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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into this
14th day of
March, 2005 (the "Effective Date"), by and between Bennett K.
Hatfield
("Executive") and International Coal Group, Inc. (the
"Company"), a Delaware
corporation.
RECITALS:
A. ICG desires to employ Executive, and Executive desires to be
employed
by ICG, under the terms and conditions of this Agreement.
B. The Board of Directors has also determined that it is in the
best
interests of the stockholders and ICG to promote stability among
key officers.
IN CONSIDERATION OF THE FOREGOING, the mutual covenants
contained herein,
and other good and valuable consideration, receipt of which is
hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
1.1 "ACCOUNTANTS" has the meaning set forth in Section
10.7(B)(i).
1.2 "ANNUAL BONUS" has the meaning set forth in Section 5.2.
1.3 "APPLICANT VIOLATOR SYSTEM" has the meaning set forth in
Section 12.4.
1.4 "BASE SALARY" has the meaning set forth in Section 5.1.
1.5 "BOARD" or "BOARD OF DIRECTORS" means the board of directors
of the
Company.
1.6 "CAUSE" means (A) the commission by Executive of (i) a
felony or (ii)
any serious crime involving fraud, dishonesty or breach of
trust; (B) gross
negligence or intentional misconduct by Executive with respect
to ICG or in the
performance of his duties to ICG; (C) failure to follow a
reasonable, lawful and
specific direction of the Board of Directors; (D) failure by
Executive to
cooperate in any corporate investigation; or (E) breach by
Executive of any
material provision of this Agreement, which breach is not
corrected by Executive
within ten (10) calendar days after receipt by Executive of
written notice from
ICG of such breach. For purposes of this definition, no act or
failure to act by
the Executive shall be considered "intentional" unless done or
omitted to be
done by the Executive in bad faith and without reasonable belief
that the
Executive's action or omission was in the best interests of
ICG.
1.7 "CHANGE IN CONTROL" means that (A) WL Ross & Co. LLC's
percentage of
Company Stock held (9.2% on the Effective Date) is reduced by
50% or more solely
as a result of a sale by WL Ross & Co. LLC of Company Stock,
or (B) a person or
entity acquires 40% or more of Company Stock after which the
individuals who
constitute the Board immediately prior to such acquisition cease
for any reason
to constitute at least a majority thereof.
1.8 "CODE" has the meaning set forth in Section 5.3(B).
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1.9 "COMPANY STOCK" has the meaning set forth in Section
5.3(A)(i).
1.10 "COVERED PAYMENTS" has the meaning set forth in Section
10.7(A).
1.11 "DISABILITY" or "DISABLED" means the absence of Executive
from
Executive's duties with the Company on a full time basis for 180
consecutive
business days as a result of incapacity due to mental or
physical illness that
is determined to be total and permanent by a physician selected
by the Company
or its insurers and reasonably acceptable to Executive or
Executive's legal
representative.
1.12 "EBITDA" has the meaning set forth in Section 5.2.
1.13 "EXCISE TAX" has the meaning set forth in Section
10.7(A).
1.14 "EXCISE TAX REIMBURSEMENT" has the meaning set forth in
Section
10.7(A).
1.15 "GOOD REASON" means the termination of Executive's
employment by
Executive pursuant to Section 9.2, such written notice being
given within thirty
(30) days of the occurrence of any of the following events:
(A) involuntary reduction in Executive's Base Salary unless
with
Executive's consent such reduction occurs simultaneously with a
reduction
in officers' salaries generally applicable on a company-wide
basis;
(B) involuntary discontinuance or reduction in Executive's
Annual
Bonus award opportunities unless with Executive's consent
such
discontinuance or reduction occurs simultaneously with a
generally
applicable company-wide reduction or elimination of all
officers' bonus
awards occurs simultaneously with such discontinuance or
reduction;
(C) involuntary discontinuance of Executive's participation in
any
employee benefit plan or plans maintained by ICG unless such
plan(s) are
discontinued by reason of law or loss of tax deductibility to
ICG with
respect to contributions to such plan(s), or with Executive's
consent such
discontinuance occurs as a matter of ICG policy applied equally
to all
participants in such plan(s) that are in the same classification
of
employees as Executive;
(D) failure to obtain an assumption of ICG's obligations under
this
Agreement by any successor to ICG, regardless of whether such
entity
becomes a successor to ICG as a result of a merger,
consolidation, sale of
assets of ICG, or other form of reorganization, except when the
rights and
obligations of ICG under this Agreement are vested in the
successor to ICG
by operation of law;
(E) failure of there to be an Initial Public Offering within
twenty-four (24) months of the Effective Date;
(F) a Change in Control;
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(G) involuntary relocation of Executive's primary office to
a
location more than fifty (50) miles from the location mutually
agreed to
by Executive and the Company pursuant to Section 8.6 of this
Agreement;
and
(H) material reduction of Executive's duties and authority as
set
forth in Section 3 of this Agreement as in effect on the
Effective Date.
1.16 "GUIDANCE" has the meaning set forth in Section 14.3.
1.17 "ICG" means International Coal Group, Inc. and each of the
affiliates
of International Coal Group, Inc. (meaning any entity that
directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is
under common control with, International Coal Group, Inc.),
along with all
successors and assigns of each of such entities.
1.18 "INITIAL PUBLIC OFFERING" or "IPO" means an initial
offering of
common stock of ICG that is completed by the sale of such shares
pursuant to
ICG's first effective registration statement for the sale of
shares filed under
the Securities Act of 1933, as amended.
1.19 "IRS" means the Internal Revenue Service.
1.20 "PLAN" means the International Coal Group, Inc. 2005
Management
Equity Incentive Compensation Plan or if such plan has not been
adopted as of
the Effective Date, such plan as subsequently adopted which
shall contemplate
the equity grants set forth in Section 5.3.
1.21 "PROTECTED EMPLOYEE" has the meaning set forth in Section
11.2.
1.22 "TARGETED ANNUAL BONUS" has the meaning set forth in
Section 5.2.
1.23 "TERM" has the meaning set forth in Section 4.
1.24 "TERMINATION DATE" means the date on which the termination
of
Executive's employment with ICG becomes effective.
2. EMPLOYMENT.
ICG hereby employs Executive, and Executive hereby accepts
employment,
according to the terms and conditions set forth in this
Agreement and for the
period specified in Section 4 of this Agreement.
3. DUTIES.
(A) During the Term, Executive shall serve as President and
Chief
Executive Officer of the Company, and agrees to serve as an
officer,
director and/or employee of such affiliates of ICG in accordance
with
reasonable and lawful directions from ICG's Board of Directors
and in
accordance with ICG's Articles of Incorporation and Bylaws, as
both may be
amended from time to time. Executive will report directly to the
Board of
Directors, and its Chairman.
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(B) The Board of Directors will elect Executive as a director of
the
Company, effective no later than March 31, 2005. During the
Term, the
Company shall use its best efforts to re-nominate and elect
Executive as a
director of the Company upon the expiration of his initial term
as a
member of the Board of Directors.
(C) While Executive is employed by ICG as a full-time
employee,
Executive shall serve ICG, faithfully, diligently, competently
and to the
best of his ability, and will exclusively devote his full time,
energy and
attention to the business of ICG and to the promotion of its
interests.
Executive shall not, without the written consent of the Board of
Directors
either render services to or for any person, firm, corporation
or other
entity or organization in exchange for compensation, regardless
of the
form in which such compensation is paid and whether or not it is
paid
directly or indirectly to Executive, or serve as a board member,
director
or trustee of any corporation or organization regardless of
whether
Executive is paid for such services. Nothing in this Section 3
shall
preclude Executive from managing his personal investments and
affairs,
provided that such activities in no way interfere with the
proper
performance of his duties and responsibilities as President and
Chief
Executive Officer.
(D) Executive shall develop and present to the Board for review
and
approval an incentive and perquisite benefit program for senior
executive
officers of the Company.
(E) Subject to approval by the Board of Directors, Executive may
by
June 30, 2005, make reasonable modifications to the forecasted
2005 EBITDA
and further in a timely manner make forecasts for subsequent
years EBITDA
which if reasonable shall be the basis for Executive's Annual
Bonus.
(F) Subject to the direction of the Board of Directors,
Executive
shall have powers as are typically granted to a Chief Executive
Officer of
a corporation engaged in a similar business to Company
(including, without
limitation, the power to make decisions with respect to hiring
and
termination of employees).
4. TERM OF EMPLOYMENT.
Subject to Article 9, the term of this Agreement (the "Term")
shall
commence on Executive's first day of employment with ICG which
shall be mutually
agreed to by ICG and Executive but in any event no later than
April 1, 2005. The
Term shall end on March 31, 2008. The Term shall automatically
be extended by
one (1) year on each March 31, beginning March 31, 2007, unless
not later than
December 31 of each year, beginning December 31, 2006, ICG
notifies Executive,
or Executive notifies ICG, that it or he, as the case may be,
does not desire to
have the Term extended. For example, if such notice of
non-extension is not
given by December 31, 2006, the Term of this Agreement shall
automatically be
extended to March 31, 2009.
5. COMPENSATION.
5.1 BASE SALARY. While employed under this Agreement, Executive
will
receive as his compensation for the performance of his duties
and obligations to
ICG under this Agreement a Base Salary of Five Hundred Thousand
Dollars
($500,000) per year, which will be payable in such installments
established by
ICG for all salaried employees, and which will be subject to
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annual review for purposes of salary increases by the Board of
Directors or any
committee designated by the Board of Directors (the base salary,
as it may be
increased from time to time, is referred to herein as the "Base
Salary").
5.2 BONUS. In addition to his Base Salary, Executive will be
entitled to a
performance-based annual cash bonus (the "Annual Bonus"), which
will be paid as
soon as practicable following the determination by the Board of
Directors of the
amount of such Annual Bonus following preparation of ICG's
financial results for
the year in question. Executive will be eligible for the
"Targeted Annual
Bonus," if ICG's earnings before interest, taxes, depreciation
and amortization
("EBITDA") is between 90% and 110% of ICG's forecasted EBITDA;
provided,
however, that the Annual Bonus awarded will increase by 2% of
variance above
110% or decrease by 2% of variance below 90%. For 2005, the
Targeted Annual
Bonus amount will be Seven Hundred Thousand Dollars ($700,000).
The Targeted
Annual Bonus for the remainder of the Term will be 200% of Base
Salary. The
Annual Bonus payable for 2005 and 2006 will not be less than
Five Hundred
Thousand Dollars ($500,000) per year.
5.3 EQUITY COMPENSATION.
(A) Pursuant to the terms of the Plan and award agreements
thereunder, within seven days of the Effective Date, ICG will
grant
Executive the following equity awards:
(i) Options to purchase a number of shares of common stock
of
the Company ("Company Stock") determined by dividing $3.5
million by
the fair market value per share of the Company Stock on the date
of
grant. The exercise price for each option shall be the fair
market
value of the Company Stock on the date of grant. All such
options
will vest 25% on the issuance date and 25% annually on each of
the
first, second and third anniversaries of the Effective Date.
(ii) A grant of 206,250 restricted shares of Company Stock.
The restrictions on such shares of Company Stock will lapse
one-third (1/3) annually on each of the first, second and
third
anniversaries of the Effective Date. If 206,250 multiplied by
the
average sales price per share of Company Stock of any IPO during
the
Term is less than $2.0625 million, then Executive shall be
granted
additional restricted shares of Company Stock so that the
total
value of the Company Stock (based upon the average sales price
per
share of Company Stock in the IPO) granted under this
Section
5.3(A)(ii) equals $2.0625 million. The restrictions on such
additional restricted shares of Company Stock will lapse
one-third
(1/3) annually on each of the first, second and third
anniversaries
of the Effective Date.
(iii) A grant of 68,750 unrestricted shares of Company
Stock.
If 68,750 multiplied by the average sales price per share of
Company
Stock of any IPO during the Term is less than $687,500, then
Executive shall be granted additional shares of Company Stock
so
that the total value of the Company Stock (based upon the
average
sales price per share of Company Stock in the IPO) granted
under
this Section 5.3(A)(iii) equals $687,500.
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(B) Provided that Executive shall make timely elections
under
Section 83(b) of the Internal Revenue Code of 1986, as amended
(the
"Code"), the Company will pay Executive an income tax "gross-up"
payment
such that Executive will be made whole for the federal and state
income
and employment tax impact of the equity compensation vesting of
the grants
provided for in Sections 5.3(A)(ii) and (iii) and the gross-up
payment
contemplated herein.
(C) Any unvested grants pursuant to Sections 5.3(A)(i) and (ii)
will
accelerate and vest if: (i) there occurs a Change in Control;
(ii) ICG has
had an underwriting of not less than $100 million of equity and
Company
Stock has become listed and traded on a registered securities
exchange
(NYSE, AMEX or NASDAQ) for thirty (30) consecutive trading days
at 150% or
more of the price of Company Stock upon an Initial Public
Offering; (iii)
Executive's employment is terminated other than for Cause or
terminates
with Good Reason; or (iv) Wilbur L. Ross ceases to serve as
chairman of
the Board of Directors.
5.4 SIGN ON BONUS PAYMENT. As soon as reasonably practicable,
but not
later than thirty (30) days after the Effective Date, ICG will
pay to Executive
One Hundred Eight Thousand Three Hundred Eleven Dollars
($108,311) to compensate
Executive for incentive compensation lost by virtue of his
resignation of
employment from his prior employer.
5.5 ADDITIONAL TERM LIFE INSURANCE. In addition to any life
insurance
provided to Executive under Section 8.1, Company shall
commencing on the
Effective Date pay the premiums for a period of 120 months on a
$3 million term
life insurance policy on Executive from a company mutually
agreed to by Company
and Executive, which policy is to be owned by Executive's
designee.
6. WITHHOLDING.
All compensation payable to Executive shall be paid net of
amounts
withheld for federal, state, municipal or local income taxes,
Executive's share,
if any, of any payroll taxes and such other federal, state,
municipal or local
taxes as may be applicable to amounts paid by an employer to its
employee or to
the employer/employee relationship.
7. PURCHASE OF COMPANY STOCK.
Within forty-five (45) days of the Effective Date, Executive,
using his
own funds, shall purchase and the Company shall sell, 25,000
shares of Company
Stock at $8 per share. Executive shall pay for such shares in
cash. Should this
purchase be deemed a bargain purchase, Company shall pay to
Executive an income
tax "gross-up" payment such that Executive will be made whole
for the federal
and state income and employment tax impact of the bargain
purchase element and
the gross-up payment contemplated herein.
8. OTHER BENEFITS OF EMPLOYMENT.
8.1 EMPLOYEE BENEFITS. Executive will be entitled to participate
in such
hospitalization, life insurance, long and short term disability,
401(k) and
other employee benefit plans and programs, if any, as may be
adopted by ICG from
time to time, in accordance with the
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provisions of such plans and programs and on the same basis as
other full-time
salaried employees of ICG who participate in such employee
benefit plans (except
to the extent that the benefits provided under any of such plans
or programs are
expressly offset by any of the benefits provided under or
pursuant to this
Agreement).
8.2 EXECUTIVE BENEFITS. Executive shall be entitled to
participate in any
employee benefit adopted by ICG for executive level employees.
At a minimum for
Executive, such benefits shall include a company automobile
consistent with
ICG's then policy on company automobiles; participation in such
deferred
compensation arrangements as may be approved by the Board;
reasonable retirement
planning services; reasonable financial and tax preparation
services; and the
use of private aircraft for business purposes as appropriate.
The Company shall
pay to Executive an income tax "gross-up" payment such that
Executive will be
made whole for the federal and state income tax impact of any
taxable executive
benefits provided hereunder and the gross-up payment
contemplated herein;
provided, however, that the Company shall not be responsible for
any tax impact
to Executive as a result of Section 409A of the Code.
8.3 STOCK BASED AWARDS. Executive shall be eligible to receive
grants of
stock options, performance units, stock appreciation rights,
restricted stock,
deferred shares, and other stock-based awards in accordance with
the provisions
of the Plan or other stock-based award or long-term incentive
plan that ICG may
adopt or amend or supersede from time to time. The terms of such
grants shall be
determined by the Board of Directors (or its designee as
provided in the Plan or
as appointed by the Board of Directors) in accordance with the
Plan; provided,
however, that notwithstanding any provision of the Plan to the
contrary, in the
event of (i) any termination of Executive's employment for any
reason other than
for Cause pursuant to Section 9.1, or (ii) termination of
employment for Good
Reason pursuant to Section 9.2, any stock-based award granted to
Executive prior
to such Termination Date shall immediately vest and be
exercisable by or issued
to the Executive under the Plan.
8.4 TAXES AND WITHHOLDING. Executive shall be responsible for
paying all
federal, state, municipal or local taxes payable by him with
respect to any
benefits provided under this Section 8, and ICG will, when
required by law or
when otherwise appropriate or customary, withhold from the
benefits or other
compensation amounts sufficient to satisfy such taxes, unless
taxes are to be
paid by ICG as set forth in the provisions of this
Agreement.
8.5 REIMBURSEMENT OF EXPENSES.
(A) Following submission of appropriate documentation in
accordance
with its policies in effect from time to time, ICG will pay or
reimburse
Executive for all business expenses which Executive incurs in
performing
his duties under this Agreement, including, but not limited to,
travel,
entertainment, professional dues and subscriptions, and all
dues, fees,
and expenses associated with membership in various professional,
business,
and civic associations and societies in which Executive
participates in
accordance with ICG's policies in effect from time to time.
(B) ICG will reimburse Executive for the reasonable travel
expenses
incurred by Executive in the course of interviewing for the
position
contemplated by t
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