CAPITAL GROWTH SYSTEMS, INC. PERFORMANCE OPTION AGREEMENT THOMAS G. HUDSON
CAPITAL
GROWTH SYSTEMS, INC.
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THIS
PERFORMANCE OPTION AGREEMENT (“Agreement”)
is
made and entered into as of the 28th day of June, 2006, by and between Capital
Growth Systems, Inc. (“Company”)
and
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1. Grant
of Option.
Company
hereby grants to Optionee an option (“Option”)
to
purchase Shares (as defined herein) from the Company. The Option is subject
to
the terms and conditions set forth below and in that certain Employment
Agreement, of even date herewith, between the Company and Optionee (the
“Employment
Agreement”),
a
copy of which is attached hereto as Exhibit
A
and
incorporated herein by reference. Capitalized terms not otherwise defined in
this Agreement have the same meaning as defined in the Employment
Agreement.
2. Exercise
Price.
The per
share common stock price of the Next Equity Financing or the conversion price
into which the offered equity interests convert into shares of common stock
of
the Company; provided that if such Next Equity Financing does not occur on
or prior to June 27, 2007, such the exercise price shall be equal to
$.70.
3. Number
of Shares.
2,993,985 shares of common stock of the Company (the “Shares”).
4. Type
of Option.
The
Option is not intended to be an “incentive stock option” within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (“Code”).
5. Vesting.
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a.
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General.
The Option hereby granted to the Optionee shall become vested (and,
therefore, exercisable) as set forth in Section 4(b)(v)(2) of the
Employment Agreement.
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| b. | Termination of Employment. The Company’s obligations upon termination of the Optionee’s employment (whether with/without Cause, for Good Reason or other than for Good Reason, or by reason of Optionee’s death or Disability) with respect to any vested and all unvested Shares as of the Date of Termination shall be as set forth in Section 6 of the Employment Agreement. |
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c.
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Change
of Control.
The Company’s obligations upon a Change of Control with respect to any
vested and all unvested Shares shall be as set forth in Section 6(f)
of
the Employment Agreement.
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6. Exercise
of Option.
Subject
to the terms and condition herein and in the Employment Agreement, the Option,
to the extent vested, may be exercised in whole or in part upon written notice
to the Company and payment in cash, by check or wire transfer of an amount
(“Option
Price”)
equal
to the product of (i) the Exercise Price multiplied by (ii) the number of Shares
to be acquired. Upon an exercise of all or a portion of this Option pursuant
to
a Change of Control of the Company or in any other event if the Board, in its
sole and absolute discretion permits, the Option Price may be paid in shares
of
Common Stock (A) which are already owned by the Optionee and which are
surrendered to the Company in good form for transfer or (B) which are retained
by the Company from the shares of the Common Stock which would otherwise be
issued to the Optionee upon the Optionee’s exercise of the Option. Such shares
shall be valued at their Fair Market Value on the date of exercise of the
option. In lieu of payment in fractions of Shares, payment of any fractional
Share amount shall be made in cash or check payable to the Company. The Board,
in its sole discretion, may also provide that the exercise price may be paid
by
delivering a properly executed exercise notice in a form approved by the Board
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of applicable sale price. No shares of Common Stock shall
be
issued to the Optionee upon exercise of an option until the Company
receives full payment therefore as described above.
7. Expiration
of Option.
The
Option shall expire on the tenth (10th) anniversary of the date of this
Agreement (“Expiration
Date”)
and in
no event shall the Option be exercisable after the Expiration Date. Except
as
otherwise provided in Section 6 of the Employment Agreement, any portion of
the
Option (whether vested or unvested) that is unexercised on the date Optionee’s
employment with the Company is terminated shall be deemed expired. The Optionee
shall have no further rights with respect to such expired Option. Any Option
which expires shall also be deemed terminated and forfeited for any and all
purposes.
8. Rights
as a Stockholder.
Optionee shall have no rights as a stockholder of the Company with respect
to
any Shares covered by the Option (including, but not limited to, any rights
to
receive distributions or participate in the management of the Company) until
the
date of the exercise of the Option and the payment of the Exercise Price
therefor. No adjustment shall be made for distributions or other rights for
which the record date is prior to such exercise date.
9. Restrictions
on Transfer of Option and Shares.
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a.
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General.
The Option is personal to Optionee and is not transferable by Optionee
other than by will or the laws of descent and distribution, subject
to the
provisions of the Employment Agreement. Further, Optionee may not
directly
or indirectly, sell, assign, transfer, mortgage, encumber, pledge,
or
otherwise deal with or dispose of (any of the foregoing being referred
to
herein as a “Transfer”)
without first complying with the requirements of this Section.
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b.
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Securities
Law Compliance.
Optionee understands and acknowledges that federal and state securities
laws govern and restrict Optionee’s right to offer, sell or otherwise
dispose of any Shares unless Optionee’s offer, sale or other disposition
thereof is registered under the Act and state securities laws, or
in the
opinion of the Company’s counsel, such offer, sale or other disposition is
exempt from registration or qualification thereunder. Optionee shall
not
Transfer any Shares without first delivering to the Company an opinion
of
counsel reasonably acceptable in form and substance to the Company
that
the Transfer would not: (i) require the Company to file any registration
statement with the Securities and Exchange Commission (or any similar
filing under state law) or to amend or supplement any such filing,
(ii)
violate or cause the Company to violate the Act, the rules and regulations
promulgated thereunder or any other state or federal law, or (iii)
cause
any securities law exemption to be unavailable to the Company with
regard
to future sales. Any Transfer of Shares must also satisfy the other
requirements and restrictions of this
Section.
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c.
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Exception.
Notwithstanding, Optionee shall have authority, subject to the Board
approval, to direct the allocation of any portion of the Options
to other
Company executives. Any reallocation of Options must also satisfy
the
other requirements and restrictions of this Section and each Company
executive receiving an allocation of Options must execute a Performance
Option Agreement and agree to be bound by the terms
thereof.
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10. Conformity
with Employment Agreement.
The
Option is intended to conform in all respects with, and is subject to all
applicable provisions of, the Employment Agreement. Inconsistencies between
this
Agreement and the Employment Agreement shall be resolved in accordance with
the
terms of the Employment Agreement.
11. Withholding
of Taxes.
Federal, state and local withholding tax due under the terms of the this Option
may be paid in cash or shares of Common Stock (either through the surrender
of
previously held shares of Common Stock or the withholding of shares of Common
Stock otherwise issuable upon the exercise or payment of such award) having
a
Fair Market Value equal to the required withholding and upon such other terms
and conditions as the Board shall determine; provided, however, that the Board,
in its sole discretion, may require that such taxes be paid in cash; and
provided, further, that any election by a participant subject to Section 16(b)
of the Exchange Act to pay his withholding tax in shares of Common Stock shall
be subject to and must comply with Rule 16b-3(e) of the Securities Exchange
Act
of 1934, as amended.
12. Restrictive
Covenants.
Optionee acknowledges and reaffirms herein that he is subject to, and shall
abide by, certain covenants and limitations including, without limitation,
confidentiality, non-solicitation, work product assignments and work-for-hire
obligations as set forth in Sections 9 and 10 of the Employment Agreement,
which
are reasonable in duration and scope. This Section 12 shall survive any
termination of this Agreement.
13. Governing
Law.
The law
of Illinois shall govern all questions concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
law, and not the law of conflicts, of Illinois.
14. Notices.
All
notices, demands or other communications to be given or delivered under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or mailed by certified or registered mail, return receipt
requested, or sent by reputable express courier service. Such notices, demands
and other communications shall be sent to at the addresses indicated
below:
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Winthrop
& Weinstine, P.A.
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| If to the Company: |
Capital
Growth Systems, Inc.
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| With a copy to: |
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▇▇▇▇ & ▇▇▇▇▇▇ LLP
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or
to
such other address or to the attention of such other person as a party may
specify by written notice in accordance with this Section.
15. Entire
Agreement; Amendment.
This
Agreement and the Employment Agreement constitute the entire understanding
between Optionee and the Company, and supersede all other agreements whether
written or oral with respect to the acquisition by Optionee of Shares of the
Company. Except as otherwise provided herein, any provision of this Agreement
may be amended or waived only with the prior written consent of Optionee and
the
Company.
16. Waiver.
The
failure to insist upon strict enforcement of any of the provisions of this
Agreement shall not be deemed or construed to be a waiver of any such provision,
nor to in any way affect the validity of this Agreement or the right of any
party hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party against
which enforcement of such wavier is sought, and no waiver of any such breach
shall be construed or deemed to be a waiver of any other or subsequent
breach.
17. Restrictive
Legend.
All
certificates representing Shares shall bear the following legend:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN
EXEMPTION FROM REGISTRATION THEREUNDER.
[Signature
Page Follows]
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BY
EXECUTING THIS AGREEMENT, OPTIONEE ACKNOWLEDGES AND AFFIRMS THAT OPTIONEE HAS
RECEIVED AND REVIEWED THE EMPLOYMENT AGREEMENT AND THAT OPTIONEE AGREES TO
BE
BOUND BY ALL OF THE TERMS OF THE EMPLOYMENT AGREEMENT AND THIS AGREEMENT.
IN
WITNESS WHEREOF, the parties hereto have executed this Performance Option
Agreement as of the date first above written.
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CAPITAL
GROWTH SYSTEMS, INC.
By:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title:Co-Chief
Executive Officer
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OPTIONEE:
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Sign:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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EXHIBIT
A
EMPLOYMENT
AGREEMENT