SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: August 9, 2004
(Date of earliest event reported)
CAPITAL GROWTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Florida 0-30831 65-0953505
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1100 East Woodfield Road
Schaumburg, Illinois 60173
(Address of Principal Executive Offices)
(630) 872-5800
Registrant's telephone number including area code)
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS.
On August 9, 2004, Capital Growth Systems, Inc. (the "Company")
executed an Agreement and Plan of Merger (the "Merger Agreement") by and among
the Company, Frontrunner Network Systems, Corp., a Delaware corporation
("Frontrunner") and Frontrunner Acquisition, Inc., a Delaware corporation and
wholly-owned subsidiary of the Company ("Mergeco"). The transaction is a reverse
triangular merger, whereby Mergeco will merge with and into Frontrunner, with
Frontrunner being the surviving corporation (the "Merger"). The Merger and
Merger Agreement were approved by the Board of Directors of the Company,
Frontrunner and Mergeco, and by a majority of the shareholders of Frontrunner.
The Company intends to file the certificate of merger relating to the Merger
with the Secretary of State of the State of Delaware on or about September 13,
2004, at which time the Merger will become effective (the "Effective Time"),
subject to satisfaction by Frontrunner of all of the conditions precedent to the
closing of the Merger. These conditions include, but are not limited to, (i)
"Creditors" (as that term is defined herein), executing a "Creditor Waiver
Agreement" (as that term is defined herein), (ii) James Cuppini entering into an
employment agreement with Frontrunner, (iii) entry by Frontrunner into certain
payment agreements calling for amortization of outstanding past due obligations
to Frontrunner plus a market rate of interest with certain other of its
creditors, and (iv) Frontrunner obtaining from Harris Trust and Savings Bank, a
consent to the Merger and a commitment that it will extend and maintain a loan
to Frontrunner with a principal amount of not less than the principal balance
outstanding as of the date of the Merger Agreement.
Prior to the entry into the Merger Agreement, Frontrunner had
outstanding the following shares of capital stock: (i) 222.184 shares of
nonvoting Eight Percent (8%) Senior Preferred Stock, par value $100.00 per share
(the "Senior Preferred Stock"); (ii) 2,000 shares of Junior Convertible
Preferred Stock, par value $100.00 per share (the "Junior Preferred Stock");
(iii) 4,050 shares of Series A Convertible Preferred Stock, par value $100.00
per share (the "Convertible Preferred Stock"); and (iv) 87,155,413 shares of
common stock, par value $0.001 per share (the "Frontrunner Common Stock"). No
shares of capital stock have been issued by Frontrunner since entry into the
Merger Agreement.
In consideration for Frontrunner shares, the Company will pay $222.18
in the aggregate in exchange for all of the Senior Preferred Stock. All of the
shares of the Junior Preferred Stock, the Convertible Preferred Stock and the
Frontrunner Common Stock, and all outstanding unexpired and unexercised options
and warrants to acquire Frontrunner Common Stock will be cancelled without
consideration therefore. The Senior Preferred Stock is entitled to a liquidation
preference of $1,000 per share and accordingly, all other shares of stock of the
Company are subordinate to such preference.
Each share of Senior Preferred Stock outstanding immediately prior to
the Effective Time will be cancelled and extinguished and converted
automatically into the right to receive $1.00 per share. Each share of Junior
Preferred Stock, Convertible Preferred Stock and Frontrunner Common Stock and
any outstanding options, warrants, convertible notes, or other convertible
securities or other rights to acquire shares of the Company will be extinguished
and cancelled without conversion or exercise, and those holders shall not be
entitled to any payment of any kind. Each share of stock owned by the Company or
any direct or indirect wholly-owned
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subsidiary of the Company immediately prior to the Effective Time will be
cancelled and extinguished without any conversion thereof.
As additional consideration to be given by the Company in connection
with the Merger Agreement (but not as part of the Merger consideration), and for
the benefit of Frontrunner, prior to the Effective Time, the Company shall issue
up to 1,000,000 shares of its common stock, $.0001 par value (the "Company
Common Stock") to certain creditors of Frontrunner in exchange for the
cancellation of indebtedness to Frontrunner by those Creditors in the
approximate amount of $2,252,433 (excluding accrued unpaid interest and other
claims). This additional consideration is issued pursuant to the Creditor Waiver
and Consent Agreement (the "Creditor Waiver Agreement"). The most recent private
placement of the Company Common Stock was made at $1.35 per share, which is
assumed to constitute its fair market value.
Each share of $0.00001 par value common stock of Mergeco issued to the
Company immediately prior to the Effective Time, shall by virtue of the Merger,
be converted into one share of common stock of Frontrunner.
The Merger Agreement further provided that: (i) the officers of
Frontrunner immediately prior to the Effective Time will continue to serve as
the officers of Frontrunner, as the surviving corporation; and (ii) the
directors of Mergeco will become the directors of Frontrunner, as the surviving
corporation.
The Company has registered with the Securities and Exchange Commission
under the Securities and Exchange Act of 1934 and has filed a registration
statement under Form SB-2 to register for resale the shares of common stock
issued per its most recent private placement as well as certain other common
stock either issued or underlying certain outstanding warrants. There is
presently no public market for the Company Common Stock, and it is not expected
that the registration statement will be declared effective until some time
following the closing of the Merger.
The description of the proposed Merger included in this draft is not
complete, and is qualified in its entirety by reference to the Merger Agreement
and Creditor Waiver Agreement which are filed as exhibits to this Form 8-K and
are incorporated by reference herein. There can be no assurance that the
transactions contemplated by the Merger Agreement will be consummated.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
Exhibit 10.1 -- Agreement and Plan of Merger By and Among Capital
Growth Systems, Inc., a Florida corporation, Frontrunner Acquisition, Inc., a
Delaware corporation and wholly owned subsidiary of Capital Growth Systems,
Inc., and Frontrunner Network Systems, Corp., a Delaware corporation.
Exhibit 10.2 -- Form of Creditor Waiver and Consent Agreement By and
Among Frontrunner Network Systems, Corp., Capital Growth Systems, Inc., a
Florida corporation, and Creditors.
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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: August 13, 2004
CAPITAL GROWTH SYSTEMS, INC.
By: /s/ Rory Herriman
---------------------------
Its: Secretary, Treasurer and
Chief Technology Officer
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