UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 8-K
-------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: August 30, 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 of (Commission File No.) (IRS Employer
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)
NOT APPLICABLE
(Former name or former address, if changed since last report)
-------------------
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 (see General Instruction A.2. below):
[ ] 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 1.01 Entry into a Material Definitive Agreement.
Scott Allen, a director and the Chief Executive Officer and Chief
Financial Officer of Capital Growth Systems, Inc., a Florida corporation (the
"Company") entered into a Separation/Severance Agreement (the "Severance
Agreement") with the Company, effective August 30, 2004. Pursuant to the
Severance Agreement, Mr. Allen resigned as a director and the Chief Executive
Officer and Chief Financial Officer of the Company, effective August 30, 2004.
He also resigned as the Chief Executive Officer of Nexvu Technologies, L.L.C., a
Delaware limited liability company, and wholly-owned subsidiary of the Company
("Nexvu"), see Item 5.02(b) below. According to the terms of the Severance
Agreement, Mr. Allen has agreed to serve as a consultant to the Company until
the earlier of (1) his finding alternative employment, and (2) November 23,
2004, which date may be extended in 30 day increments upon the agreement of the
Company and Mr. Allen (the "Consulting Termination Date"). The Company will pay
Mr. Allen at an annual rate of $175,000 per year, pro rated for the number of
days between the date of the Severance Agreement until the Consulting
Termination Date. Mr. Allen will continue to participate in the Company's
employee benefit plans (except vacation) through the Consulting Termination
Date. Mr. Allen will retain the vested portion of his employee stock option
(which allows him to purchase 107,500 shares of the Company's common stock), on
or before April 25, 2014, at a price of $1.35 per share. Mr. Allen has agreed
not to disclose confidential information for a period of four years and not to
solicit employees and customers of the Company for a period of two years. The
foregoing description of the Agreement is qualified in its entirety by reference
to the Severance Agreement, a copy of which is attached hereto as Exhibit 99.1
and is incorporated herein by reference.
Item 1.02 Termination of a Material Definitive Agreement.
Pursuant to the resignation and terms of the Severance Agreement as
described in Items 1.01 and 5.02(b), which are incorporated herein by reference,
the Employment, Non-Competition and Proprietary Rights Agreement between Mr.
Allen and the Company dated April 26, 2004 (the "Allen Employment Agreement"),
was terminated effective August 30, 2004. The Allen Employment Agreement
provided for an annual salary of $175,000 and benefits, including a stock option
to purchase 430,000 shares of common stock, subject to vesting. The Allen
Employment Agreement was supposed to terminate December 31, 2004, subject to
applicable renewal and termination clauses. The Allen Employment Agreement
provided for certain severance payments payable to Mr. Allen following
termination, which were waived. The foregoing description of the Allen
Employment Agreement is qualified in its entirety by reference to the Allen
Employment Agreement, a copy of which was previously filed by the Company as an
exhibit to its Annual Report on Form 10-KSB, filed May 6, 2004 (SEC File No.
000-30831).
Item 5.02 Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.
(b) Resignations of Officers and Directors.
Scott Allen resigned as a director and as Chief Executive Officer and
Chief Financial Officer of the Company and as the Chief Executive Officer of
Nexvu, effective August 30, 2004.
2
Rory Herriman resigned as a director and Secretary and Treasurer of the
Company, effective August 31, 2004. He continues to serve as the Company's Chief
Technology Officer and has been appointed to serve as the President of Nexvu,
the Company's wholly owned subsidiary. Mr. Herriman has served as a director and
as the Company's Chief Technology Officer since the completion of the Company's
merger in January 2004 with Nexvu.
(c) Appointment of Officers.
Lee Wiskowski was appointed as the Co-Chief Executive Officer of the
Company, effective August 30, 2004. Mr. Wiskowski has served as a director of
the Company since the completion of its merger with Nexvu. From August 2003
through the date of the merger, Mr. Wiskowski served as the Company's Chief
Executive Officer, Chief Financial Officer, President and as a director. Since
December, 2002, Mr. Wiskowski has been engaged in the advisory and consulting
business through Grander, LLC, and Momentum Capital, LLC, both privately held
advisory and consulting firms. As a co-founder of Grander, LLC and Momentum
Capital, LLC, Mr. Wiskowski's responsibilities are related to the location of
potential clients, the negotiation of agreements with those clients and the
provision of advisory services related to the clients. From May 1999 to May
2001, Mr. Wiskowski was associated with Advanced Equities, Inc., a
broker-dealer. Mr. Wiskowski acted as the President of Advanced Equities from
June 1999 through March 2001.
Douglas Stukel was appointed as the Co-Chief Executive officer of the
Company, effective August 30, 2004. Mr. Stukel has served as a director of the
Company since August 2003. Mr. Stukel, together with Mr. Wiskowski, led the
investor group which purchased the current majority stake in the Company. In
addition, Mr. Stukel is a co-founder of Premier Holdings of Illinois, LLC, a
distributor of medical supplies based in Joliet, Illinois. Mr. Stukel served as
the President of Cendant Home Funding, a residential mortgage company based in
Joliet, Illinois, from 1997 until 2001. Mr. Stukel is also a co-founder of
Momentum Capital, LLC, a privately held firm providing financial advisory
services in connection with mergers and acquisitions and analysis as to
strategic alternatives. As a co-founder of Momentum Capital, LLC, Mr. Stukel's
responsibilities are related to the location of potential clients, the
negotiation of agreements with those clients and the provision of advisory
services related to the clients.
On October 1, 2003, the Company entered into a Subscription Agreement
with Grander, LLC, whereby Grander agreed to purchase 238,500 shares of the
Company's common stock in consideration for Grander's funding of certain of the
Company's operational requirements. The offering price of the shares purchased
was $0.0545 per share. Total proceeds of this issuance were $13,000. Mr.
Wiskowski is the sole member of Grander.
On December 1, 2003, the Company entered into a Business and Financial
Advisory Agreement with Grander, LLC. For its services, Grander and its
designees have been paid a fee of $761,000 for advising the Company in
connection with the structuring of its acquisition of Nexvu, establishment of
commercial and strategic partnerships and joint ventures, development of its
marketing plans, financial models, financial strategies and structuring of its
private offering. The agreement terminated upon the closing of its private
offering on April 15, 2004. The designees of Grander are Lee Wiskowski and
Douglas Stukel, both of whom are members of the Company's Board of Directors,
officers, and the individuals who helped provide advisory services to the
Company under the agreement.
3
On March 31, 2004, the Company entered into Advisory Services
Agreements with each of Lee Wiskowski and Douglas Stukel to provide advisory
services on a going forward basis. Pursuant to the agreements, the Company may
request Mr. Wiskowski and Mr. Stukel to provide financial advisory services in
connection with mergers and acquisitions and provide analysis as to strategic
alternatives. As consideration for such services, Mr. Wiskowski and Mr. Stukel
were each granted a three-year warrant, exercisable at $1.35 per share, to
purchase 250,000 shares of the Company's common stock on or before March 31,
2007. Nothing contained in the agreement precludes the Company from engaging any
other person or entity to provide the Company financial advisory services,
provided that during the term of the agreement and for a period of six months
thereafter, the Company is required to give Mr. Wiskowski and Mr. Stukel the
right of first refusal to act as its advisor with respect to financial advisory
services, so long as Mr. Wiskowski or Mr. Stukel, as the case may be, offers
such services on terms no less favorable than the Company can obtain elsewhere.
The warrants granted to Mr. Wiskowski and Mr. Stukel under the
agreements contain a cashless exercise provision which essentially provides that
upon exercise of the warrants, they have the right to either pay cash or receive
"credit," as if they had paid cash, for the cancellation of a portion of their
warrants with a value equal to the spread, if any, between the fair-market value
of the Company's common stock at the date of exercise and the exercise price of
$1.35 per share, multiplied by the number of warrants being cancelled.
Although there are no written employment agreements at this time,
Messrs. Wiskowski and Stukel will receive employment compensation based on an
annual salary of $87,500 each, commencing September 1, 2004. Messrs. Wiskowski
and Stukel are entitled to expense reimbursements, customary health insurance
coverage and customary fringe benefits. It is anticipated that each of them will
be employed by the Company on a part time basis.
On August 30, 2004, Derry L. "Skip" Behm was appointed Chief Financial
Officer, Secretary and Treasurer of the Company. From April 2004 to the present,
Mr. Behm has acted as the Chief Financial Officer of Nexvu where he has overseen
Nexvu's financial reporting. From April 2000 to June 2003, Mr. Behm was the Vice
President, Finance, Planning and Control of Spiegel Catalog, Inc., where he was
responsible for all financial functions, including planning and logistics. From
August 1999 to April 2000, Mr. Behm was the Chief Financial Officer of Harrods
Online, an Internet retailer based in London, England. In April 2004, Mr. Behm
received an employee stock option which vests over a period of four years and
allows him to purchase 175,000 shares of the Company's common stock, on or
before 2014, at a price of $1.35 per share.
(d) Election of a New Director.
Philip Kenny was elected to the Company's board, effective August 30,
2004. On August 9, 2004, 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 structured as a reverse triangular merger, whereby Mergeco
will merge with and into Frontrunner, with Frontrunner being the surviving
corporation (the "Merger"). The Merger Agreement was approved by the Board of
Directors of the Company, Frontrunner and Mergeco, and by a majority of the
4
shareholders of Frontrunner effective as of August 9, 2004. 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 15, 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 (or
waiver by the Company of any unsatisfied conditions). One of these conditions
included the execution by certain creditors of Frontrunner of a Creditor Waiver
and Consent Agreement ("Creditor Waiver Agreement"). Mr. Kenny is a director and
creditor of Frontrunner. In consideration for entering into the Creditor Waiver
Agreement, and in full and complete satisfaction of all indebtedness owed by
Frontrunner to him, the Company agreed to issue Mr. Kenny 75,000 shares of its
common stock, valued at $1.35 per share, or a total value of $101,250. The
foregoing descriptions of the Merger Agreement and Creditor Waiver Agreement are
qualified in their entirety by reference to the Merger Agreement and Creditor
Waiver Agreement, copies of which were previously filed by the Company as
exhibits to its Current Report on Form 8-K, filed August 13, 2004 (SEC File No.
000-30831).
David Beamish was appointed to the Company's board, effective August
31, 2004, to fill the vacancy created by Mr. Herriman's resignation. Mr. Beamish
purchased 321,500 shares of the Company's common stock in a private offering in
January and April 2004 at $1.35 per share.
Item 9.01 Exhibits
(c) The exhibits listed in the Exhibit Index immediately preceding such
exhibits are filed with this report.
5
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: September 3, 2004
CAPITAL GROWTH SYSTEMS, INC.
By: /S/ Lee Wiskowski
-------------------------------------------
Name: Lee Wiskowski
Title: Co-Chief Executive Officer
6
EXHIBIT INDEX
Exhibit Number Description
- ------------------------- ------------------------------------------------------
99.1 Separation/Severance Agreement between the Company
and Scott Allen, dated August 30, 2004
7