EXHIBIT 10.2
FORM OF CREDITOR WAIVER AND CONSENT AGREEMENT
CREDITOR WAIVER AND CONSENT AGREEMENT
AGREEMENT made this ____ day of August, 2004 by and among FRONTRUNNER
NETWORK SYSTEMS CORP. ("Company"), CAPITAL GROWTH SYSTEMS, Inc. a Florida
corporation ("CGSI"), and the person or entity named on the signature line below
as "Creditor."
RECITALS:
A. Creditor has provided funds and/or services to Company in one or
more increments, and is a creditor and/or stockholder of Company.
B. Company concurrently herewith is entering into an Agreement and Plan
of Merger in the form attached hereto as Exhibit A ("Merger Agreement") with
CGSI and Frontrunner Acquisition Inc. ("Acquisition").
C. CGSI has filed the following documents with the Securities and
Exchange Commission ("SEC"), which have been made available for review by
Creditor: (i) registration statement to register shares of certain selling
shareholders of common stock and of the shares of common stock underlying
warrants issued by CGSI; (ii) Form 10-K for the year ended December 31, 2003;
(iii) Form 10-Q for the quarter ended March 31, 2004; and (iv) proxy statement
in connection with 2004 annual meeting, which meeting has been adjourned pending
provision of certain supplemental disclosures to the proxy statement.
D. Creditor is desirous of entering into this Agreement in order to
induce CGSI to close the merger contemplated by the Merger Agreement (the
"Merger"), which will benefit Creditor due to the issuance of shares called for
hereunder either directly to Creditor or to an entity or person affiliated with
Creditor.
E. Concurrently herewith, other similarly situated creditors referenced
on Exhibit B (collectively, the "Creditors") are entering agreements similar to
this form of Agreement, calling for the issuance of an aggregate of 1,000,000
shares of CGSI Common Stock. The percentage of said 1,000,000 shares to be
issued to Creditor on the closing of this Agreement constitutes Creditor's "Pro
Rata Share."
F. Creditor is desirous of appointing Frontrunner Representative, Inc.,
a corporation controlled by Philip B. Kenny ("Representative") to act as agent
on behalf of Creditor for resolution of any disputes between CGSI on the one
hand and Company or Creditor on the other hand with respect to the subject
matter of Section 3 below. Losses or liability that CGSI incurs as a result of a
breach or an inaccuracy of any of the representations or warranties made by
Company to CGSI pursuant to the Merger Agreement shall constitute the "Merger
Agreement Losses."
NOW THEREFORE, in consideration of the premises and covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Recitals. The recitals set forth above are incorporated by reference
herein and made a part hereof as if fully rewritten.
2. Agreement. Creditor represents and warrants that as of the date of
this Agreement: (i) the principal amount of funds provided to or for the benefit
of the Company and for which capital stock of the Company has not been issued to
Creditor (inclusive of all interest and other applicable charges thereon) equals
the amount set forth opposite his or its name in the first two columns of
Exhibit B; the aforesaid amount allocable to Creditor plus such other sums owing
to Creditor from Company for current obligations or for claims accrued or
potentially accruing through the "Closing Date" (as defined below) are
collectively referred to as the "Total Indebtedness" owing to Creditor; (ii) the
number of shares of Company's common stock and preferred stock set forth
opposite his or its name in the fourth, fifth and sixth columns on Exhibit B
constitute all of the shares of Company capital stock owned (or to which
Creditor has rights to ownership) by Creditor (collectively, the "Creditor
Company Shares"), and (iii) there are no monies owing the Creditor or Creditor's
affiliates, directly or indirectly, from Company other than the Total
Indebtedness. Creditor agrees to:
(a) vote all Creditor Company Shares to approve the Merger
Agreement substantially in the form of Exhibit A and all of the
transactions contemplated thereby, including the Merger;
(b) sign such shareholder written consents and/or proxies as
the Company may request from time to time approve the Merger and Merger
Agreement;
(c) not sell, pledge, grant any rights in, transfer or
encumber in any manner any of the Creditor Shares prior to November 30,
2004;
(d) effective as of the effective date of the Merger (the
"Closing Date"), the Total Indebtedness owing to Creditor shall be
deemed excused and satisfied in full in exchange for that number of
shares of CGSI Common Stock (the "Creditor CGSI Shares") allocable to
Creditor for the Total Indebtedness. Creditor effective as of the
Closing Date shall release the Company from any and all claims of
Creditor outstanding as of such date, known or unknown; and
(e) to take such other actions reasonably necessary to effect
the closing of the Merger.
CGSI agrees to issue one day prior to the scheduled Closing Date the
number of Creditor CGSI Shares to Creditor shown on Exhibit B, subject to the
escrow holdback set forth in Section 3 below. Notwithstanding anything to the
contrary contained herein, if the Merger is not effected by November 30, 2004
through no fault of Creditor, Creditor shall reconvey the Creditor CGSI Shares
to CGSI and Company shall reinstate the Total Indebtedness to Creditor.
3. Indemnification.
(a) Scope. Creditor agrees to indemnify and hold harmless CGSI
from and against Creditor's Pro Rata Share of any Merger Agreement
Losses incurred by CGSI, provided that this indemnity shall be limited
to and satisfied solely from the Creditor CGSI Shares held in escrow.
CGSI's Merger Agreement Losses shall be deemed to include any legal
fees, costs and expenses CGSI may incur in seeking enforcement of its
indemnification rights hereunder. CGSI shall have the right to seek
indemnification for
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Merger Agreement Losses as provided herein notwithstanding that the
Merger Agreement provides that the representations and warranties set
forth therein terminate as of the Closing Date. Accordingly, for
purposes of indemnification under this Agreement, the representations
and warranties of the Company set forth in the Merger Agreement shall
survive for a period of twelve months.
(b) Period. The indemnification provided for herein shall
terminate twelve months after the Closing Date, except that the
indemnification shall continue as to any loss or expense of which CGSI
has notified the Escrow Agent in accordance with this Section 3 on or
prior to the date such indemnification would otherwise terminate in
accordance with this Section 3, as to which CGSI's right to be
indemnified hereunder shall continue until CGSI has been reimbursed the
full amount of such loss and expense in accordance with this Section 3.
(c) Shareholder Representative. Frontrunner Representative,
Inc. (the "Representative") is hereby appointed the shareholder
representative, to act as the true and lawful attorney(s) in fact, and,
as such, to act, as the Creditor's agent (with full power of
substitution), to take such action on Creditor's behalf with respect to
all matters relating to indemnification claims made pursuant to Section
3 hereof and the terms of an escrow agreement, in the form attached
hereto as Exhibit C (the "Escrow Agreement"). The Escrow Agreement
shall provide that the Representative shall act as Escrow Agent for a
stock certificate representing fifteen percent (15%) of the Shares
issuable to Creditor on the Closing Date (the "Escrow Shares"). All
such determinations, agreements, settlements and compromises made by
the Representative shall be binding on Creditor. The Company shall be
entitled to conclusively rely on the instructions, decisions and acts
of the Representative required, permitted or contemplated to be taken
by the Representative hereunder or under the Escrow Agreement, and the
Company is relieved from any liability to any person for any acts done
by them in accordance with any instructions, decisions or acts of the
Representative. The Company shall be entitled to treat as genuine, and
as the document it purports to be, any letter, paper or other document
furnished to it by or on behalf of the Representative, and reasonably
believed by the Company to be genuine and to have been signed and
presented by the proper party or parties.
(d) Notice of Claims.
(i) If CGSI seeks indemnification hereunder it shall
give the Representative on behalf of the Creditor (the
"Indemnitor") a notice (a "Claim Notice") describing in
reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such Claim
Notice (if then known) the amount or the method of computation
of the amount of such claim, and a reference to the provision
of this Agreement or any agreement, document or instrument
executed pursuant hereto or in connection herewith upon which
such claim is based; provided, that a Claim Notice in respect
of any action at law or suit in equity by or against a third
person as to which indemnification will be sought shall be
given promptly after the action or suit is commenced; provided
further that failure to give such notice shall not relieve the
Indemnitor of its
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obligations hereunder except to the extent it shall have been
prejudiced by such failure.
(ii) After the giving of any Claim Notice pursuant
hereto, the amount of indemnification to which CGSI shall be
entitled shall be determined: (A) by the written agreement
between the Representative and CGSI; or (B) by a final
judgment or decree of any court of competent jurisdiction. The
judgment or decree of a court shall be deemed final when the
time for appeal, if any, shall have expired and no appeal
shall have been taken or when all appeals taken shall have
been finally determined.
(iii) If CGSI is entitled to indemnification
hereunder, and the amount of indemnification to which CGSI is
entitled has been determined as provided for this Section 3,
CGSI shall satisfy such claim from the Escrow Shares in
accordance with the terms of the Escrow Agreement. For
purposes of this Indemnification Agreement, an Escrow Share
shall have a value of $1.35.
(e) Direct Representations and Warranties. In addition to
CGSI's rights to indemnification per Section 3(a) above, it shall be
entitled to seek damages at law directly from a Creditor with respect
to any breach of any direct representation or warranty or agreement
made by Creditor to CGSI hereunder; provided, however, in no event
shall Creditor's aggregate liability under this Agreement exceed the
value of the total number CGSI Shares received by Creditor pursuant to
this Agreement (including Creditor's portion of the Escrowed Shares).
Any such action shall be directly between CGSI and Creditor and shall
not involve Representative. Creditor shall have the right to satisfy
any liability hereunder by conveying its CGSI Shares back to CGSI.
4. Confidentiality. Creditor agrees to maintain any financial
information regarding CGSI which is not generally publicly available in strict
confidence pending such information becoming generally publicly available
through no fault of Creditor.
5. Creditor Representations. Creditor makes the following
representations, warranties, covenants and acknowledgments to CGSI and the
Company with respect to this Agreement and the Creditor CGSI Shares if any
subject hereto:
(a) Authorization. Creditor has full legal right, power,
capacity and authority to execute and deliver this Agreement and the
instruments contemplated hereby and perform his or its obligations
hereunder. This Agreement has been duly executed and delivered by the
Creditor and this Agreement is the legal and binding obligation of the
Creditor, enforceable in accordance with its terms.
(b) Title to Creditor Shares and Indebtedness. Creditor is the
legal and beneficial holder of the Total Indebtedness and the Creditor
Shares, free and clear of all liens, claims, options or other
encumbrances, and Creditor has not assigned or otherwise transferred
any rights to receive payment under the Total Indebtedness to any
person.
(c) Accredited Investor Status. Creditor is an "accredited
investor" as defined in Rule 501 of Regulation D of the Securities Act.
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(d) Investment Intent. The Creditor CGSI Shares are being
acquired solely by and for the account of Creditor, for investment, and
are not being purchased for subdivision, fractionalization, resale or
distribution. Creditor has no contract, undertaking, agreement or
arrangement with any person to sell, transfer or pledge all or any part
of the Creditor CGSI Shares, and Creditor has no present plans or
intentions to enter into any such contract, undertaking or arrangement.
(e) Transfer Restrictions. Creditor acknowledges that it
generally must hold the Creditor CGSI Shares for a minimum period of
one year and may not sell, transfer, pledge or otherwise dispose of
such shares without registration under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities acts of any states
(the "Laws") unless an exemption from registration is available.
Further, Creditor shall provide, if CGSI so requires, an opinion of
counsel satisfactory to CGSI, that the intended disposition of Creditor
CGSI Shares will not violate the Securities Act or the rules and
regulations of the Securities and Exchange Commission or of any state
securities commission promulgated under such statutes.
(f) Sophistication and Experience. Creditor expressly
represents that: (i) Creditor has such knowledge and experience in
financial and business matters in general and in investments in
privately held companies in particular, and that Creditor is capable of
evaluating the merits, risks and other facets of the subject
investment; (ii) Creditor's financial condition is such that Creditor
has no need for liquidity with respect to the investment in the
Creditor CGSI Shares to satisfy any existing or contemplated
undertaking or indebtedness; (c) Creditor is able to bear the economic
risk of the investment in the Creditor CGSI Shares for an indefinite
period of time, including the risk of losing the entire investment; (d)
Creditor has either secured independent tax advice with respect to the
investment in the Creditor CGSI Shares, or Creditor is sufficiently
familiar with the income taxation of equity instruments that he deemed
such independent advice to be unnecessary; and (e) Creditor has
participated in other privately placed investments, has such knowledge
and experience in business and financial matters, has the capacity to
protect its interest in investments like the subject investment, and is
capable of evaluating the risks, merits and other facets of the subject
investment.
(g) Access to Information. Creditor acknowledges that the CGSI
has made available all documents pertaining to the Merger, and
investment opportunity in CGSI, and has allowed Creditor an opportunity
to ask questions and receive answers thereto and to verify and clarify
any information provided to Creditor by the Company and CGSI.
6. Miscellaneous.
(a) Survival. All representations, warranties and covenants of
the parties contained in this Agreement or made pursuant hereto, shall
survive the date of execution of this Agreement and remain in full
force and effect, and shall survive the termination or expiration of
this Agreement.
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(b) Counsel. All parties hereto have been represented by
counsel, and no inference shall be drawn in favor of or against any
party by virtue of the fact that such party's counsel was or was not
the principal draftsman of this Agreement.
(c) Notices. All notices or other communications required or
permitted under this Agreement shall be in writing and shall be deemed
to have been duly given if delivered personally or sent by registered
or certified mail, postage prepaid or via national courier, addressed
as to the party entitled to notice at the address set forth below, or
such other address as is subsequently provided by written notice from
such party to the other parties.
(d) No Assignment. Except as expressly noted below, this
Agreement and the rights of the parties under this Agreement may not be
sold, assigned or otherwise transferred without the prior written
consent of the other party.
(e) Entire Agreement. This Agreement, the Merger Agreement,
the Escrow Agreement and the agreements and documents referred to
herein and therein, sets forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contemplated
hereby, and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof.
(f) Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois. Should
any dispute arise under this Agreement, it shall be litigated in the
state or federal courts situated in Cook County, Illinois, to which
jurisdiction and venue all parties consent. All parties hereto waive
their right to jury trial in the determination of any dispute with
respect to the subject matter hereof.
(g) Counterparts. This Agreement may be executed in two or
more counterparts, each of which, whether photocopy, facsimile or ink,
shall be deemed an original, but all of which together shall constitute
one instrument.
(h) Approval. This Agreement shall be binding upon the
parties, their respective heirs, successors and assigns, and each
entity party represents and warrants that this Agreement has been duly
approved by proper corporate action.
(i) Remedies. No party hereunder shall be entitled to
consequential damages as a result of the breach by any other party of
its obligations hereunder. Each party's damages shall be limited to
actual damages as a result of the breach of any obligation hereunder.
(j) Specific Performance. In the event of any breach or
threatened breach of this Agreement in which the aggrieved party
desires to protect and enforce its rights by suit in equity for the
specific performance of any term contained in this Agreement or for an
injunction against any breach of any such term or in aid of the
exercise of any power to enforce such performance or to enforce any
other legal or equitable right of the enforcing party, that party may
take any one or more of such actions, and shall be paid all costs and
expenses, including attorneys' fees incurred in connection with any
such action
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or actions should it prevail in such action. Any suit to specifically
enforce the terms of this Agreement shall be litigated in the state or
federal courts located in Illinois.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
CREDITOR: Frontrunner Network Systems, Inc.
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[SIGNATURE] BY:
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ITS:
--------------------------------
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[PRINT NAME OF SIGNATORY] ADDRESS: 50 EAST COMMERCE DRIVE-SUITE A
SCHAUMBURG, IL 60173
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DATE OF EXECUTION
Capital Growth Systems, Inc.
ADDRESS:
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-------------------
BY:
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ITS:
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ADDRESS: 1100 EAST WOODFIELD ROAD-#100
SCHAUMBURG, IL 60173
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
IDENTICAL TO EXHIBIT 10.1 TO THIS CURRENT REPORT ON FORM 8-K
EXHIBIT B
STOCK OWNERSHIP, DEBT HOLDINGS AND NEW CGSI SHARES
CURRENT CREDITOR OWNERSHIP OF
-------------------------------
FUNDS FUNDS
PROVIDED PROVIDED NEW CGSI CURRENT COMPANY COMPANY
COMPRISING COMPRISING COMMON COMPANY PREFERRED PREFERRED
COMEXPO 2003-2004 STOCK ISSUABLE COMMON STOCK - STOCK --
NAME OF CREDITOR LIABILITIES FUNDINGS FOR OBLIGATIONS(2) STOCK JUNIOR JUNIOR A
- ---------------- ----------- -------- ------------------ ----- ------ --------
BLUESTEM CAPITAL PARTNERS II, LIMITED PARTNERSHIP - $ 215,000 113,438 0 - 2,500
MESIROW CAPITAL PARTNERS VI $300,802 619,307 326,756 29,202,632 700 181
THE EDGEWATER PRIVATE EQUITY FUND II, L.P. 300,802 519,179 273,928 29,161,031 699 181
21ST CENTURY COMMUNICATIONS PARTNERS L.P.(3) 229,333 46,184 24,368 21,746,758 533 94
21ST CENTURY COMMUNICATIONS T-E PARTNERS, L.P.(3) - 15,692 8,279 - - 32
21ST CENTURY COMMUNICATIONS FOREIGN PARTNERS, L.P.(3) - 6,124 3,231 - - 12
PHILIP KENNY(2) - 0 75,000 0 -
JOHN JELLINEK(2) - 0 75,000 0
JAMES CUPPINI(2) - 0 100,000 0 -
-------- ---------- --------- ---------- ----- -----
Total: $830,937(1) $1,421,486(1) 1,000,000 80,110,421 1,932 3,000
======== ========== ========= ========== ===== =====
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(1) DOES NOT INCLUDE ACCRUED, UNPAID INTEREST OR OTHER CLAIMS OF CREDITOR
AGAINST COMPANY, ALL OF WHICH ARE EXTINGUISHED EFFECTIVE UPON THE
CLOSING DATE, WHICH OBLIGATIONS EXCEED THE ESTIMATED FAIR MARKET VALUE
OF THE NEW CGSI COMMON STOCK PER COLUMN 3 ALLOCABLE TO CREDITOR.
(2) CREDITOR IS A CREDITOR WITH RESPECT TO ANY PAYMENTS MADE TO OR ON
BEHALF OF THE COMPANY AS A GUARANTOR OF COMPANY OBLIGATIONS AND/OR WITH
RESPECT TO CLAIMS FROM TIME TO TIME BY COMPANY OF BREACH OF CONTRACT,
ALL OF WHICH OBLIGATIONS ARE EXTINGUISHED EFFECTIVE AS OF THE CLOSING
DATE, WHICH OBLIGATIONS EXCEED THE ESTIMATED FAIR MARKET VALUE OF THE
NEW CGSI COMMON STOCK PER COLUMN 3 ALLOCABLE TO CREDITOR.
(3) SUBJECT TO REALLOCATION AMONG THE 21ST CENTURY FUNDS TO THE EXTENT
PROVIDED BY THEM TO COMPANY PRIOR TO THE CLOSING DATE.