CENTREPATH BRIDGE NOTE PURCHASE AGREEMENT

 

 

 

 

 

 

 

 

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF OR IN CONNECTION HEREWITH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (B) AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT, OR (C) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH OF CASES (A) THROUGH (C) IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.

 

CGSI CENTREPATH PROMISSORY NOTE

 

$

__________, 2006

FOR VALUE RECEIVED, Capital Growth Systems, Inc., a Florida corporation (the “Borrower”), hereby promises to pay to the order of [_________________(the “Lender”), the principal sum of __________________ ($__________), together with interest thereon from the date of this Promissory Note (the “Note”). Simple interest shall accrue on the principal balance of this Note at eight percent (8%) per annum. The principal and accrued interest shall be due and payable by the Borrower on the Maturity Date. Following the Maturity Date the principal balance of this Note shall bear simple interest at ten percent (10%) per annum.

 

This Note is one of the Notes issued pursuant to the CentrePath Bridge Note Purchase Agreement dated as of November 30, 2006, pursuant to which this form of Note is attached as an exhibit (“Purchase Agreement”), and capitalized terms not defined herein shall have the meaning set forth in the Purchase Agreement.

 

1. Payment. All payments shall be made in lawful money of the United States of America at the principal office of the Borrower, or at such other place as the holder hereof may from time to time designate in writing to the Borrower. Payment shall be credited first to Costs (as defined below), if any, then to accrued interest due and payable and any remainder applied to principal. Prepayment may be made in whole or part without penalty, and the Company shall fund prepayments as provided for in the Purchase Agreement. In connection with the delivery, acceptance, performance or enforcement of this Note, the Borrower hereby waives demand, notice, presentment, protest, notice of dishonor and other notice of any kind, and asserts to extensions of the time of payment, release, surrender or substitution of security, or forbearance or other indulgence, without notice. The Borrower agrees to pay all amounts under this Note without offset, deduction, claim, counterclaim, defense or recoupment, all of which are hereby waived.

 

2. Amendments and Waivers; Resolutions of Dispute; Notice. The amendment or waiver of any term of this Note, the resolution of any controversy or claim arising out of or relating to this Note and the provision of notice shall be conducted pursuant to the terms of the Purchase Agreement.

 

3. Successors and Assigns. This Note applies to, inures to the benefit of, and binds the successors and assigns of the parties hereto; provided, however, that the Borrower may not assign its obligations under this Note without the written consent of the Servicer or Majority Note Holders and the Lender may not, without the written consent of the Borrower (which shall not be unreasonably withheld), assign all or any portion of this Note to any person or entity. Any transfer of this Note may be effected only pursuant to the Purchase Agreement and by surrender of this Note to the Borrower and reissuance of a new note to the transferee, who agrees in writing in form satisfactory to Lender to be bound by the terms of the Purchase Agreement. The Lender and any subsequent holder of this Note receives this Note subject to the foregoing terms and conditions, and agrees to comply with the foregoing terms and conditions for the benefit of the Borrower and any other Lenders.

 

 

4. Officers and Directors not Liable. In no event shall any officer or director of the Borrower or Servicer be liable for any amounts due and payable pursuant to this Note.

 

5. Expenses. The Borrower and hereby agrees, subject only to any limitation imposed by applicable law, to pay all expenses, including reasonable attorneys’ fees and legal expenses, incurred by the holder of this Note (“Costs”) in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by declaration or otherwise. The Borrower agrees that any delay on the part of the holder in exercising any rights hereunder will not operate as a waiver of such rights. The holder of this Note shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies, and no waiver of any kind shall be valid unless in writing and signed by the party or parties waiving such rights or remedies.

 

6. Governing Law. This Note shall be governed by and construed under the laws of the State of Illinois as applied to other instruments made by Illinois residents to be performed entirely within the State of Illinois. Any dispute with respect to this Note shall be litigated in the state or federal courts situated in Cook County, Illinois.

 

7. Approval. The Borrower hereby represents that it has approved the Borrower’s execution of this Note based upon a reasonable belief that the principal provided hereunder is appropriate for the Borrower after reasonable inquiry concerning the Borrower’s financing objectives and financial situation. In addition, the Borrower hereby represents that it intends to use the principal of this Note primarily for the operations of its business, and not for any personal, family or household purpose.

 

IN WITNESS WHEREOF, the Borrower has executed this Note on the day and year first above written.

 

		Capital Growth Systems, Inc..
		By:
		Its:

 

 

 

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.			____________, 200_
			Chicago, Illinois

 

 

 

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, _______________________________________ (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, 2009 (the “Expiration Date”), which date is subject to extension as set forth in Section 7 fully paid and nonassessable shares of the Company’s Series AA Preferred Stock (the “Warrant Shares”) under the terms set forth herein. Holder acknowledges that effective upon the filing of an amendment to the Articles of Incorporation of the Company increasing its authorized Common Stock to not less than 200,000,000 shares (the “Amendment”), each share of Series AA Preferred Stock shall automatically be converted into 2,222.2 shares of $0.0001 par value Company common stock (“Common Stock”) and for purposes of this Warrant, effective as of the filing of the Amendment, all references hereto to Warrant Shares shall be automatically amended to refer to the corresponding number of shares of Common Stock into which the shares of Series AA Preferred Stock have been converted.

 

1. Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to __________ Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 6 below) at an initial exercise price per Warrant Share of $1,000 per share of Series AA Preferred Stock (i.e. $0.45 per share of Common Stock following the Amendment) (the “Exercise Price”), subject to adjustment as provided in Sections 6 and  7 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. and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

 

(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), and further including any of the issuances of capital stock with respect to any of the transactions contemplated in the Memorandum.

 

(d) The term “Memorandum” shall mean the private placement memorandum dated November 14, 2006 of the Company, as amended from time to time.

 

(e) The term “Offering Warrants” shall mean this Warrant and each other warrant issued to purchasers of Notes pursuant to the CentrePath Bridge Note Purchase Agreement, to which this form of Warrant is attached as an Exhibit.

 

3. Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time or from time to time before the Expiration Date (the “Exercise Period”).

 

4. Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full by the Holder by 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. 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 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 issued or issuable pursuant to any of the notes, options, warrants or other securities outstanding as of the date of the closing of the offering pursuant to the Memorandum, including all Offering Warrants; (ii) up to 5,000,000 shares of Common Stock issued pursuant to the stock option plan contemplated in the Memorandum; any stock option plan maintained by Company; or (iii) shares of Company's Common Stock issued in connection with any stock split, stock dividend, or recapitalization by Company.

 

(b) In the event that Company issues New Securities for a consideration of less than $0.45 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) 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 Series AA Preferred Stock (or following the Amendment, of the Common Stock) or the determination of the holders of Series AA Preferred Stock (or following the Amendment, of the Common Stock) entitled to receive a dividend or other distribution payable in additional shares of Series AA Preferred Stock (or following the Amendment, of the Common Stock) or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Series AA Preferred Stock (hereinafter referred to as the “Series AA Preferred Stock Equivalents”) (or following the Amendment, of the 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 Series AA Preferred Stock (or following the Amendment, of the Common Stock) or Series AA Preferred Stock Equivalents, (or following the Amendment, of 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 Series AA Preferred Stock (or following the Amendment, of 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 Series AA Preferred Stock (or following the Amendment, of the number of 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.

 

 

(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 7(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 outstanding which represent the right to purchase eighty-five percent (85%) 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.

 

(e) Notice of Record Dates; Adjustments. In the event of a Corporate Transaction, the Company shall provide to the Holder twenty (20) days advance written Notice of such Corporate Transaction. 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. The Company hereby agrees that the Holder shall be entitled, with respect to all shares of Common Stock issuable upon exercise of this Warrant or conversion of the Warrant Shares issued upon the exercise of this Warrant, to the registration rights set forth in the Registration Rights Agreement, in the form included in the Memorandum, as may be amended or supplemented from time to time, the terms of which are hereby incorporated by this reference, with the same force and effect as if specifically set forth herein. In addition, in the event that the Company has failed or expects to fail to register the shares of Common Stock underlying this Warrant by the Expiration Date, then the Expiration Date shall be automatically extended until delivery by the Company to the Warrant holder of a Notice of Warrant Extension, which notice may be delivered at any time on or after December 31, 2008, indicating the Company’s election to extend the Expiration Date until: (a) 365 days following the date of such Notice of Warrant Extension, if at the date of such notice an effective registration statement covering the resale of shares of Common Stock issuable upon exercise of this Warrant is in effect; or (b) until 365 days following the date of such Notice of Warrant Extension, if the Company states in the notice that it has elected to add the following cashless exercise provision to the Warrant, irrespective of whether the shares of Common Stock issuable upon exercise of the Warrant are registered or are anticipated to be registered:

 

(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 7, 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;

 

(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.

 

8. Replacement of Warrants. 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 11(e).

 

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 either: (i) the Holder and the Company; or (ii) the Offering Warrant Majority and the Company. Any amendment or waiver effected in accordance with this Section 11(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.

 

(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.

 

 

IN WITNESS WHEREOF, the Company has caused this CentrePath Bridge Note 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:
		Address:

 

 

 

 

To:	COMPANY NAME.

 

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase _____ shares of the Series AA Preferred 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.

 

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:

 

 

(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.

 

 

 

 

THIS CENTREPATH BRIDGE NOTE ADMINISTRATION AND SECURITY AGREEMENT dated as of November 30, 2006, is by and among Capital Growth Systems, Inc., a Florida corporation (“Company”), 20/20 Technologies, Inc. (“22/20”), Frontrunner Network Systems Corporation (“Frontrunner”—together with 20/20 and Company, hereinafter collectively referred to as “Debtors”), CGSI Mandatory Note Servicer, Inc. (“Servicer”) and each holder of a CentrePath Bridge Note (each a “Note” and collectively, the “Notes,” and the holder of each Note being a “Holder” and collectively, the “Holders”) issued pursuant to the form of CentrePath Bridge Note Purchase Agreement dated as of November 30, 2006 (“Purchase Agreement”) between Debtor and the purchasers executing counterpart copies thereof.

 

 

A. Debtors are in need of bridge financing to be funded by the Holders to Company in accordance with the terms of the Purchase Agreement, the proceeds of which will be used by Company to fund its acquisition of 100% of the capital stock of CentrePath, Inc., a Delaware corporation (“CentrePath”) by way of merger of a wholly owned subsidiary of Company with CentrePath, and the balance to fund the working capital needs of Debtors. The obligations of Company with respect to the Purchase Agreement are collectively referred to as the “Obligations,” which shall be secured by the security interest granted herein in 100% of the capital stock of CentrePath effective as of the date of acquisition of CentrePath by the Company., and by execution hereof, 20/20 and Frontrunner acknowledge that a portion of the Purchase Agreement proceeds are going to be used to fund their respective working capital needs as well, and accordingly they by execution hereof agree, in order to induce the funding of the Purchase Agreement, to grant a security agreement in their assets as well to further secure the Obligations.

 

B. The parties desire to enter into this Agreement to set forth the terms and conditions governing the Obligations and related transactions (the “Transactions”), and further to confirm acknowledgment that the Notes shall be secured by substantially the same Collateral, and be subject to administration as provided by the Servicer on behalf of all of the Holders pro rata in accordance with the Obligations. Servicer has been formed to act as collateral agent on behalf of all the Holders as set forth below.

 

NOW, THEREFORE, in consideration of the foregoing, and for the covenants and agreements contained herein, the parties hereto agree as follows:

 

1. Recitals. The recitals set forth above are incorporated by reference herein and made a part herewith as if fully rewritten.

 

2. Loan to Debtors. Simultaneously with the execution of each counterpart to the Purchase Agreement, the Holder signing such counterpart shall loan the sum set forth below Holder’s signature on the signature page thereof for an amount agreed to between that Holder and Company, and with the sum set forth as to each Holder on the Purchase Agreement constituting that Holder’s “Loan” to the Company, and all of which are collectively referred to as the “Loans.

 

 

3. Grant of Security Interest.

 

(a) As security for the Obligations, the Debtors hereby assign to the Holders and grant to the Holders a continuing security interest in the following assets, whether now owned or hereafter existing or acquired by any of the Debtors (collectively, the “Collateral”): (i) 100% of the capital stock (“Shares”) of CentrePath and all proceeds therefrom and all dividends with respect thereto; (ii) a security interest in all assets of 20/20 of every nature and kind, including but not limited to its equipment, accounts receivable and contract rights and all proceeds therefrom; and (iii) a security interest in all assets of Frontrunner of every nature and kind, including but not limited to its equipment, accounts receivable and contract rights and all proceeds therefrom. Holders acknowledge that the security interests in all assets other than the capital stock of CentrePath are junior to existing security interests of the Debtors. Simultaneous with the execution hereof by Company, Company agrees to deliver to Servicer the stock certificate representing 100% of the capital stock of CentrePath immediately upon the Company’s acquisition of CentrePath, together with an assignment separate from certificate duly executed in blank. If Company now is or hereafter becomes entitled (with or without additional consideration) to other or additional securities related to the capital stock of CentrePath as the result of any corporate reorganization, merger, consolidation, stock split, stock dividend, conversion, preemptive right, partnership action, distribution or otherwise, such additional securities shall constitute a portion of the Collateral and be subject to this Agreement in the same manner and to the same extent as the Shares are with respect to this Agreement. Company shall deliver to Servicer or its designees any certificates and assignments separate from certificate endorsed in blank with respect to all of the securities referenced in the preceding sentence.

 

(b) The security interest of each Holder under this Agreement extends to all Collateral of the kind which is the subject of this Agreement. By counterpart execution hereof, each Holder hereby appoints Servicer to act as his, her or its collateral agent with respect to the Collateral called for hereunder and with respect to the enforcement of the rights of the Holders as more fully set forth below, with any such action taken to be taken on behalf of all of the Holders on a pro rata basis based upon the percentage of total Obligations owing to each of the Holders from time to time (the percentage as to each Holder being the Holder’s “Ownership Percentage”). All references herein to “Servicer” shall include the Servicer named above or any successor person or entity appointed by written consent signed by Holders holding a majority of the outstanding unpaid principal with respect to the Notes from time to time (such majority in interest being the “Majority Holders” and each such successor being named by the Majority Holders hereinafter sometimes referred to as a “Successor Servicer”), and in the event the Servicer ceases to serve for any reason and there is no Successor Servicer, then all actions to be taken by Servicer on behalf of the Holders shall be valid if taken at the direction of the Majority Holders, which action shall be binding upon all of the Holders if taken by a duly appointed Servicer, Successor Servicer or the Majority Holders.

 

(c) Each Debtor hereby authorizes the Servicer on behalf of the Holders to file such Uniform Commercial Code financing statements and such other public or private filings as the Servicer deems necessary and proper to evidence or perfect the Holders’ security interest in the Collateral, including but not limited to, such filings as the Servicer deems necessary and proper to file with the Office of the Delaware Secretary of State or the Florida Secretary of State. Each Debtor hereby grants to Servicer (and any successor Servicer as called for hereunder) an irrevocable power of attorney to execute any of the documents referenced in this Section 3(c) in the name, place and stead of such Debtor, as Holder deems necessary and proper. This power of attorney is coupled with an interest.

 

 

4. Company Covenants. From and after the date hereof and so long as any amount remains unpaid on any of the Notes, except to the extent compliance in any case or cases is waived in writing by the Holder, each Debtor hereby covenants and agrees with Servicer on behalf of each of the Holders as follows:

 

(a) Servicer and each Holder or their respective designees shall at all reasonable times have full access to, and the right to audit, check, inspect and make abstracts and copies from such Debtor’s and CentrePath’s’ books, records and audits. Servicer, each Holder and their respective designees shall keep all such information obtained from each Debtor and Servicer confidential.

 

(b) Each Debtor will at any times and from time to time upon request of Servicer take or cause to be taken any action and execute, acknowledge, deliver or record any further documents, opinions, security agreements or other instruments which Servicer in its reasonable discretion deems necessary or appropriate to carry out the purposes of this Agreement and to preserve, protect and perfect the security intended to be created and preserved in the Collateral and to establish, preserve and protect the security interest of Holders in and to the Collateral.

 

(c) Except as set forth in Section 3(d), above or as otherwise permitted by Servicer or by Holders by written consent of Majority Holders, each Debtor shall not sell, transfer, convey or otherwise dispose of any of the Collateral or any of the assets of CentrePath other than dispositions of inventory in the ordinary course of business.

 

5. Default. Any one of the following shall constitute an Event of Default hereunder:

 

(a) Company fails to make a payment when due under any Note;

 

(b) Company fails to timely perform or observe any term, covenant or agreement contained in this Agreement or the CentrePath Bridge Note Purchase Agreement;

 

(c) Any representation or warranty made by any Debtor herein is false in any material respect on the date hereof;

 

(d) Any Debtor or CentrePath suspends the operation of its business;

 

(e) Any Debtor or CentrePath becomes the subject of state insolvency proceedings, or makes an assignment for the benefit of creditors; or a receiver, trustee, custodian or other similar official is appointed for, or takes possession of any substantial part of the property of any Debtor or CentrePath; or

 

 

(f) Any Debtor or CentrePath takes corporate action to authorize such organization to become the subject of proceedings under the United States Bankruptcy Code or the execution by any Debtor or CentrePath of a petition to become a debtor under the United States Bankruptcy Code or the filing of any involuntary petition against Company or CentrePath under the United States Bankruptcy Code which remains undismissed for a period of 30 days; or the entry of an order for relief under the United States Bankruptcy Code against Company or CentrePath.

 

(g) Whenever an Event of Default shall be existing hereunder, Servicer on behalf of Holders may exercise from time to time any rights and remedies available to any Holder under applicable law. Any notification of and intended disposition of any of the Collateral required by law shall be deemed reasonable if properly given at least ten (10) days before such disposition. Any proceeds of any disposition by Servicer on behalf of the Holders of the Collateral may be applied by Servicer to the payment of expenses in connection with the Collateral, including reasonable attorneys' fees and legal expenses of Servicer, and any balance of such proceeds may be applied by Servicer toward the payment of the Notes, pro rata among the Holders in accordance with the Ownership Percentages (i.e., the relative outstanding principal amounts of the varying Notes).

 

 

6. Specific Rights and Obligations of Servicer.

 

(a) Appointment of Servicer. Holders appoint Servicer to act as their attorney in fact to take all actions to enforce the rights of the Holders under the Notes, including, without limitation, the institution of and prosecution of lawsuits and taking all other actions relating to the enforcement of the Holders’ rights. Servicer shall maintain a list of Holders outstanding from time, which Servicer shall append hereto in counterpart as Exhibit A.

 

(b) Default Under Notes. Upon Servicer’s receipt of notice from a Holder (which may be an Affiliate of Servicer) or from Company that Company has defaulted in its obligations under any of the Notes or this Agreement, which default is not timely cured, the Servicer shall promptly send written notice to each of the Holders of the Notes which describes the nature of the default. Such notice shall also include one or more possible courses of action to be pursued in connection with such default, which action may include but not be limited to any of the following: (i) extension of due date and/or payment date with respect to the Notes; (ii) release of Collateral; (iii) subordination of Notes; (iv) other modifications to Notes’ terms; and (v) conversion of Notes to equity. The Servicer shall take the action which is approved in writing by the Majority Holders; provided, however, the Servicer need not take any proposed action unless it receives from the Holders a sufficient advance payment (pro rata based on the principal balance of outstanding Notes) against prospective fees to render it comfortable in undertaking such action. Should any Holder not pay the Holder’s proportionate share of any Servicer fee assessment, then such Holder shall nonetheless be liable therefor (on a nonrecourse basis, to the extent of the value of the Holder’s Note) and further directs the Company and Servicer to deduct and pay over to the Servicer, together with interest at twelve percent (12%) per annum, such amount from the next proceeds payable to such Holder with respect to the Holder’s Note.

 

 

(c) Compensation of a Servicer. In consideration for performing its duties under this Agreement, the Company agrees to pay Servicer in the case of a default, a fee of equal to Servicer’s regular hourly rates which Servicer may charge for services plus reimbursement for all out-of-pocket costs including fees and expenses of attorneys and other associated professionals as may be retained by Servicer for purposes of providing its services. The Holders direct the Company and Servicer to deduct and pay over to Servicer and its associated service providers any amounts payable by the Holders from the first proceeds otherwise payable to each Holder to the extent such Holder has not advanced his pro rata share thereof to Servicer.

 

(d) Written Direction Upon Majority Holders. In carrying out its duties under this Agreement, the Servicer shall abide by the direction of the Majority Holders and not in number of the Holders. Unless the direction from the Majority Holders indicates otherwise, a direction to the Servicer to enforce the rights of the Holders under the Notes shall authorize the Servicer to pursue, or elect not to pursue, one or more remedies as the Servicer, in its sole discretion, shall determine. The Holders acknowledge that the Servicer’s affiliates may hold a majority-in-interest of the Notes individually or in concert with a minority of the remaining Holders, which may provide Servicer the ability to determine the cause of action in question. The parties further acknowledge that any net proceeds after costs and expenses that are realized with respect to collection of the Notes shall be allocated pro rata among all Holders based upon the outstanding sums due to them from time to time with respect to the Notes.

 

(e) Voting. All actions and votes of the Holders required or permitted under the terms of this Agreement or the Notes shall be conducted pursuant to either written consent by the Majority Holders or a vote per the following terms and provisions:

 

(i) The Holder of each Note shall have the right to cast the number of votes determined by dividing the outstanding principal balance of the Note of such Holder by 1,000.

 

(ii) All votes of the Holders shall be taken with or without a meeting, as determined by the Servicer. In connection with each vote (where written consent is not sought by Servicer), the Servicer shall provide each Holder the following:

 

 

(1) a ballot providing for each Holder to cast the Holders’ number of votes for or against each matter being voted upon;

 

(2) a statement that each Holder’s ballot must be received by the Servicer within fifteen (15) days from the date on which such ballots are deposited in the United States mail, postage prepaid, or otherwise delivered to the Holders; and

 

(3) an envelope self-addressed to the Servicer.

 

(iii) All ballots must be returned to the Servicer not later than the date indicated above. Ballots received after such fifteen (15) day period shall be considered void.

 

(iv) No later than ten (10) days after the date indicated on the ballot pursuant to Section 6(f)(2)(b) above the Servicer shall count the votes. All votes returned or received after the fifteen (15) day period shall not be counted. The Servicer shall, within ten (10) days after tallying the votes, notify the Holders of the outcome of said vote by written notice. Notwithstanding the foregoing, if holders of a Majority-in-Interest of the Holders’ Notes approve a proposed course of action, the Servicer may take such action immediately and need not wait until subsequent votes are tallied.

 

(v) Should a deadline fall on a weekend or holiday, the applicable time period shall be extended to the end of the next business day.

 

7. Amendment to Notes, Security Agreement. In addition to the enforcement actions referenced above, each Holder agrees that the Majority Holders of the Notes shall have the right to act on behalf of each Holder:

 

(a) modify the terms of all the Notes, which modifications include but are not limited to extension of the due date of the Notes, modification of the interest called for thereunder or the conversion to equity of the Notes or any portion thereof;

 

(b) modify the term of the this Agreement, including coverage and for release of the Collateral therefor or modify the terms of the Purchase Agreement; and

 

(c) enter into such forms of subordination agreement or standstill agreement as the Servicer deems necessary and proper. By execution of this Agreement, each Holder grants to Servicer and its officers (each an “Attorney”) an irrevocable power of attorney to execute in such Holder’s name, place and stead any document said Attorney deems necessary and proper to carryout the purpose or interest of this Agreement or any actions contemplated hereunder, including but not limited to each of :

 

 

(i) any future amendments to the Notes, this Agreement or the Purchase Agreement;

 

(ii) any intercreditor agreement they deem necessary and proper;

 

(iii) any amendments to any of the foregoing; and

 

(iv) such form of UCC-3 amendment or termination to financing statement and such form of comparable document or notice filing and such form of debenture as necessary to perfect the Holder’s security interest in the Collateral.

 

8. Notices. All notices required or permitted to be given in writing and may be delivered personally to the person to whom it is authorized to be given, or sent by registered, certified or first class mail, postage paid, addressed as follows (or such other address as the party entitled to notice shall provide to the other parties hereto from time to time):

 

To the Servicer or any Debtor:	c/o Capital Growth Systems, Inc. 50 E. Commerce Drive - Suite A Schaumburg, IL 60173
	c/o CGSI Mandatory Note Servicer, Inc. 50 East Commerce Drive - Suite A Schaumburg, IL 60173
To each Holder:	At the address of record in the Company’s offices.

9. Indemnification of Servicer; Conflicts of Interest. Holders acknowledge that Servicer is acting as their agent and attorney in fact as set forth above and each agrees to indemnify, hold harmless and defend Servicer, its officers, directors, employees, agents, attorneys, subcontractors and assigns (collectively, the “Indemnitees) against all claims, actions, damages and expenses of any kind arising out of or in connection with the Servicer’s actions taken under this Agreement, or services taken with respect to this Agreement or reasonably believed to be in the scope of the Indemnitee’s authority, provided that the Indemnitee in question has not acted with willful misconduct or fraud in connection with its actions.

 

10. Successors. Should Servicer wish to resign from its responsibilities hereunder, it may do so upon delivery of fifteen (15) days’ prior notice to the parties hereto; in such event or should the Holders seek to elect a new party to assume Servicer’s obligations hereunder, they may do so upon approval in writing of the Majority Holders and delivery of notice to Servicer and to the Company, which shall promptly disseminate said notice to the other parties hereto.

 

11. Removal. The Majority Holders may remove the Servicer and/or replace the Servicer with a Substitute Servicer. Any such removal shall be effective only after ten (10) days’ prior written notice is provided to Servicer that the removal has been approved (or such shorter period of time as is mutually agreed by Servicer and the Holders).

 

 

12. General.

 

(a) Debtors agree to pay all expenses (including reasonable attorneys' fees and legal expenses) paid or incurred by Servicer on behalf of the Holders in endeavoring to collect the Notes, and in enforcing this Agreement. No delay on the part of Servicer on behalf of the Holders in the exercise of any rights or remedies shall operate as a waiver thereof, and no single or partial exercise by Holder of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy.

 

(b) This Agreement shall remain in full force and effect until the payment in full of the Notes or the conversion of the Notes into equity in the sole discretion of the Holder of each Note. This Agreement has been delivered at Chicago, Illinois, and shall be construed in accordance with and governed by the internal laws of the State of Illinois. Any dispute with respect to this Agreement shall be litigated in the state or federal courts situated in Cook County, Illinois to which jurisdiction and venue all parties consent, and shall be adjudicated by bench trial, with all parties waiving their right to trial by jury. The rights and privileges of Holder hereunder shall inure to the benefit of their respective successors and assigns.

 

(c) This Agreement contains the entire agreement among the parties hereto with respect to the matters set forth herein. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.

 

(d) This Agreement may be executed in any number of counterparts and by the different parties hereto and on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same agreement.

 

(e) The Company shall reimburse the Servicer for its reasonable costs, including attorneys’ fees, in connection with the documentation, review and negotiation of this Transaction, including costs for the formation of the Holder as a limited liability company.

 

13. Counsel. THE PARTIES ACKNOWLEDGE AND AGREE THAT SHEFSKY & FROELICH (“S&F”) IS ACTING SOLELY IN ITS CAPACITY AS COUNSEL FOR COMPANY WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND NOT ON BEHALF OF ANY HOLDER OR SERVICER. THE TERMS OF SECTION 8.7 OF THE CENTREPATH BRIDGE NOTE PURCHASE AGREEMENT REGARDING CONFLICTS OF INTEREST ARE INCORPORATED BY REFERENCE HEREIN AND MADE A PART HEREOF AS IF FULLY REWRITTEN.

 

 

IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and the year first above written.

 

DEBTORS:				HOLDER (executing other than per power of
				attorney):
CAPITAL GROWTH SYSTEMS, INC.
				[Print Name]
By:
Its:				By:
				Its:
20/20 TECHNOLOGIES, INC.				Principal Amount of Note:			$
By:				HOLDERS LISTED ON EXHIBIT A (pursuant
Its:				to Power of Attorney in favor of the undersigned
				on behalf of all such Holders):
FRONTRUNNER NETWORK SYSTEMS CORPORATION				By:
				Its:
By:				CGSI MANDATORY NOTE SERVICER, INC.
Its:
				By:
				Its: