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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 this Agree
