UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 3 to CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 18, 2009
Capital Growth Systems, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Florida | 0-30831 | 65-0953505 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
200 S. Wacker Drive, Suite 1650, Chicago, Illinois 60606
(Address of Principal Executive Offices, Including Zip Code)
(312) 673-2400
(Registrant's Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.04 Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
This Form 8-K addresses the second amendment to the Forbearance Agreement entered into by the Company with its senior secured lender, as discussed below.
Original Notice of Default. On November 24, 2009, Capital Growth Systems, Inc. (the “Company”) filed a Form 8-K announcing that on November 18, 2009 it had received formal notification from ACF CGS, L.L.C. (“Agent”) of certain covenant violations (the “Notice”) that have occurred and continue to exist under the Loan Agreement, dated as of November 19, 2008, by and among the Company, Global Capacity Group, Inc.(“GCG”), Centrepath, Inc., 20/20 Technologies, Inc., 20/20 Technologies I, LLC, Nexvu Technologies, LLC, Capital Growth Acquisition, Inc., Vanco Direct USA, LLC, to be known as Global Capacity Direct, LLC (“GCD”, and Magenta Netlogic Limited (each individually a “Borrower” and collectively the “Borrowers”), Agent, and the lenders who are a party thereto (the “Lenders”) (as amended, modified and/or restated from time to time, the “Loan Agreement”).
Forbearance Agreement. On December 29, 2009, the Company filed a Form 8-K/A announcing that, on December 22, 2009, the Agent and Borrowers entered into a forbearance agreement (the “Forbearance Agreement”), pursuant to which Agent agreed to forbear from exercising its rights and remedies with respect to the defaults specified in the Forbearance Agreement (the “Specified Defaults”) until January 26, 2010 (the “Forbearance Termination Date”), provided that: (i) other than the Specified Defaults or a failure to comply with the Borrowers’ minimum EBITDA covenant, there are no financial covenant violations or other defaults by any of the Borrowers during the interim period, (ii) the Borrowers comply with the terms of the Forbearance Agreement, (iii) the Borrowers do not join in, assist, cooperate or participate as an adverse party or adverse witness in any suit or other proceeding against the Agent, any Lender or an affiliate of either which is related to (a) any of the obligations or amounts owing under the Forbearance Agreement, the Loan Agreement or any other loan document or (b) is in connection with or related to any of the transactions contemplated by such documents and (iv) no third party exercises any right or remedy it may have as a result of any of the Specified Defaults. (The Specified Defaults include, but are not limited to: (i) violation of the minimum EBITDA covenant for the period of the Forbearance Agreement, and (ii) deviation by more than 15.0% from its vender payment plan budgets submitted to the Agent, for the testing periods ended November 6, 2009, November 13, 2009, November 20, 2009, November 27, 2009, December 4, 2009, December 11, 2009 and December 18, 2009.)
First Amendment to Forbearance Agreement. On January 6, 2010, the Company filed a Form 8-K/A announcing that, on December 31, 2009, the Agent and Borrowers had entered into the first amendment to the Forbearance Agreement (the “First Amendment”). Pursuant to the First Amendment, the Agent agreed, among other things, to: (i) extend the Forbearance Termination Date to February 22, 2010, provided that the Company complied with subparts (i) through (iv) detailed in the “Forbearance Agreement” narrative above and (ii) extend the date the Borrowers were required enter into a definitive transaction that would result in a mandatory pay down of the term loan under the Loan Agreement (the “Term Loan”) in an amount not less than $4,000,000 to “on or before December 31, 2009” (from “on or before December 28, 2009”).
2
Second Amendment to the Forbearance Agreement. On March 8, 2010, the Agent and Borrowers entered into the second amendment to the Forbearance Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Agent agreed to extend the Forbearance Termination Date to March 19, 2010, provided that the Company complies with subparts (i) through (iv) detailed in the “Forbearance Agreement” narrative above.
The Second Amendment revised the term “Specified Defaults” to also include the following defaults under the Loan Agreement: (i) Borrowers’ maintaining a principal bank account for the conduct of the Borrowers’ business with a bank other than that defined to be its “Depository Bank” - The PrivateBank and Trust Company, (ii) Borrowers’ noncompliance of its “Monthly Recurring Circuit Revenue” covenant, as measured on January 31, 2010, (iii) Borrowers’ noncompliance with its “Minimum Cash Balance” covenant, as measured on February 10, 2010 and February 24, 2010, (iv) the existence of defaults under the Company’s Debenture Documents (as defined in the Loan Agreement) and (v) failure of the Company to deliver a landlord waiver for the Borrowers’ office space located at 200 South Wacker Street, Chicago, Illinois to Agent, in form and substance reasonably satisfactory to Agent.
In executing the Second Amendment, the Borrowers have agreed to provide the Agent with: (a) a strict joint order escrow trust agreement (the “Escrow Agreement”) executed by the parties to that certain asset purchase agreement dated on or about December 30, 2009 (the “GTT Purchase Agreement”) and (b) all related documents (including, but not limited to: flow of funds, reconciliation and other documents and agreements evidencing the calculation of or adjustments to the purchase price payable under the GTT Purchase Agreement), no later than one (1) Business Day (as defined in the Loan Agreement) prior to the date of the Initial Closing (as defined in the GTT Purchase Agreement) is scheduled to occur under the GTT Purchase Agreement. The Borrowers have further agreed to make a mandatory pay down of the Term Loan in an amount not less than $4,000,000 on the date the Initial Closing under the GTT Purchase Agreement shall occur. Such amount must be identified in the Escrow Agreement as an amount to be paid to Agent directly from funds from the Initial Closing;
Finally, the Agent and Borrowers agreed to revise the requirements of the “Minimum Cash Balance” covenant. Between the date of execution of the Second Amendment (March 8, 2010) and the Forbearance Termination Date (the “Forbearance Period”), the Borrowers shall be required to maintain a minimum cash balance at all times of $1,000,000 (reduced from the current requirement of $1,500,000). Upon termination of the Forbearance Period, the covenant requirement will revert back, and the Borrowers will be required to maintain a minimum cash balance at all times of $1,500,000.
To date, the Borrowers have timely paid all debt service obligations under the Loan Agreement.
A copy of the original Loan Agreement was filed with the SEC as Exhibit 10.8 to the Company’s Form 8-K on November 20, 2008. Copies of the First and Second Amendments to the Loan Agreement were filed with the SEC as Exhibits 10.1 and 10.2 to the Company’s Form 8-K on August 4, 2009. A copy of the form of the Forbearance Agreement was filed with the SEC as Exhibit 10.1 to the Company’s Form 8-K/A on December 29, 2009. A copy of the form of the First Amendment was filed with the SEC as Exhibit 10.2 to the Company’s Form 8-K/A on January 6, 2010. A copy of the GTT Purchase Agreement was filed with the SEC as Exhibit 10.1 to the Company’s Form 8-K on January 5, 2010.
3
Item 9.01 Exhibits
Exhibit 10.3 Form of Second Amendment to Forbearance Agreement
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: March 12, 2010
CAPITAL GROWTH SYSTEMS, INC. | |||
By: | /s/ George A. King | ||
George A. King | |||
President | |||
5