EMPLOYMENT AGREEMENT
Agreement
dated as of June 28, 2006, between Capital Growth Systems, Inc., a Florida
corporation, having a place of business at 00 Xxxx Xxxxxxxx Xxxxx, Xxxxx X,
Xxxxxxxxxx, Xxxxxxxx 00000 (the “Company”),
and
Xxxxxx X. Xxxxxx (the “Executive”).
WITNESSETH
WHEREAS,
the Company wishes Executive to serve as Chief Executive Officer of the Company
effective immediately and Executive wishes to serve in such capacity, subject
to
the terms and conditions hereof;
WHEREAS,
the Board of Directors (“Board”)
of the
Company believes it to be in the best interests of the Company to enter into
this Agreement to assure Executive’s services to the Company and to encourage
Executive’s full attention and dedication to the Company; and
WHEREAS,
in order to accomplish all the above objectives, the Board has authorized the
Company to enter into this Agreement;
NOW,
THEREFORE, in consideration of the mutual promises herein contained, the Company
and Executive hereby agree as follows:
1. Certain
Definitions.
(a) The
“Effective
Date”
shall
mean the date hereof.
(b) The
“Change
of Control Date”
shall
mean the first date during the Employment Period (as defined in Section 1(c))
on
which a Change of Control (as defined in Section 2) occurs.
(c) The
“Employment
Period”
shall
mean the period commencing on the Effective Date and ending on the second
(2nd)
anniversary of such date; provided, however, that on each anniversary of the
Effective Date, and on each successive annual anniversary of such date
thereafter (such date and each annual anniversary thereof shall be hereinafter
referred to as the “Renewal
Date”),
the
Employment Period shall be automatically extended so as to terminate on one
(1)
year from such Renewal Date, unless at least ninety (90) days prior to the
Renewal Date either party shall give notice to the other that the Employment
Period shall not be so extended; and provided, further, that upon the occurrence
of a Change of Control Date, the Employment Period shall automatically be
extended so as to terminate on the first (1st)
anniversary of such date.
2. Change
of Control.
For the
purpose of this Agreement, a “Change
of Control”
or
“Change
in Control”
shall
mean:
(a) The
acquisition by an individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either (i) the then
outstanding shares of common stock of Company (the “Outstanding
Company Common Stock”)
or
(ii) the combined voting power of the then outstanding voting securities of
the
Company entitled to vote generally in the election of directors (the
“Outstanding
Company Voting Securities”);
provided, however, that the following acquisitions shall not constitute a Change
of Control: (w) any acquisition directly from the Company, (x) any acquisition
by the Company or any of its subsidiaries, (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
of
its subsidiaries or (z) any acquisition by any corporation with respect to
which, following such acquisition, more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled
to
vote generally in the election of directors, is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were beneficial owners, respectively of the Outstanding Company
Common Stock and Outstanding Company Voting Securities in substantially the
same
proportions as their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as
the case may be; or
(b) Completion
by the Company of a reorganization, merger or consolidation, in each case,
with
respect to which all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, less than 50% of, respectively, of the then outstanding shares
of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case
may be, of the corporation resulting from such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities,
as the case may be; or
(c) Completion
by the Company of (i) a complete liquidation or dissolution of Company or (ii)
the sale or other disposition of all or substantially all of the assets of
the
Company, other than to a corporation, with respect to which following such
sale
or other disposition, more than 50% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or
indirectly, by all or substantially all of the individuals and entities who
were
the beneficial owners, respectively, of the Outstanding Company Common Stock
and
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common
Stock
and Outstanding Company Voting Securities, as the case may be.
3. Employment
Period.
The
Company hereby agrees to continue Executive in its employ, and Executive hereby
agrees to remain in the employ of the Company, during the Employment Period
under the terms and conditions provided herein.
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4. Terms
of Employment.
(a) Position
and Duties.
Executive is appointed to the position of CEO and shall have the normal duties,
responsibilities and authority of the position of CEO, subject to the power
of
the Board to limit such duties, responsibilities and authority. Executive may
perform his duties from his home in Minnesota or New York or as otherwise
mutually agreed by the Company and Executive. If and when an office for
Executive in Minnesota is justified, the Company shall provide for such office
space and an assistant. Excluding any periods of vacation and sick leave to
which Executive is entitled, Executive agrees to devote reasonable attention
and
time during normal business hours to the business and affairs the Company and,
to the extent necessary to discharge the responsibilities assigned to Executive
hereunder, to use Executive’s reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this Agreement
for Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of Executive’s
responsibilities as an employee of the Company in accordance with this
Agreement. It is also expressly understood and agreed that to the extent that
such activities have been conducted by Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of Executive’s
responsibilities to the Company.
(b) Compensation.
(i) Base
Salary.
The
Company shall pay Executive a base salary at an annual rate of $240,000
(initially and as adjusted in accordance with the terms of this Agreement,
“Base
Salary”).
Base
Salary shall be reviewed at least annually and shall be adjusted as agreed
between the Board and Executive (in the event no agreement is reached, Base
Salary shall remain unchanged). Any increase in Base Salary shall not serve
to
limit or reduce any other obligation to Executive under this Agreement. Base
Salary shall not be reduced after any such increase including in connection
with
Company wide reductions applied to other senior executives of the Company.
(ii) Additional
Compensation.
In
addition to Base Salary, Executive shall be eligible to receive an annual bonus
based upon the attainment of certain performance goals and objectives mutually
agreed upon by the Board and Executive and in accordance with the Company’s
business plan, as may be approved annually by the Board. The bonus amount to
be
paid to Executive will be determined annually by the Board, but in no event
greater than 200% of Base Salary for the applicable year. Executive shall also
be eligible for stock awards under the Company’s current equity incentive plan
and any successor or additional plans, as determined by the Board.
(iii) Fringe
Benefits.
While
Executive is employed by the Company under this Agreement, Executive shall
be
entitled to participate in all insurance, vacation days and other benefit plans
or programs as are provided from time to time by the Company to its other
executives, in accordance with the terms of such plans or programs and the
Company’s benefits practices then in effect.
3
(iv) Stock
Options.
(1) Grant
of Option/Price.
The
Company agrees to grant Executive options of the Effective Date to acquire
7.5%
(1,496,993 shares) of the Company’s common stock (calculated on a fully diluted
basis as of the Effective Date) for a strike price equal to the closing price
of
the Company’s common stock as of June 27, 2006 (i.e., $0.70 per share) (the
“Employee
Options”).
The
Employee Options will be calculated based on the issued and outstanding common
shares as of the Effective Date (i.e.,
17,115,954 common shares), the number of granted and unexercised employee stock
options (approximately 1,524,557 options), and the issued and unexercised
warrants to acquire common stock of the Company (approximately 1,319,389
warrants). The Employee Options shall be governed by an option agreement between
Executive and the Company, in substantially the form attached hereto (the
“Option
Agreement”).
(2) Vesting.
In
accordance with the Option Agreement (i) 25% of the Employee Options shall
vest
immediately upon execution of this Agreement, and (ii) 25% shall thereafter
vest
on the yearly anniversary of this Agreement over the next three (3) years,
commencing on June 28, 2007, with 100% vested on June 27, 2009, subject to
the terms hereof and the Option Agreement.
(v) Performance
Equity Options.
(1) Grant
of Performance Option.
The Company agrees to grant, as of the Effective Date, options to acquire 15%
(2,993,985 shares) of the Company’s common stock (calculated on a fully diluted
basis as of the Effective Date) for a strike price equal to per share common
stock price of the Next Equity Financing (the “Performance
Options”)
as an
incentive to attain certain revenue objectives as set forth in clause (2)
hereof. The number of Performance Options was calculated based upon the
issued and outstanding common shares of the Company as of the Effective Date
(i.e.,
17,115,954 common shares), the number of granted and unexercised outstanding
employee stock options (approximately 1,524,557 options), and the granted and
unexercised warrants to acquire common stock (approximately 1,316,389
warrants).
(2) Vesting.
In accordance with the Performance Option Agreement, the Performance Options
shall vest on the following basis. Upon each realization by the Company of
an incremental $2.0 million of third party service and/or maintenance revenue
from new customers, with gross margins in excess of 35%, pursuant to an
agreement of one year or more, Executive shall vest, incrementally, in 199,599
option shares of the total number of Performance Options, or 1% of the 15%,
up
to a total of such available Performance Options. Unless otherwise
directed, the Performance Options shall be granted to Executive.
Notwithstanding, Executive shall have authority, subject to the Board approval,
to direct the allocation of such Performance Options to other Company
executives.
(c) Board
Seat.
Concurrent with the execution of this Agreement, Executive shall be appointed
to
served on the Company’s Board to fill an existing vacancy to serve until the
next annual election of Directors.
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(d) Expenses.
The
Company shall reimburse Executive for all reasonable and ordinary expenses
incurred by Executive in the performance of Executive’s duties hereunder
including expenses for entertainment, travel and similar items that arise
related to and for promoting the business of the Company; provided,
however,
that
Executive shall account to the Company for such expenses in the manner
customarily prescribed by the Company for its executives.
5. Termination.
(a) Death
or Disability.
This
Agreement shall terminate automatically upon Executive’s death. If the Company
determines in good faith that the Disability of Executive has occurred (pursuant
to the definition of Disability set forth below), it may give to Executive
written notice of its intention to terminate Executive’s employment hereunder.
In such event, Executive’s employment with the Company shall terminate effective
on the 90th day after receipt by Executive of such notice given at any time
after a period of six consecutive
months of Disability and while such Disability is continuing (the “Disability
Effective Date”),
provided that, within the 90 days after such receipt, Executive shall not have
returned to full-time performance of Executive’s duties. For purposes of this
Agreement, “Disability”
means
disability which, at least six months after its commencement, is determined
to
be total and permanent by a physician selected by the Company or its insurers
and acceptable to Executive or Executive’s legal representative (such agreement
as to acceptability not to be withheld unreasonably). During such three month
period and until the Disability Effective Date, Executive shall be entitled
to
all compensation provided for under Section 4 hereof.
(b) Cause.
The
Company may terminate this Agreement and Executive’s employment with the Company
for Cause. For purposes of this Agreement, “Cause”
means:
(i) an
act
or
acts
of
personal
dishonesty taken by Executive and intended to result in substantial personal
enrichment of Executive at the expense of the Company, (ii) repeated
violations by Executive of Executive’s obligations under Section
4(a) of this
Agreement which are demonstrably willful and deliberate on Executive’s part and
which are not remedied in a reasonable period of time after
receipt of written notice from the Company, or (iii)
the
conviction of Executive of a felony.
(c) Good
Reason.
During
the Employment Period, Executive’s employment hereunder may be terminated by
Executive for Good Reason. For purposes of this Agreement, “Good
Reason”
means:
(i) the
assignment to Executive of any duties inconsistent in any respect with
Executive’s position (including status, offices, titles and reporting
relationships), authority, duties or responsibilities as contemplated by Section
4(a) of this Agreement (including, without limitation, failure to nominate
Executive to the Board or Executive ceasing to be the CEO of the Company),
or
any other action by the Company which results in a diminution in such position,
authority, duties or responsibilities;
(ii) the
failure by the Company to appoint Executive to the position of CEO or any other
action by the Company which results in the diminution of Executive’s position,
authority, duties, or responsibilities;
5
(iii) any
failure by the Company to comply with any of the material provisions of this
Agreement;
(iv) the
Company requiring Executive to be based at any office or location other than
that described in Section 4(a) hereof, except for travel reasonably required
in
the performance of Executive’s responsibilities;
(v) any
purported termination by the Company of Executive’s employment otherwise than as
expressly permitted by this Agreement; or
(vi) any
failure by the Company to comply with and satisfy Section 11(c) of this
Agreement.
Prior
to
giving a Notice of Termination for Good Reason, Executive shall notify the
Company within 30 days of action the Company has taken in such 30 day period,
together with any other similar actions within the prior six months, which
Executive believes constitutes Good Reason. The Company shall have 30 days
to
cure such circumstances, and if not cured to the reasonable satisfaction of
Executive, then Executive may give such Notice of Termination for Good
Reason.
(d) Notice
of Termination.
Any
termination of Executive’s employment hereunder by the Company for Cause or by
Executive for Good Reason shall be communicated by Notice of Termination to
such
other party hereto given in accordance with 13(b) of this Agreement. For
purposes of this Agreement, a “Notice
of Termination”
means
a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive’s
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than fifteen (15) days after
the giving of such notice). Further, a Notice of Termination for Cause is
required to include a copy of a resolu-tion duly adopted by the affirmative
vote
of not less than three-quarters (3/4) of the entire membership of the Board
(excluding Executive) at a meeting of the Board which was called and held for
the purpose of considering such termination (after reasonable notice to
Executive and an opportunity for Executive, together with Executive's counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth in the definition of Cause
herein, and specifying the particulars thereof in detail.
(e) Date
of Termination.
“Date
of Termination”
means
the date of receipt of the Notice of Termination or any later date specified
therein, as the case may be; provided, however, that (i) if Executive’s
employment hereunder is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies Executive of such termination and (ii) if Executive’s employment
hereunder is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of Executive or the Disability Effective
Date, as the case may be.
6
6. Obligations
of the Company upon Termination.
(a) Death.
If
Executive’s employment hereunder is terminated by reason of Executive’s death,
this Agreement shall terminate without further obligations to Executive’s legal
representatives under this Agreement, other than those obligations accrued
or
earned and vested (if applicable) by Executive as of the Date of Termination,
including, for this purpose (i) Executive’s Base Salary through the Date of
Termination at the rate in effect on the Date of Termination disregarding any
reduction in Base Salary in violation of this Agreement, and (ii) any
compensation previously deferred by Executive and not yet paid by the Company
(including accrued interest thereon) and any accrued vacation pay not yet paid
by the Company (such amounts specified in clauses (i) and (ii) are hereinafter
referred to as “Accrued
Obligations”).
All
such Accrued Obligations shall be paid to Executive’s estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
In
addition, if Executive’s employment is terminated by reason of Executive’s
death, Executive’s estate will have one (1) year to exercise any options vested
or earned as of the Date of Termination and all unvested or otherwise unearned
options (whether in connection with the Employee Options or the Performance
Option) will terminate on the Date of Termination. Anything in this Agreement
to
the contrary notwithstanding, Executive’s family shall be entitled to receive
benefits at least equal to the most favorable benefits provided by the Company
and any of its subsidiaries to surviving families of employees of the Company
and such subsidiaries under such plans, programs, practices and policies
relating to family death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Company and its subsidiaries
in
effect on the date of Executive’s death with respect to other key employees of
the Company and its subsidiaries and their families.
(b) Disability.
If
Executive’s employment is terminated by reason of Executive’s Disability, this
Agreement shall terminate without further obligations to Executive, other than
those obligations accrued or earned and vested (if applicable) by Executive
as
of the Date of Termination, including for this purpose, all Accrued Obligations.
All such Accrued Obligations shall be paid to Executive in a lump sum in cash
within 30 days of the Date of Termination. In addition, if Executive’s
employment is terminated by reason of Executive’s Disability, Executive or his
personal representative will have one (1) year to exercise any options vested
or
earned as of the Date of Termination and all unvested or otherwise unearned
options (whether in connection with the Employee Options or the Performance
Option) will terminate on the Date of Termination. Anything in this Agreement
to
the contrary notwithstanding, Executive shall be entitled after the Disability
Effective Date to receive disability and other benefits at least equal to the
most favorable of those provided by the Company and its subsidiaries to disabled
employees and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the Company and its
subsidiaries in effect on or after the Effective Date or, if more favorable
to
Executive and/or Executive’s family, as in effect at any time thereafter with
respect to other key employees of the Company and its subsidiaries and their
families.
(c) Cause.
If
Executive’s employment shall be terminated for Cause, this Agreement shall
terminate without further obligations to Executive other than those obligations
accrued or earned and vested (if applicable) by Executive as of the Date of
Termination, including for this purpose all Accrued Obligations, including
any
vested Employee Options or vested Performance Options. All such Accrued
Obligations shall be paid to Executive in a lump sum in cash within 30 days
of
the Date of Termination. Notwithstanding anything herein to the contrary, if
Executive’s employment is terminated for Cause, Executive will have thirty (30)
days to exercise any options vested or earned as of the Date of Termination
and
all unvested or otherwise unearned options (whether in connection with the
Employee Options or the Performance Options) will terminate on the Date of
Termination.
7
(d) Other
than for Good Reason. If
Executive terminates employment other than for Good Reason, this Agreement
shall
terminate without further obligations to Executive, other than those obligations
accrued or earned and vested (if applicable) by Executive through the Date
of
Termination, including for this purpose, all Accrued Obligations. All such
Accrued Obligations shall be paid to Executive in a lump sum in cash within
30
days of the Date of Termination. Notwithstanding anything herein to the
contrary, if Executive’s employment is terminated for other than Good Reason by
Executive, Executive will have one (1) year to exercise any options vested
or
earned as of the Date of Termination and all unvested or otherwise unearned
options (whether arising from the Employee Options or the Performance Options)
will terminate on the Date of Termination.
(e) Good
Reason or Other Than for Cause.
If the
Company shall terminate Executive’s employment hereunder other than for Cause or
if Executive shall terminate his employment hereunder for Good
Reason:
(i) the
Company shall pay to Executive in a lump sum in cash within thirty (30) days
(or
such longer period necessary for the release referred to in Section 9(f) to
become irrevocable) after the Date of Termination all such Accrued Obligations;
(ii) the
Company shall, for a period of one year after the Date of Termination continue
to pay the Base Salary and benefits to Executive and/or Executive’s family at
least equal to those which would have been provided to them in accordance with
the plans, programs, practices and policies described in Section 4(b)(iii)
including health insurance and life insurance, in accordance with the most
favorable plans, practices, programs or policies of the Company and its
subsidiaries in effect on the Date of Termination; provided
that the
Company shall not be required to provide a benefit or benefits under this
Section (other
than continuation of Base Salary)
to the
extent Executive is reemployed during such one year period and such subsequent
employer provides a comparable benefit or benefits; and
(iii) in
addition to the foregoing, (A) all of Executive’s unvested Employee Options or
Performance Options shall immediately vest, and (B) all of Executive’s options
(whether arising from the Employee Options or the Performance Option) as of
the
Date of Termination shall remain exercisable for two (2) years after such Date
of Termination.
(f) Failure
to Complete Equity Raise.
Notwithstanding
anything in this Agreement to the contrary, Executive hereby agrees to forego
any current
payment of his Base Salary
as set
forth in Section 4(b), or any coverage and/or benefits under any and all medical
insurance, life insurance, and pension plans of the Company until the earlier
of: (A) the closing of a capital raise by the Company in a minimum aggregate
gross proceeds of $6.0 million (the “Next Equity Financing”); and (B)
September
30,
2006;
provided, that such Base Salary shall accrue and be payable upon the earlier
to
occur.
In the
event the Next Equity Financing is not successfully completed by September
30,
2006, either party may terminate this Agreement by providing notice to the
other
party by October 15, 2006. If this Agreement is terminated pursuant to this
Section 6(f), Executive shall be entitled to any Accrued Obligations, including
vested Employee Options and Executive shall not be entitled to any additional
severance.
8
(g) Change
of Control.
All of
Executive’s unvested options shall immediately vest upon completion of a Change
of Control, unless, at the time of completion such Change of Control
transaction, the unvested options are substituted or continued by the acquiror,
regardless of whether Executive’s employment is terminated.
7. Non-exclusivity
of Rights.
Nothing
in this Agreement shall prevent or limit Executive’s continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by Company, the Company or any of their
respective subsidiaries and for which Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as Executive may have under any
stock option, restricted stock or other agreements with Company, the Company
or
any of their respective subsidiaries. Amounts which are vested benefits or
which
Executive is otherwise entitled to receive under any plan, policy, practice
or
program of Company, the Company or any of their respective subsidiaries at
or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy practice or program.
8. Full
Settlement.
The
Company’s obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action
which
the Company may have against Executive or others. In no event shall Executive
be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to Executive under any of the provisions of this
Agreement.
9. Certain
Covenants of Executive.
(a) As
used
in Section 9 and Section 10, the Company shall include the Company and each
corporation, partnership, or other entity that controls the Company, is
controlled by the Company, or is under common control with the Company (in
each
case “control”
meaning
the direct or indirect ownership of 50% or more of all outstanding equity
interests).
(b) While
Executive is employed by the Company and, following the termination of
Executive’s employment for any reason, until the first anniversary of the Date
of Termination, Executive will not, directly or indirectly:
(i) employ
or
attempt to employ any director, officer, or employee of the Company, or
otherwise interfere with or disrupt any employment relationship (contractual
or
other) of the Company;
(ii) solicit,
request, advise, or induce any present or potential customer (defined by those
companies from which the Company has either solicited business or have prepared
marketing proposals for the solicitation of business within the past 12 months
prior the Date of Termination), supplier, or other business contact of the
Company to cancel, curtail, or otherwise change its relationship with the
Company; or
9
(iii) publicly
criticize or disparage in any manner or by any means the Company or its
management, policies, operations, products, services, practices, or
personnel.
(c) Executive
hereby acknowledges and agrees that all non-public information and data of
the
Company, including without limitation that related to product and service
formulation, customers, pricing, sales, and financial results (collectively,
“Trade
Secrets”)
are of
substantial value to the Company, provide it with a substantial competitive
advantage in its business, and are and have been maintained in the strictest
confidence as trade secrets. Except as permitted by the Board, or as appropriate
in the performance of Executive’s duties in the normal course of business,
Executive shall not at any time disclose or make accessible to anyone any Trade
Secrets.
(d) Executive
acknowledges and agrees that this Section 9 and each provision hereof are
reasonable and necessary to ensure that the Company receives the expected
benefits of this Agreement and that violation of this Section will harm the
Company to such an extent that monetary damages alone would be an inadequate
remedy. Consequently, in the event of any violation or threatened violation
by
Executive of any provision of this Section, the Company shall be entitled to
an
injunction (in addition to all other remedies it may have) restraining Executive
from committing or continuing such violation. If any provision or application
of
this Section is held unlawful or unenforceable in any respect, this Section
shall be revised or applied in a manner that renders it lawful and enforceable
to the fullest extent possible.
(e) Upon
termination of Executive’s employment for any reason, Executive covenants to
resign from the Board effective no later than the Termination Date.
(f) Prior
to
the payment of any amount pursuant to Section 6, Executive shall have executed
the release in the form set forth as Exhibit
A
(with
the blanks appropriately filled in) and the release, which shall except out
those
claims related to Executive’s vested Employee Options or vested Performance
Options and Accrued Obligations,
shall
have become irrevocable.
10. Creations.
(a) Executive
hereby transfers and assigns to the Company (or its designee) all right, title,
and interest of Executive in and to every idea, concept, invention, and
improvement (whether patented or not) conceived by Executive and all copyrighted
or copyrightable matter created by Executive during the Term hereof that relates
to the Company’s business (collectively, “Creations”).
Executive shall communicate promptly and disclose to the Company, in such form
as the Company may request, all information, details, and data pertaining to
each Creation. Every copyrightable Creation, regardless of whether copyright
protection is sought or preserved by the Company, shall be “work
for hire”
as
defined in 17 U.S.C. § 101 and the Company shall own all rights in and to such
matter throughout the world, without the payment of any royalty or other
consideration to Executive or anyone claiming through Executive.
(b) All
right, title, and interest in and to any and all trademarks, trade names,
service marks, and logos adopted, used, or considered for use by the Company
during Executive’s employment (whether or not developed by Executive) to
identify the Company’s products or services (collectively, the “Marks”)
and
all other materials, ideas, or other property conceived, created, developed,
adopted, or improved by Executive solely or jointly during Executive’s
employment by the Company and relating to its business, shall be owned
exclusively by the Company. Executive shall not have, and will not claim to
have, any right, title, or interest of any kind in or to the Marks or such
other
property.
10
(c) Executive
shall execute and deliver to the Company such formal transfers and assignments
and such other documents as the Company may request to permit the Company (or
its designee) to file and prosecute such registration applications and other
documents it deems useful to protect its rights under this Agreement. Any idea,
copyrightable matter, or other property relating to the Company’s business and
disclosed by Executive prior to the first anniversary of the Date of Termination
shall be deemed to be governed hereby unless proved by Executive to have been
first conceived and made after the Date of Termination.
(d) Executive
acknowledges and understands that this Agreement does not apply to any invention
that qualifies fully under the provisions of the Illinois Employee Patent Act,
765 ILCS 1060 seq. (i.e., an invention for which no Company equipment, supplies,
facility, or trade secret information was used and which was developed entirely
on the employee's own time and (1) does not relate to Company business and
(2)
does not result from any work performed by Executive for the
Company).
11. Successors.
(a) This
Agreement is personal to Executive and without the prior written consent of
the
Company shall not be assignable by Executive otherwise than by will or the
laws
of descent and distribution. This Agreement shall inure to the benefit of and
be
enforceable by Executive’s legal representatives.
(b) This
Agreement shall inure to the benefit of and be binding upon Company and the
Company and their respective successors and assigns.
(c) The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of its business
and/or assets to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, “Company”
shall mean as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Arbitration.
Any
controversy or claim arising out of or relating to this Agreement, or the breach
of this Agreement, other than claims for specific performance or injunctive
relief pursuant to Section 9, shall be settled by arbitration conducted in
Chicago, Illinois, and judgment upon any award rendered by the arbitrator may
be
entered in any Illinois state or United States federal court sitting in Chicago,
Illinois.
11
13. Tax
and Legal Considerations.
(a) Golden
Parachute Gross-Up Payment. In
the
event it shall be determined that any payments due under this Agreement would
be
subject to an excise tax imposed by Section 4999 of the Code, or any interest
or
penalties (an “Excise
Tax”),
then
Executive shall be entitled to receive an additional payment (a “Gross-Up
Payment”)
in an
amount such that after payment by Executive of Federal and state income tax
and
Excise Tax imposed upon the Gross-Up Payment, Executive will have received
an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon such
payments. All determinations required to be made under this Section 13(a),
including whether and when a Gross-Up Payment is required and the amount of
such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the public accounting firm that is retained
by
the Company as of the date immediately prior to a Change in Control of the
Corporation (the “Accounting
Firm”)
which
shall provide detailed supporting calculations both to the Corporation and
Executive. Any Gross-Up Payment, as determined pursuant to this Section 13(a),
shall be paid by the Company to Executive within ten (10) days of the
determination. The determination by the Accounting Firm shall be binding upon
the Corporation and Executive.
(b) Deferred
Compensation Restrictions.
It is
intended that any amounts payable under this Agreement shall comply with the
provisions of Section 409A of the Internal Revenue Code of 1986, as amended
(the
“Code”),
and
the treasury regulations promulgated thereunder. To avoid any penalties or
excise tax on Executive as imposed by Section 409A, required payments to
Executive upon termination of his employment shall be distributed on the later
of (i) the dates specified in this Agreement or (ii) six (6) months after
Executive’s Date of Termination. The term “termination of employment” and other
similar terms used in this Agreement shall be construed to have the same meaning
as is given to the term “Separation from Service” in Section 409A. Executive and
the Company agree to cooperate to make such other amendments to the terms of
this Agreement as may be necessary to avoid the imposition of penalties and
additional taxes under Section 409A of the Code.
14. Miscellaneous.
(a) This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Illinois, without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof and shall
have
no force or effect. This Agreement may not be amended or modified otherwise
than
by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All
notices and other communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
| If to Executive: |
Xxxxxx
X. Xxxxxx
|
00
Xxxxxxx Xxxxx Xxxx
Xxxxx
Xxx, Xxxxxxxxx, 00000
12
| With a copy to: |
Xxxxxx
X. Xxxxxx
|
Winthrop
& Weinstine, P.A.
000
Xxxxx
Xxxxx Xxxxxx
Xxxxx
0000
Xxxxxxxxxxx,
Xxxxxxxxx 00000
| If to the Company: |
Capital
Growth Systems, Inc.
|
00
Xxxx
Xxxxxxxx Xxxxx
Xxxxx
X
Xxxxxxxxxx,
Xxxxxxxx 00000
| With a copy to: |
Xxxxxxx
X. Xxxxxxxx
|
Xxxxxx
Xxxx & Xxxxxx LLP
000
Xxxx
Xxxxxx Xxxxx
Xxxxx
0000
Xxxxxxx,
Xxxxxxxx 00000
or
to
such other address as either party shall have furnished to the other in writing
in accordance herewith. Notice and communications shall be effective when
actually received by the addressees.
(c) The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement.
(d) The
Company may withhold from any amounts payable under this Agreement such Federal,
state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) Executive’s
failure to insist upon strict compliance with any provision hereof shall not
be
deemed to be a waiver of such provision or any other provision
thereof.
(f) Words
or
terms used in this Agreement which connote the masculine gender are deemed
to
apply equally to female executives.
(g) If
any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
court costs and out-of-pocket expenses incurred in connection with that action
or proceeding, in additional to any other relief which it or they may be
entitled.
(h) Failure
by either party to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right
or
remedy hereunder at any time be deemed a waiver or relinquishment of such right
or remedy.
(i) If
any
provision of this Agreement, as applied to any party or to any circumstance,
shall be found by a court to be void, invalid or unenforceable, the same shall
in no way affect any other provision of this Agreement or the application of
any
such provision in any other circumstance, or the validity or enforceability
of
this Agreement.
13
(j) This
Agreement shall inure to the benefit of and be binding upon the Company and
its
successors and assigns. Except as expressly provided herein, the rights,
benefits and obligations of Executive under this Agreement are personal to
him,
and any voluntary or involuntary alienation, assignment or transfer by Executive
shall be null and void.
(k) This
Agreement contains the entire understanding of the parties hereto relating
to
the subject matter contained herein and supersedes all prior and collateral
agreements, understandings, statements and negotiations of the parties. Each
party acknowledges that no representations, inducements, promises or agreements,
oral or written, with reference to the subject matter hereof have been made
other than as expressly set forth herein. This Agreement may not be modified
or
rescinded except by a written agreement signed by both parties.
[Remainder
of page is blank.]
14
IN
WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the
authorization from its Board of Directors, the Company has caused those present
to be executed in its name on its behalf, all as of the day and year first
above
written.
| EXECUTIVE | ||
| /s/ Xxxxxx X. Xxxxxx | ||
| Name: Xxxxxx X. Xxxxxx | ||
| CAPITAL GROWTH SYSTEMS, INC. | ||
| |
|
|
| By: | /s/ Xxx Xxxxxxxxx | |
|
Name: Xxx Xxxxxxxxx |
||
| Title: Co-Chief Executive Officer | ||
| Date: June 28, 2006 | ||
15
EXHIBIT
A
RELEASE
AGREEMENT
Capital
Growth Systems, Inc. (the “Company”) and Xxxxxx X. Xxxxxx (“Executive”) agree as
follows:
WHEREAS,
the Company and Executive are parties to that certain Employment Agreement
dated
June 28, 2006 (the “Employment
Agreement”);
and
WHEREAS,
the Company and Executive have agreed to terminate the Employment Agreement
releasing each other from all further obligations except those specifically
identified therein as surviving such termination.
THEREFORE,
in consideration of the covenants and obligations set forth below, the Company
and Executive agree as follows:
1. Separation
from Employment.
Executive’s employment with the Company will terminate on
_________________.
2. Severance.
The
Company agrees to pay Executive severance benefits in accordance with the terms
of the Employment Agreement commencing as soon as practicable following the
expiration of the rescission period referred to below.
3. Release
of Claims.
After
adequate opportunity to review this Release Agreement and to obtain the advice
of legal counsel of Executive’s choice,
Executive hereby releases, acquits and forever discharges the Company, and
all
of its directors, officers, agents, employees, affiliates, parents, successors
and assigns, from any and all liability whatsoever arising from or relating
to
(i) his employment by the Company, (ii) his separation from employment with
the
Company, or (iii) any other claim or liability, excluding liabilities from
claims arising under this Release Agreement or under Sections 6(d) and 9 of
the
Employment Agreement, including those claims related to Executive’s vested
Employee Options, vested Performance Options and Accrued Obligations. Subject
to
the foregoing, by this Release, Executive gives up any right to make a claim,
bring a lawsuit, or otherwise seek money damages or court orders as a result
of
his employment by the Company, his separation from employment with the Company,
or otherwise. Executive hereby acknowledges and intends that this Release
applies to any statutory or common law claims which
have arisen through the date of Executive’s signature below,
including but not limited to, any and all claims of unpaid wages, stock options,
wrongful termination, defamation, intentional or negligent infliction of
emotional distress, negligence, breach of contract, fraud, and any claims under
the Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act, the Illinois Human Rights
Act
(IHRA), the Family and Medical Leave Act, the
Employee Retirement Income Security Act,
and any
other local, state or federal statutes.
Executive acknowledges that this Release includes all claims Executive is
legally permitted to release and as such does not apply to any claim for
reemployment benefits, nor does it preclude Executive from filing a charge
of
discrimination with the state Department of Human Rights or the federal Equal
Employment Opportunity Commission although Executive would not be able to
recover any damages if Executive filed such a charge. This Release includes
but
is not limited to all claims relating to Executive’s employment and the
separation of Executive’s employment. This
Release Agreement shall be binding upon Executive and upon his heirs,
administrators, representatives, executors, successors and assigns.
Notwithstanding anything to the contrary contained herein, in no event shall
this Release Agreement constitute a release by Executive of his rights with
respect to accrued benefits to which he would otherwise be entitled under any
of
the Company's employee benefit plans, programs or other employee benefit
arrangements (excluding any severance plans or arrangements).
16
4. Entire
Agreement.
This
Release Agreement contains the entire agreement between Executive and the
Company with respect to the subject matter hereof. No modification or amendment
to this Release Agreement shall be valid or binding unless made in writing
and
signed by the parties. This Release Agreement will be interpreted under the
laws
of Illinois.
5. Notification
of Rescission Rights.
a) This
Release Agreement contains a release of certain legal rights which Executive
may
have under the ADEA or the IHRA. Executive should consult with an attorney
regarding such release and other aspects of this Release Agreement before
signing.
b) The
termination of Executive’s employment by the Company will not be affected by
Executive’s acceptance or failure to accept this Release Agreement. If Executive
does not accept the terms hereof, or if Executive revokes his acceptance of
this
Release Agreement, the Company will not provide to him the benefits described
herein.
c) Executive
has twenty-one (21) days to consider whether or not to sign this agreement,
starting from the date he first receives a copy of this agreement. Executive
may
sign this agreement at any time during this twenty-one (21) day
period.
d) After
Executive has accepted this Release Agreement by signing it, he may revoke
his
acceptance for a period of fifteen (15) days after the date he signed this
Release Agreement. This Release Agreement will not be effective until this
fifteen (15) day revocation period has expired.
e) If
Executive wishes to revoke his acceptance of this Release Agreement he must
notify the Company in writing within the fifteen (15) day revocation period.
Such notice must be delivered to the Company in person or mailed by certified
mail, return receipt requested, addressed to: Capital Growth Systems, Inc.,
00
Xxxx
Xxxxxxxx Xxxxx, Xxxxx X, Xxxxxxxxxx, Xxxxxxxx 00000,
Attention: Board of Directors.
If
Executive fails to properly deliver or mail such written revocation as
instructed, the revocation will not be effective.
17
I
first
received a copy of this Release Agreement on _____________________.
Date:____________________ ________________________________
Xxxxxx
X.
Xxxxxx
I
agree
to accept the terms of this Release Agreement.
Date:____________________ ________________________________
Xxxxxx
X.
Xxxxxx
CAPITAL
GROWTH SYSTEMS, INC.
By:_____________________________
Name:
Title:
Date:
