that it introduced to the Company within
10 business days of the later to occur of the Termination Date or the Final
Closing.
(d) To
the
extent there is more than one Closing, payment of the proportional amount of
the
Selling Commissions, Marketing Allowance and Management Fee will be made out
of
the proceeds of subscriptions for the Units sold at each Closing and Placement
Agent Warrants shall be issued at each Closing. Payment of the Expense
Reimbursement incurred as of the date of each Closing will be made out of the
proceeds of subscriptions for Units at each Closing.
(e) Placement
Agent agrees and understands that the compensation set forth in Sections 3(a)
and 3(b)(ii)
is
conditioned upon the sale of the Minimum Amount and the satisfaction of the
other conditions precedent to the Initial Closing set forth herein and in the
Memorandum by the end of the Offering Period and acceptance of said sales by
the
Company and that the failure to sell the Minimum Amount or to satisfy such
conditions precedent by the end of the Offering Period shall relieve the Company
and any other party of any obligation to pay Placement Agent any such
compensation, except as otherwise set forth in Section 12
hereto.
No such compensation shall be payable with respect to any subscriptions for
Units that are rejected by the Company and no such compensation shall be payable
to Placement Agent with respect to any sale of Units unless and until such
time
as the proceeds thereof are received from the Escrow Account (as hereinafter
defined).
4. Subscription
and Closing Procedures.
(a) The
Company shall cause to be delivered to the Placement Agent copies of the
Memorandum and has consented, and hereby consents, to the use of such copies
for
the purposes permitted by the Act and applicable securities laws and in
accordance with the terms and conditions of this Agreement, and hereby
authorizes the Placement Agent and its agents and employees to use the
Memorandum in connection with the sale of the Units until the Termination Date,
and no person or entity is or will be authorized to give any information or
make
any representations other than those contained in the Memorandum or to use
any
offering materials other than those contained in the Memorandum in connection
with the sale of the Units.
(b) The
Company shall make available to the Placement Agent and its representatives
such
information as may be reasonably requested in making a reasonable investigation
of the Company and its affairs and shall provide access to such employees during
normal business hours as shall be reasonably requested by the Placement Agent.
The Units sold in the Offering will be sold pursuant to Subscription Agreements
between the Company and the investors in the Offering in the form annexed to
the
Memorandum.
11
(c) All
funds
for subscriptions received from the sale of Units in the Offering will be
deposited into the escrow account (the “Escrow Account”) established for such
purpose with Signature Bank, New York, New York (the “Escrow Agent”). All such
funds for subscriptions will be held in the Escrow Account pursuant to the
terms
of the Escrow Agreement by and among the Company, the Placement Agent and the
Escrow Agent. The Company will pay all fees related to the establishment and
maintenance of the Escrow Account.
(d) If
subscriptions for at least the Minimum Amount have been accepted prior to the
Termination Date, the funds therefore have been collected by the Escrow Agent
and all of the conditions set forth elsewhere in this Agreement are fulfilled,
a
closing shall be held promptly with respect to the Units sold (the “Initial
Closing”) at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Ltd., counsel to the Company
or by exchange of documentation by facsimile or email. To the extent the Maximum
Amount is not sold at the Initial Closing, the remaining Units will continue
to
be offered and sold until the Termination Date (subject to the Company’s right
upon ten (10) days notice to terminate the Offering in its sole discretion
at
any time following the sale of the Minimum Amount subject to the termination
provisions contained herein), and the proceeds thereof delivered to the Company
at one or more closings as agreed upon by the Company and Placement Agent,
with
the final closing (“Final Closing”) to occur within 10 days from the earlier of
the Termination Date or the sale of all Units offered. The Initial Closing,
the
Final Closing and any other interim closing may be referred to herein as a
“Closing.” Delivery of payment for the accepted subscriptions for Units from
funds held in the Escrow Account will be made at each Closing against delivery
of the Shares and Warrants by the Company. Executed certificates for the Shares,
the Warrants and the Placement Agent Warrants will be in such authorized
denominations and, with respect to investors located by the Placement Agent,
will be registered in such names as the Placement Agent may request and will
be
made available to the Placement Agent for checking and packaging at the
Placement Agent’s office at each Closing or within five (5) business days
following a Closing.
(e) If
subscriptions for the Minimum Amount have not been received and accepted by
the
Company on or before the Termination Date for any reason, the Offering will
be
terminated, no Units will be sold, and the Escrow Agent will, at the request
of
the Company and the Placement Agent, cause all monies received from subscribers
and deposited in the Escrow Account to be promptly returned to such subscribers
without interest, penalty, expense or deduction.
5. Further
Covenants.
The
Company hereby covenants and agrees that:
(a) Except
with the prior written notice to the Placement Agent, the Company shall not,
at
any time prior to the Final Closing, knowingly take any action which would
cause
any of the representations and warranties made by it in this Agreement not
to be
complete and correct in all material respects on and as of each Closing date
with the same force and effect as if such representations and warranties had
been made on and as of each such date.
12
(b) If,
at
any time prior to the Final Closing, any event shall occur that causes or is
reasonably likely to cause a Material Adverse Effect, or as a result of which
it
becomes necessary to amend or supplement the Memorandum so that the
representations and warranties herein remain true and correct in all material
respects, or in case it shall be necessary to amend or supplement the Memorandum
to comply with Regulation D or any other applicable securities laws or
regulations, the Company will promptly notify the Placement Agent and shall,
at
its sole cost, prepare and furnish to the Placement Agent copies of appropriate
amendments and/or supplements in such quantities as the Placement Agent may
reasonably request. The Company will not at any time before the Final Closing,
prepare or use any amendment or supplement to the Memorandum of which the
Placement Agent will not previously have been advised and furnished with a
copy,
or which is not in compliance in all material respects with the Act and other
applicable securities laws. As soon as the Company is advised thereof, the
Company will advise the Placement Agent and its counsel, and confirm the advice
in writing, of any order preventing or suspending the use of the Memorandum,
or
the suspension of any exemption for such qualification or registration thereof
for the Offering in any jurisdiction, or of the institution or threatened
institution of any proceedings for any of such purposes, and the Company will
use its best efforts to prevent the issuance of any such order and, if issued,
to obtain as soon as reasonably possible the lifting thereof.
(c) The
Company shall comply with the Act, the Securities Exchange Act of 1934 (the
“Exchange Act”) and the rules and regulations thereunder, all applicable state
securities laws and the rules and regulations thereunder in the states that
the
Units are qualified or registered for sale or exempt from such qualification
or
registration, so as to permit the continuance of the sales of the Units.
Furthermore, the Company shall file five copies of a Notice of Sales of
Securities on Form D with the SEC no later than 15 days after the commencement
of the sale of Units and shall file all amendments with the SEC as may be
required. Copies of the Form D and all amendments thereto shall be provided
to
the Placement Agent.
(d) The
Company shall use best efforts to qualify the Units for sale under the
securities laws of such jurisdictions in the United States as may be mutually
agreed to by the Company and the Placement Agent, and the Company will make
such
applications and furnish information as may be required for such purposes,
provided that the Company will not be required to qualify as a foreign
corporation in any jurisdiction or execute a general consent to service of
process. The Company will, from time to time, prepare and file such statements
and reports as are or may be required to continue such qualifications in effect
for so long a period as the Placement Agent may reasonably request with respect
to the Offering.
(e) The
Company shall place a legend on the certificates representing the Shares, the
Conversion Shares, the Warrants, the Warrant Preferred Shares, the Warrant
Common Shares, the Placement Agent Warrants, the Placement Agent Warrant
Preferred Shares and the Placement Agent Warrant Common Shares that the
securities evidenced thereby have not been registered under the Act or
applicable state securities laws, setting forth or referring to the applicable
restrictions on transferability and sale of such securities under the Act and
applicable state laws.
13
(f) The
Company shall apply the net proceeds from the sale of the Units for the purposes
as described under the “Use of Proceeds” section of the Memorandum, subject to
the understanding that to the extent the assumptions contained therein do not
fully materialize, the application may be altered in a manner consistent with
the Company’s fiduciary obligations to investors.
(g) During
the Offering Period, the Company shall afford each prospective purchaser of
Units the opportunity to ask questions of and receive answers from an officer
of
the Company concerning the terms and conditions of the Offering and the
opportunity to obtain such other additional information necessary to verify
the
accuracy of the Memorandum to the extent it possesses such information or can
acquire it without unreasonable expense.
(h) The
Company shall pay all reasonable expenses incurred in connection with the
preparation and printing of all necessary offering documents and instruments
related to the Offering and the issuance of the Shares, the Warrants, and the
Placement Agent Warrants and will also pay the Company’s own expenses for
accounting fees, legal fees, and other costs involved with the Offering. The
Company will provide at its own expense such quantities of the Memorandum and
other documents and instruments relating to the Offering as the Placement Agent
may reasonably request. In addition, the Company will pay all reasonable filing
fees, costs and legal fees for Blue Sky services and related filings and
expenses of counsel of which $6,000 ($3,500 on account of legal fees and $2,500
on account of filings fees), shall be paid upon delivery to the Placement Agent
of the first draft of the Memorandum with respect to Blue Sky qualifications
and
the Company shall pay the Expense Reimbursement at each Closing. The Blue Sky
filings shall be prepared by the Placement Agent’s Blue Sky counsel and all Blue
Sky filing fees shall be paid by the Company prior to any filing. All other
fees
and expenses of Blue Sky counsel shall be payable at the Closing. Further,
as
promptly as practicable after the Closing, the Company shall prepare, at its
own
expense, velobound “closing binders” relating to the Offering and will
distribute such binders to the individuals designated by counsel to the
Placement Agent. Lastly, upon filing of the registration statement relating
to
the resale of the Conversion Shares, the Warrant Common Shares and the Placement
Agent Warrant Common Shares per the terms set forth in the Memorandum, the
Company will pay all filing fees, costs and reasonable legal fees in connection
with the Placement Agent’s NASD Rule 2710 filing to be prepared by the Placement
Agent’s counsel.
(i) Until
the
Termination Date, neither the Company nor any person or entity acting on its
behalf will negotiate with any other placement agent or underwriter with respect
to a private or public offering of the Company's or any subsidiary's equity
securities; provided however that the Company may commence such negotiations
if
the Minimum Amount of Units for the consummation of the Initial Closing has
not
been subscribed for before January 10, 2007 (unless the Offering is terminated
prior to such date pursuant to Section 12(b)(iv) hereto in which event the
Company shall have the ability to negotiate in such manner as of the effective
date of such termination). Neither the Company nor anyone acting on its behalf
will, until the Termination Date, without the prior written consent of the
Placement Agent, offer for sale to, or solicit offers to subscribe for Units
from, or otherwise approach or negotiate in respect thereof with, any other
person.
14
(j) In
the
event a Closing occurs, for a period of not less than one year from the date
thereof, the Placement Agent shall have the right to send a representative
(who
need not be the same individual from meeting to meeting) to observe each meeting
of the Board of Directors. The Company agrees to give Placement Agent notice
of
each such meeting (or copies of any consents in lieu of meetings) and to provide
Placement Agent with an agenda and minutes of the meeting no later than it
gives
such notice and provides such items to the directors. In addition, should the
Placement Agent propose a nominee for the board of directors of the Company
at
any election to be held until one year from the Termination Date, the Company
agrees to cause such person to be nominated for election to its board of
directors, provided that the nominee would meet the independence standards
for
an independent member of the board of directors under the then applicable Nasdaq
rules; in the event of the election of such person to the board of directors,
the observer rights set forth above shall lapse, as the nominee shall be deemed
to constitute the observer for the benefit of the Placement Agent.
(k) Effective
with the Closing on investments in Units totaling $15,000,000,
the
Placement Agent shall have a right of first refusal (“Right of First Refusal”)
to act as lead placement agent on any subsequent private placement of the
Company's equity securities or as lead managing underwriter on any subsequent
public offering of the Company’s equity securities (or the Company shall use
commercial reasonable efforts to have Placement Agent selected as co-managing
underwriter with a "major bracket" underwriter (as such term is commonly
understood in the investment banking community) reasonably acceptable to the
Company) for a period of twelve (12) months following the Final Closing. Such
Right of First Refusal shall mean that the Placement Agent will have the right
to act as the Company’s investment banker in any such financing if the Placement
Agent is prepared to proceed with such transaction on terms that are then
comparable to those being offered by other investment banking firms to similarly
situated companies.
(l) Neither
the Company nor any of its Subsidiaries will enter into any agreement or
arrangement, written or oral, directly or indirectly, with an affiliate, or
provide services or sell goods to, or for the benefit of, or pay or otherwise
distribute monies, goods or other valuable consideration to, an affiliate,
except upon fair and reasonable terms under the circumstances as determined
by
such company in good faith, taking into account all of the facts and
circumstances of such agreement or arrangement.
(m) The
Company covenants to hold its annual meeting to seek the approval of the filing
of the Charter Amendment within 90 days from the date hereof.
(n) The
Company shall provide weekly status reports with respect to its efforts in
obtaining its Debt Facility and its negotiations with its and its Subsidiaries’
creditors.
6. Conditions
of Placement Agent’s Obligations.
The
obligations of the Placement Agent hereunder to effect any Closing are subject
to the fulfillment, at or before each Closing, of the following additional
conditions:
(a) Each
of
the representations and warranties made by the Company qualified as to
materiality shall be true and correct at all times prior to and on each Closing
Date, except to the extent any such representation or warranty expressly speaks
as of an earlier date, in which case such representation or warranty shall
be
true and correct as of such earlier date, and, the representations and
warranties made by the Company not qualified as to materiality shall be true
and
correct in all material respects at all times prior to and on each Closing
Date,
except to the extent any such representation or warranty expressly speaks as
of
an earlier date, in which case such representation or warranty shall be true
and
correct in all material respects as of such earlier date.
15
(b) The
Company shall have performed and complied in all material respects with all
agreements, covenants and conditions required to be performed and complied
with
by it at or before each Closing.
(c) No
order
suspending the use of the Memorandum or enjoining the Offering or sale of the
Units shall have been issued, and no proceedings for that purpose or a similar
purpose shall have been initiated or pending, or, to best of the Company’s
knowledge, be contemplated or threatened by a court or governmental
authority.
(d) The
Placement Agent shall have received a certificate of the Chief Executive Officer
and Chief Financial Officer of the Company, dated as of each Closing Date,
certifying as to the fulfillment of the conditions set forth in subparagraphs
(a), (b) and (c) above.
(e) The
Company shall have delivered to the Placement Agent: (i) a currently dated
good
standing certificate with respect to the Company and each active subsidiary
of
the Company; and (ii) resolutions of the Company’s Board of Directors approving
this Agreement and the transactions and agreements contemplated by this
Agreement and the Memorandum, certified by the Secretary of the
Company.
(f) At
each
Closing, the Company shall have paid to the Placement Agent, the Selling
Commissions, Marketing Allowance, Management Fee and the Expense Allowance
as
set forth in Sections 3(a)
hereof
and shall execute and deliver to the Placement Agent, the Placement Agent
Warrant as set forth in Section 3(b).
(g) The
Company shall deliver to the Placement Agent a signed opinion of ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ Ltd., counsel to the Company (“Company Counsel”), dated as of each
Closing Date, substantially in the form annexed hereto as Exhibit A.
(h) All
proceedings taken at or prior to each Closing in connection with the
authorization, issuance and sale of the Units and the Placement Agent Warrant
will be reasonably satisfactory in form and substance to the Placement Agent
and
its counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may reasonably request upon reasonable prior
notice in connection with the transactions contemplated hereby.
(i) A
Registration Rights Agreement covering the Conversion Shares, the Warrant Common
Shares and the Placement Agent Warrant Common Shares in the form attached to
the
Memorandum shall be executed and delivered by the Company.
(j) Lock-up
agreements with all of the Company’s executive officers and directors, in form
and substance reasonably acceptable to the Placement Agent and consistent with
the terms set forth in the Memorandum, shall have been executed and delivered
to
the Placement Agent.
16
(k) A
merger
agreement with Global Capacity Group, Inc. shall have been consummated or is
consummated concurrently with the Initial Closing.
(l) The
Company has consummated a Debt Financing on the terms set forth in the
Memorandum.
7. Scope
of Responsibility.
Except
for the indemnification obligations set forth in Section 10(b)
below,
neither the Placement Agent nor any of its affiliates (nor any of their
respective directors, officers, selected dealers and employees, and each person
who controls the Placement Agent within the meaning of the Act) shall be liable
to the Company or to any other person claiming through the Company for any
claim, loss, damage, liability, cost or expense suffered by the Company or
any
such other person arising out of or related to this engagement except for a
claim, loss or expense that arises out of or is based upon an action or failure
to act by the Placement Agent that constitutes bad faith, willful misconduct
or
negligence on the part of the Placement Agent or any of the selected dealers.
8. Representations
and Warranties of the Placement Agent.
The
Placement Agent hereby represents, warrants and covenants to the Company as
follows:
(a) The
Placement Agent is a registered broker-dealer pursuant to the Exchange Act,
a
member in good standing of the National Association of Securities Dealers,
Inc.,
and registered and qualified to act in each state and jurisdiction in which
it
is required to be registered as such in order to offer and sell the
Units.
(b) The
Placement Agent shall not engage in any form of general solicitation or general
advertising that is prohibited by Regulation D in connection with the Offering,
or take any action that might reasonably be expected to jeopardize the
availability for the Offering of the exemption from registration provided by
Rule 506 under Regulation D. The Placement Agent shall comply in all material
respects with all laws in effect in any jurisdiction in which securities of
the
Company are offered by it and the rules, regulations and orders of any
securities administrator existing or adopted thereunder, including without
limitation, the Act, the Exchange Act and the rules and regulations thereunder.
Prior to the sale by the Company to any purchaser of any of the Units, the
Placement Agent will furnish to such purchaser a copy of the
Memorandum.
9. Confidentiality.
In the
course of its services under this Agreement, the Placement Agent will have
access to Confidential Information (as defined below) concerning the Company.
The Placement Agent agrees that all Confidential Information will be treated
by
the Placement Agent as confidential in all respects. The Placement Agent hereby
agrees that it and its dealers, affiliates and representatives shall: (i) use
the Confidential Information solely for the purposes of its engagement
hereunder; and (ii) not disclose any Confidential Information to any other
party
except to those Placement Agent representatives who need to know such
information for the purposes of the Placement Agent’s engagement hereunder and
who have been advised of such confidentiality restrictions. The term
“Confidential Information” shall mean all information, whether written or oral,
which is or has been disclosed by the Company or its affiliates, or
representatives to the Placement Agent or any of its representatives in
connection with the Offering and the transactions contemplated hereby, which
is
not in the public domain, but shall not include: (i) information which is
publicly disclosed other than by the Placement Agent in violation of this
Agreement or other obligation of the Placement Agent; (ii) information which
is
obtained by the Placement Agent from a third party that the Placement Agent
does
not know to have violated, or to have obtained such information in violation
of,
any obligation to the Company or its affiliates with respect to such
information; and (iii) information which is required to be disclosed by the
Placement Agent or its outside counsel under compulsion of law (whether by
oral
question, interrogatory, subpoena, civil investigative demand or otherwise)
or
by order of any court or governmental or regulatory body to whose supervisory
authority the Placement Agent is subject; provided that, in such circumstance,
the Placement Agent will give the Company prior written notice of such
disclosure and cooperate with the Company to minimize the scope of any such
disclosure. The Placement Agent’s obligation under this section shall continue
after the date of expiration, termination or completion of this Agreement or
the
Placement Agent’s engagement hereunder.
17
10. Indemnification.
(a) The
Company will: (i) indemnify and hold harmless the Placement Agent, its selected
dealers and their respective officers, directors, employees and each person,
if
any, who controls such persons within the meaning of the Act (each an
“Indemnitee”) against, and pay or reimburse each Indemnitee for, any and all
losses, claims, damages, liabilities or out-of-pocket expenses whatsoever (or
actions or proceedings or investigations in respect thereof), joint or several
(which will, for all purposes of this Agreement, include, but not be limited
to,
all reasonable costs of defense and investigation and all reasonable attorneys’
fees, including appeals), to which any Indemnitee may become subject, under
the
Act or otherwise, in connection with the offer and sale of the Units, whether
such losses, claims, damages, liabilities or expenses shall result from any
claim of any Indemnitee or any third party; and (ii) reimburse each Indemnitee
(subject to the terms of subparagraph 10(c) below) for any legal or other
expenses reasonably incurred in connection with investigating or defending
against any such loss, claim, action, proceeding or investigation; provided,
however, that the Company will not be liable in any such case to the extent
that
any such claim, damage or liability are finally judicially determined to have
resulted exclusively from (A) an untrue statement or alleged untrue statement
of
a material fact made in the Memorandum, or an omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, in reliance upon and in conformity with
written information furnished to the Company by the Placement Agent or any
such
controlling persons specifically for use in the preparation thereof, or (B)
the
gross negligence, willful misconduct, or bad faith of an Indemnitee. In addition
to the foregoing agreement to indemnify and reimburse, the Company will
indemnify and hold harmless each Indemnitee against any and all losses, claims,
damages, liabilities or expenses whatsoever (or actions or proceedings or
investigations in respect thereof), joint or several (which shall for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs
of defense and investigation and all reasonable attorneys' fees, including
appeals) to which any Indemnitee may become subject insofar as such costs,
expenses, losses, claims, damages or liabilities arise out of or are based
upon
the claim of any person or entity that he or it is entitled to broker’s or
finder’s fees from any Indemnitee in connection with the Offering, unless the
action arises due to the Indemnitee having agreed to pay such broker’s or
finder’s fees. The foregoing indemnity agreements will be in addition to any
liability which the Company may otherwise have.
18
(b) The
Placement Agent will indemnify and hold harmless the Company, its officers,
directors, employees and each person, if any, who controls the Company within
the meaning of the Act against, and pay or reimburse any such person for, any
and all losses, claims, damages, liabilities or expenses whatsoever (or actions,
proceedings or investigations in respect thereof) joint or several (which shall
for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys’
fees, including appeals) to which the Company or any such person may become
subject under the Act or otherwise, but only insofar as such losses, claims,
damages or liabilities are finally judicially determined to have resulted
exclusively from (i) any untrue statement or alleged untrue statement of any
material fact contained in the Memorandum but only with reference to information
contained in the Memorandum relating to the Placement Agent furnished to the
Company by the Placement Agent specifically for use in the preparation thereof;
or (ii) the negligence, willful misconduct, or bad faith of the Placement Agent
or selected dealers retained by the Placement Agent.. The Placement Agent will
reimburse the Company or any such person for any legal or other expenses
reasonably incurred in connection with investigating or defending against any
such loss, claim, damage, liability or action, proceeding or investigation
to
which such indemnity obligation applies. The foregoing indemnity agreements
will
be in addition to any liability which the Placement Agent may otherwise
have.
(c) Promptly
after receipt by an indemnified party under this Section 10
of
notice of the commencement of any action, claim, proceeding or investigation
(the “Action”), such indemnified party, if a claim in respect thereof is to be
made against the indemnified party under this Section 10,
will
notify the indemnifying party of the commencement thereof, but the omission
to
so notify the indemnifying party will not relieve it from any liability which
it
may have to any indemnified party under this Section 10
unless
the indemnifying party has been substantially prejudiced by such omission.
The
indemnifying party will have the right, at its option, to assume the defense
thereof subject to the provisions herein stated, with counsel reasonably
satisfactory to such indemnified party, which consent shall not be unreasonably
withheld. The indemnified party will have the right to employ separate counsel
in any such Action and to participate in the defense thereof, but the fees
and
expenses of such counsel will not be at the expense of the indemnifying party
if
the indemnifying party has assumed the defense of the Action with counsel
reasonably satisfactory to the indemnified party, provided, however, that if
the
indemnified party shall be requested by the indemnifying party to participate
in
the defense thereof or shall have concluded in good faith and specifically
notified the indemnifying party either that there may be specific defenses
available to it which are different from or additional to those available to
the
indemnifying party or that such Action involves or could have a material adverse
effect upon it with respect to matters beyond the scope of the indemnity
agreements contained in this Agreement, then the counsel representing the
indemnified party, to the extent made necessary by such defenses, shall have
the
right to direct such defenses of such Action on its behalf and in such case
the
reasonable fees and expenses of such counsel in connection with any such
participation or defenses shall be paid by the indemnifying party. No settlement
of any Action against an indemnified party will be made without the consent
of
the indemnified party, which consent shall not be unreasonably withheld or
delayed in light of all factors of importance to such party, unless such
settlement includes an unconditional release of such indemnified party from
all
liability arising or that may arise out of such Action. No indemnified party
shall settle any Action for which indemnification may be sought by him or it
hereunder without the prior written consent of the indemnifying
party.
19
11. Contribution.
To
provide for just and equitable contribution, if: (i) an indemnified party makes
a claim for indemnification pursuant to Section 10
hereof
and it is finally determined, by a judgment, order or decree not subject to
further appeal that such claims for indemnification may not be enforced, even
though this Agreement expressly provides for indemnification in such case;
or
(ii) any indemnified or indemnifying party seeks contribution under the Act,
the
Exchange Act, or otherwise, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as
is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Placement Agent on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Placement Agent on the other
shall be deemed to be in the same proportion as the total net proceeds from
the
Offering (before deducting expenses) received by the Company bear to the total
compensation received by the Placement Agent and selected dealers if any
participating with the Placement Agent. The relative fault, in the case of
an
untrue statement, alleged untrue statement, omission or alleged omission will
be
determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Company
or
by the Placement Agent (or participating selected dealers), and the parties’
relative intent, knowledge, access to information and opportunity to correct
or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Placement Agent agree that it would be unjust and inequitable
if
the respective obligations of the Company and the Placement Agent for
contribution were determined by pro rata allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other method or allocation
that does not reflect the equitable considerations referred to in this
Section 11.
No
person guilty of a fraudulent misrepresentation (within the meaning of Section
10(f) of the Act) will be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 11,
each
person, if any, who controls the Placement Agent within the meaning of the
Act
will have the same rights to contribution as the Placement Agent, and each
person, if any, who controls the Company within the meaning of the Act will
have
the same rights to contribution as the Company, subject in each case to the
provisions of this Section 11.
Anything in this Section 11
to the
contrary notwithstanding, no party will be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 11
is
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
12. Termination.
(a) This
Agreement may be terminated by the Placement Agent at any time prior to the
expiration of the Offering Period in the event that: (i) any of the
representations or warranties of the Company contained herein or in the
Memorandum shall prove to have been false or misleading in any material respect
when made or deemed made; (ii) the Company shall have failed to perform any
of
its material obligations hereunder; (iii) the Placement Agent shall determine
in
good faith that it is reasonably likely that any of the conditions to Closing
set forth herein will not or cannot be satisfied prior to the expiration of
the
Offering Period; or (iv) there shall occur any event which materially and
adversely affects the transactions contemplated hereby not occasioned by or
arising out of or in connection with any breach or failure hereunder on the
part
of the Placement Agent. In the event of any such termination occasioned by
or
arising out of or in connection with any breach or failure hereunder described
in clauses (i), (ii), (iii) or (iv) above, the Placement Agent shall be entitled
to receive, upon demand, in addition to other rights and remedies it may have
hereunder, at law or otherwise, an amount equal to the sum of: (A) all unpaid
Selling Commissions, Marketing Allowance, Management Fee earned through the
date
of termination of this Agreement by Placement Agent based upon the amount of
funds then in escrow, (B) reimbursement for all reasonable expenses incurred
by
the Placement Agent through the date of such termination, including without
limitation, the unpaid Expense Reimbursement, and (C) the amounts that may
become payable thereafter as a result of purchases of the Company’s securities
by Post-Closing Investors in accordance with the terms of Section 3(c)
above.
20
(b) The
Company may terminate this Agreement at any time prior to the expiration of
the
Offering Period in the event: (i) any of the representations or warranties
of
the Placement Agent contained herein shall prove to have been false or
misleading in any material respect when made or deemed made; (ii) the Placement
Agent shall have failed to perform any of its material obligations hereunder
and
such failure cannot be cured by Placement Agent within a reasonable period
of
time after receipt by the Placement Agent from the Company of notice of the
occurrence of such failure; (iii) there shall occur any event described in
Section 12(a)(iv)
above
not occasioned by or arising out of or in connection with any breach or failure
hereunder on the part of the Company; (iv) there is less than $7,000,000 funded
into the Escrow Account on December 10, 2006; or (v) of the gross negligence,
bad faith, or willful misconduct of the Placement Agent or any selected dealers
participating with Placement Agent in connection with the Offering. In the
event
of any termination by the Company pursuant to clause (i), (ii), (iii) or (iv)
above, the Company shall be entitled to reimbursement for all reasonable
expenses incurred by the Placement Agent through the date of such termination,
including without limitation, the unpaid Expense Reimbursement and the amounts
that may become payable thereafter as a result of purchases of the Company’s
securities by Post-Closing Investors in accordance with the terms of
Section 3(c)
above In
the event of any termination by the Company pursuant to clause (v) above, the
Placement Agent shall not be entitled to any further compensation hereunder.
13. Survival.
The
provisions of Sections
3(c), 5(l), 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19
shall
survive any termination hereunder.
14. Notices.
All
communications hereunder will be in writing and, except as otherwise expressly
provided herein or after notice by one party to the other of a change of
address, if sent to the Placement Agent, will be mailed, delivered or telefaxed
and confirmed to National Securities Corporation, ▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ telefax number (▇▇▇) ▇▇▇-▇▇▇▇, with a copy to ▇▇▇▇▇▇▇
▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇
▇.
▇▇▇▇▇▇▇, Esq., telefax number (▇▇▇) ▇▇▇-▇▇▇▇, and if sent to the Company, will
be mailed, delivered or telefaxed and confirmed to ▇▇▇ ▇▇▇▇▇▇▇▇▇, Executive
Vice
President, Capital Growth Systems, Inc., ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇; ▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, telefax number (▇▇▇) ▇▇▇-▇▇▇▇ with a copy to ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ Ltd., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, telefax number (▇▇▇) ▇▇▇-▇▇▇▇.
21
15. Governing
Law, Jurisdiction.
This
Agreement shall be deemed to have been made and delivered in New York and shall
be governed as to validity, interpretation, construction, effect and in all
other respects by the internal laws of the State of New York without regard
to
principles of conflicts of law thereof. Any and all disputes, controversies
or
claims arising out of or relating to this Agreement, or the breach, termination
or invalidity thereof, shall be finally and exclusively resolved by arbitration
in accordance with the Rules of the NASD as at present in force. The arbitration
shall take place in New York, New York. The parties hereby submit themselves
to
the exclusive jurisdiction of the arbitration tribunal in New York, New York
under the auspices of NASD. To the extent permitted by law, the award of the
arbitrators may include, without limitation, one or more of the following:
a
monetary award, a declaration of rights, an order of specific performance,
an
injunction, reformation of the contract. The decision of the arbitrators shall
be final and binding upon the parties hereto, and judgment on the award may
be
entered in any court having jurisdiction over the subject matter thereof. The
cash expenses of the arbitration (including without limitation reasonable fees
and expenses of counsel, experts and consultants) shall be borne by the party
against whom the decision of the arbitrators is rendered; provided that if
a
party prevails only partially, such party shall be entitled to be reimbursed
for
such costs and expenses in the proportion that the dollar amount successfully
claimed by the prevailing party bears to the aggregate dollar amount
claimed.
16. Miscellaneous.
No
provision of this Agreement may be changed or terminated except by a writing
signed by the party or parties to be charged therewith. Unless expressly so
provided, no party to this Agreement will be liable for the performance of
any
other party’s obligations hereunder. Either party hereto may waive compliance by
the other with any of the terms, provisions and conditions set forth herein;
provided, however, that any such waiver shall be in writing specifically setting
forth those provisions waived thereby. No such waiver shall be deemed to
constitute or imply waiver of any other term, provision or condition of this
Agreement. Neither party may assign its rights or obligations under this
Agreement to any other person or entity without the prior written consent of
the
other party.
17. Entire
Agreement; Severability.
This
Agreement together with any other agreement referred to herein supersedes all
prior understandings and written or oral agreements between the parties with
respect to the Offering and the subject matter hereof, and expressly supersedes
the Memorandum of Understanding between the parties dated as of August 24,
2006.
If any portion of this Agreement shall be held invalid or unenforceable, then
so
far as is reasonable and possible (i) the remainder of this Agreement shall
be
considered valid and enforceable and (ii) effect shall be given to the intent
manifested by the portion held invalid or unenforceable.
18. Amounts
Payable to Placement Agent.
All
amounts payable to the Placement Agent by the Company which are not paid within
thirty (30) days of the dates payable shall accrue interest at the rate of
twelve percent (12%) per annum from the date due until paid.
19. Press
Releases.
On or
after the Closing, the Company may issue a press release or otherwise make
a
public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement (including,
without limitation, by filing a copy of this Agreement with the Commission);
provided, however, that prior to issuing any such press release, or making
any
such public statement or announcement, the Company shall consult with and obtain
the consent of the Placement Agent on the form and substance of such press
release or other disclosure.
22
20. Counterparts.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
If
the
foregoing is in accordance with your understanding of the agreement, kindly
sign
and return this Agreement, whereupon it will become a binding agreement between
the Company and the Placement Agent in accordance with its terms.
|
1023122_3
|
Capital
Growth Systems, Inc.
|
|||
|
ACCEPTED
AND AGREED to this 14th
|
||||
|
day
of November, 2006:
|
By:
|
|||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
||||
|
National
Securities Corporation
|
Chief
Executive Officer
|
|||
|
By:
|
||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
||||
|
Director
Corporate Finance
|
||||
23
SCHEDULE
1
COMPANY
DISCLOSURE SCHEDULE
[NONE]
S1-1
EXHIBIT
A
FORM
OF LEGAL OPINION
1. Each
of
the Company and its Subsidiaries have been duly organized as a corporation
and
is validly existing and in good standing under the laws of the jurisdiction
of
its incorporation, has full corporate power and authority to own, lease and
operate its properties and conduct its business as described in the Memorandum
and is duly qualified as a foreign corporation for the transaction of business
and is in good standing in each jurisdiction where the conduct of its business
makes such qualification necessary, except where the failure to so qualify
would
not have a material adverse effect on the (i) assets, liabilities, results of
operations, condition (financial or otherwise), business or business prospects
of the Company or any of its Subsidiaries, considered as a whole or (ii) ability
of the Company to perform its obligations under this Agreement (a "Material
Adverse Effect").
2. All
of
the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is owned
by
the Company, directly or through subsidiaries, to the knowledge of such counsel,
free and clear of any security interest, mortgage, pledge, lien, encumbrance
or,
to the knowledge of such counsel, any pending or threatened claim.
3. The
authorized capital stock of the Company on the date hereof consists of (i)
[_______________] shares of Common Stock, [$0.___] par value per share, and
(ii)
[_________________] shares of Preferred Stock, [$0.____] par value per share.
The authorized capital stock of the Company conforms in all material respects
as
to legal matters to the descriptions thereof set forth in the Memorandum under
the caption “Description of Capital Stock.”
4. The
shares of Preferred Stock (“Shares”), the Warrants and the Placement Agent
Warrants have been duly authorized for issuance by all necessary corporate
action on the part of the Company. The Shares and the Shares issuable upon
exercise of the Warrants (“Warrant Preferred Shares”) and the Placement Agent
Warrants (“Placement Agent Warrant Preferred Shares”) when issued, sold and
delivered against payment therefore in accordance with the provisions of the
Memorandum, the Subscription Agreements, the Placement Agency Agreement, as
applicable, will be duly and validly issued, fully paid and non-assessable.
Immediately following the filing of the Charter Amendment, the Company will
have
all requisite power and authority to issue and deliver the shares of Common
Stock issuable upon conversion of Shares (“Conversion Shares”), the shares of
Common Stock issuable upon conversion of the Warrant Preferred Shares (the
“Warrant Common Shares”) and the shares of Common Stock issuable upon conversion
of the Placement Agent Warrant Preferred Shares (the “Placement Agent Warrant
Common Shares”). No shareholder of the Company or any other person holding
securities of the Company has any preemptive right, right of first refusal
or
other similar right to subscribe for or purchase securities of the Company
as a
result of the issuance of any of the foregoing securities arising (i) by
operation of the articles of incorporation or bylaws of the Company or the
Florida Business Corporation Act, or (ii) to such counsel’s knowledge,
otherwise.
A-1
5. The
execution and delivery by the Company of the Transaction Documents to which
it
is a party and the consummation by the Company of the transactions contemplated
thereby have been duly authorized by all necessary corporate action on the
part
of the Company and duly executed and delivered by the Company. Each of the
Transaction Documents to which it is a party constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to qualification by operation of applicable bankruptcy
laws or equitable principles applied pursuant to judicial
authority.
6. The
execution and delivery by the Company of the Transaction Documents to which
it
is a party and the consummation by the Company of the transactions contemplated
thereby will not (i) violate the provisions of the Florida Business Corporation
Act or any United States federal or state law, rule or regulation known to
us to
be currently applicable to the Company or (ii) violate the provisions of the
Company’s Articles of Incorporation or By-Laws; (iii) violate any judgment,
decree, order or award known to us of any court, governmental body or arbitrator
having jurisdiction over the Company; or (iv) result in the breach or
termination of any material term or provision of an agreement known to us to
which the Company is a party, except in any such case where the breach or
violation would not have a Material Adverse Effect on the Company or its ability
to perform its obligations under the Transaction Documents.
7. To
our
knowledge, there is no action, proceeding or litigation pending or threatened
against the Company before any court, governmental or administrative agency
or
body.
8. Each
document filed pursuant to the Exchange Act (other than the financial statements
and schedules included therein or in exhibits thereto and other financial,
accounting and statistical data and information contained therein, as to which
no opinion need be rendered) when so filed, to the extent filed by us or
reviewed by us, appeared on their face to comply when so filed as to form in
all
material respects with the applicable requirements of the Exchange Act and
the
rules and regulations thereunder.
9. Either
(i) no consent, approval or authorization of, or other action by, and no notice
to or filing with, any United States federal or state governmental authority
on
the part of the Company is required in connection with the valid execution
and
delivery of the Transaction Documents to which it is a party and the
consummation by the Company of the transactions contemplated thereunder, except
for (A) the filing of a Form D that may be filed with the United States
Securities and Exchange Commission; (B) any filings under the securities laws
of
the various jurisdictions in which the Shares, Warrants and Placement Agent
Warrants are being offered and sold in the Offering; and (C) any filings
relating to public disclosure of the transactions contemplated by the
Transaction Documents, or (ii) any required consent, approval, authorization,
action or filing has been obtained, performed or made by the
Company.
10. Assuming
that the Shares were sold only to "accredited investors" (as defined in Rule
501
of Regulation D promulgated under the Securities Act of 1933, as amended ("1933
Act")) and the Placement Agent complied in all material respects with Regulation
D and the terms and conditions of the Offering set forth in the Placement Agency
Agreement, including the accuracy of the factual representations made by the
Company therein, such sales were made in conformity in all material respects
with the requirements of Section 4(2) of the 1933 Act and Regulation D, and
with
the requirements of all other United States federal regulations applicable
to
the Company currently in effect relating to private offerings of securities
of
the type made in the Offering.
A-2
11. We
participated in the preparation of the Memorandum and in conferences with
officers and other representatives of the Company, at which the contents of
the
Memorandum and related matters were discussed, and although we have not
undertaken to determine independently, and do not assume any responsibility
for,
the accuracy or completeness of the statements contained in the Memorandum,
based on such conferences and our participation in the preparation of the
Memorandum, and any amendment or supplement thereto (other than the financial
statements, including supporting schedules and other financial and statistical
information derived therefrom), to our knowledge the Memorandum, as of its
date,
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
1042593_1
A-3
EXHIBIT
B
FORM
OF PLACEMENT AGENT WARRANT
[SAME
AS INVESTOR WARRANT EXCEPT FOR CASHLESS PROVISION]
B-1