EXHIBIT (C)(5)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement"), dated as of February 10, 1998, by and
between ▇▇▇▇▇▇ ▇▇▇▇▇▇ (the "Executive") and ▇▇▇▇▇▇▇▇▇▇ Tank Lines, Inc., an
Illinois corporation (the "Company").
WHEREAS, the Executive is currently an employee of the Company;
WHEREAS, concurrently with the execution and delivery of this Agreement,
MTL Inc. and Sombrero Acquisition Corp. are entering into an Agreement and Plan
of Merger (the "Merger Agreement"), dated as of the date hereof; and
WHEREAS, MTL Inc. and Sombrero Acquisition Corp. intend that the Company
continue the employment of the Executive pursuant to the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive, and the
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Executive hereby accepts employment by the Company, upon the terms and
conditions hereinafter set forth. The Executive's employment hereunder shall
commence, and shall be effective only upon, the occurrence of the "Effective
Time" of the Merger Agreement (the "Effective Date").
2. Term. Subject to the provisions for earlier termination as herein
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provided, the employment of the Executive hereunder will be for the period
commencing on the Effective Date and ending on the second anniversary of such
date. On the first anniversary of the Effective Date, and on each anniversary
thereafter, the term of this Agreement shall automatically be extended by an
additional one year unless, no later than 90 days prior to any such renewal
date, either the Company or the Executive gives written notice to the other that
the term will not be extended, in which case the Executive's employment
hereunder shall terminate upon the expiration of the then-current term. The
period of the Executive's employment under this Agreement, as it may be
terminated or extended from time to time as provided herein, is referred to
hereafter as the "Employment Period."
3. Duties and Responsibilities. The Executive will be employed by the
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Company in the same capacity as such Executive is currently employed by the
Company. The Executive will faithfully perform the duties and responsibilities
of such office, as they may be assigned from time to time by the Board of
Directors of the Company (the "Board")
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or the Board's designee. The Executive shall devote full-time attention and
energy during all business hours during the Employment Period (subject to sick
leave and vacation time taken in accordance with Company policy) to the business
of the Company, and at all times the Executive shall use his best efforts to
serve and advance the business of the Company. During the Employment Period, the
Executive will not be engaged in any other business activity which, in the
reasonable judgment of the Board or its designee, conflicts with the duties of
the Executive hereunder, whether or not such activity is pursued for gain,
profit or other pecuniary advantage, except for such passive investments
permitted under Section 7(a)(i) hereof.
4. Compensation and Benefits.
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(a) Base Salary. The Company will pay to the Executive an annual base
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salary of not less than $192,238.80, payable in accordance with the Company's
normal payroll policy. The Executive's base salary shall be reviewed annually
by the Board and shall be subject to increase at the option and sole discretion
of the Board.
(b) Bonus. The Executive shall be eligible to receive, at the sole
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discretion of the Board, an annual cash bonus based on pre-determined
performance standards established pursuant to the Company's Goal-Oriented
Compensation Achievement Plan on the date hereof, or such other annual bonus
plan as may be in effect from time to time. The Executive shall have a target
bonus of 42% of his base salary under such plan. The bonus target under such
plan for 1998 shall be based on the annual bonus targets that have been set
prior to the Effective Date hereof, but adjusted by the Compensation Committee
of the Board (in consultation with management) to reflect the effect on the
Company of the transactions contemplated by the Merger Agreement. In addition,
the Company will reserve an additional bonus amount equal to 18% of base salary,
payable in whole or in part based on guidelines established and evaluated by the
Compensation Committee of the Board (in consultation with management) relating
to extraordinary performance by the Company and Executive.
(c) Benefits. In addition to the salary and cash bonus referred to above,
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the Executive shall be entitled during the Employment Period to participate in
such employee benefit plans or programs of the Company, and shall be entitled to
such other fringe benefits, as are from time to time made available by the
Company generally to employees of the Executive's position, tenure, salary, and
other qualifications, on terms and conditions at least as favorable as those
provided to such similarly situated employees. The employee benefits plans
available to the Executive during the Employment Period shall be comparable, in
the aggregate, to those made available to the Executive by the Company
immediately prior to the Effective Date. The Executive acknowledges and agrees
that the Company does not guarantee the adoption of any particular employee
benefit plan or program or other fringe benefit during the Employment Period,
and participation by the Executive in any such plan or program shall be subject
to the rules and regulations applicable thereto.
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(d) Stock Options. Upon consummation of the transactions contemplated
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under the Merger Agreement, the Executive shall be granted options to purchase
25,500 shares of common stock of the Company under the terms of the Option Plan
described in Attachment A hereto (the "New Options"). In addition, the
Executive shall be eligible for such other awards, if any, under the Option Plan
or any other stock option or other equity-based incentive plan as shall be
granted to the Executive from time to time by the Board or its designee, in its
sole discretion.
(e) Expenses. The Company will reimburse the Executive, in accordance with
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the practices in effect from time to time for other officers or staff personnel
of the Company, for all reasonable and necessary business expenses incurred by
the Executive for or on behalf of the Company in the performance of the
Executive's duties hereunder, upon presentation by the Executive to the Company
of appropriate vouchers or documentation.
5. Termination. The Company reserves the right to terminate the
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Executive's employment hereunder at any time with or without Cause (as defined
herein), subject to the provisions of section 6(d) hereof. In addition, the
Executive's employment hereunder may be terminated by the Company under the
following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon his
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death.
(b) Disability. If, as a result of the Executive's incapacity due to
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physical or mental illness, the Executive shall have been absent from his duties
hereunder on a full-time basis for three consecutive months or for a period in
excess of six months within any twelve month period (whether or not
consecutive), and within thirty days after written notice of termination is
given (which may occur before or after the end of such absence period) shall not
have returned to the performance of his duties hereunder on a full-time basis,
the Company may terminate the Executive's employment hereunder on the basis of
disability.
(c) For Cause. The Company may terminate the Executive's employment
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hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder if such termination
shall be the result of:
(i) the willful failure by the Executive to substantially perform his
duties hereunder (which shall be deemed to include, without limitation,
habitual absenteeism or dereliction of duty), which failure continues
following written notice to the Executive by the Company;
(ii) disobeying in a material respect any written and legally appropriate
directives of the Board that are specific in nature;
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(iii) a material breach of the Executive's fiduciary duty to the Company
or fraud, willful misconduct or material dishonesty in connection with the
Executive's performance hereunder;
(iv) the material breach of any of the covenants set forth in Section 7
hereof; or
(v) indictment or conviction for, or plea of guilty or nolo contendere to a
charge of commission of a felony.
Any termination of the Executive's employment for Cause by the Company shall be
communicated by a written notice of termination, indicating the specific
termination provision in the Agreement relied upon and setting forth the facts
that provide the basis for the Executive's termination. Such notice must be
given at least thirty days prior to termination, and the Executive shall have
the opportunity during such notification period to cure or correct any failure
or breach upon which the Executive's termination is based.
(d) Good Reason. The Executive may terminate his employment hereunder
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for "Good Reason." For purposes of this Agreement, the Executive shall have
"Good Reason" to terminate his employment if such termination shall be the
result of:
(i) a material diminution by the Company in the Executive's duties and
responsibilities as contemplated by Section 3 hereof;
(ii) a material breach by the Company of its compensation and benefit
obligations under Section 4 hereof; or
(iii) an involuntary relocation by more than 50 miles of the Executive's
principal place of business as of the Effective Date.
Any termination of the Executive's employment for Good Reason by the Executive
shall be communicated by a written notice of termination, indicating the
specific termination provision in the Agreement relied upon and setting forth
the facts that provide the basis for the Executive's termination. Such notice
must be given at least thirty days prior to termination, and the Company shall
have the opportunity during such notification period to cure or correct any
failure or breach upon which the Executive's termination is based.
(e) Stock Purchase. Executive agrees to purchase 31,135 shares of Surviving
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Corporation Common Stock for the Cash Merger Price per share at the Effective
Time of the Merger (as such capitalized terms are defined in the Merger
Agreement).
6. Compensation Upon Termination.
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(a) Death. If the Executive's employment is terminated by his death, the
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Company shall pay to the Executive's legal representative (in accordance with
Section 18 hereof) (i) any unpaid base salary through the date of death and for
sixty days thereafter and (ii) a pro rata annual bonus as calculated in
accordance with Section 6(f) hereof. Except as provided in Section 6(g) hereof,
the Company shall have no further obligation to the Executive hereunder.
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(b) Disability. During any period that the Executive fails to perform his
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duties hereunder as a result of incapacity due to disability as described in
Section 5(b) above, the Executive shall continue to receive his full salary at
the rate then in effect for such period until his employment is terminated
pursuant to Section 5(b) hereof, provided that payments so made to the Executive
during the disability period shall be reduced by the sum of the amounts, if any,
paid to the Executive at or prior to the time of any such payment under any
disability benefit plans of the Company or under the Social Security disability
insurance program. The Executive shall also receive a pro rata annual bonus for
the year of termination as calculated in accordance with Section 6(f) hereof.
(c) For Cause; Voluntary Termination, Etc. If the Executive's employment
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shall be terminated (i) by the Company for Cause, (ii) by the Executive other
than for Good Reason or (iii) by either party by providing written notice of
termination pursuant to Section 2 of this Agreement, the Company shall pay the
Executive his base salary through the final date of employment and, except as
provided in Section 6(g) hereof, the Company shall have no further obligation to
the Executive hereunder.
(d) Without Cause; Good Reason. In the event of termination of the
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Executive's employment hereunder by the Company without Cause (other than upon
death or disability) or by the Executive for Good Reason, the Executive shall be
entitled to the following severance pay and benefits:
(i) severance payments in the form of continuation of the Executive's base
salary as in effect immediately prior to such termination over the then-
remaining current term hereof (the "Severance Period");
(ii) continuation during the Severance Period of coverage under the group
medical benefits plan in which the Executive is participating at the time of
termination; provided, however, that the Company's obligation to provide such
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coverage shall be terminated if the Executive obtains comparable substitute
coverage from another employer at any time during the Severance Period; and
(iii) a pro rata bonus as calculated in accordance with Section 6(f)
hereof.
(e) Sole Remedy. The parties agree that the foregoing shall constitute the
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Executive's sole and exclusive rights and remedies by reason of termination
pursuant to this Section 6, and that with respect to Section 6(d) above, such
amounts shall constitute an agreement between the parties of liquidated damages
for the Executive by reason of any such termination. It is further understood
that neither party hereto shall be entitled to punitive, consequential or
special damages with respect to any claim hereunder, and each party waives all
such rights and remedies if any.
(f) Pro Rata Bonus. If the Executive's employment is terminated under
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Section 5 hereof as a result of death, disability, by the Company without Cause
or
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by the Executive for Good Reason, the Executive shall receive a pro rata portion
of the annual bonus for the year in which the termination occurs (based on the
period of service prior to such termination), with such amount calculated and
paid following the completion of the year based on the Company's performance
applicable under the terms of the bonus plan, to be applied on a basis
consistent with the methodology used for other plan participants.
(g) Other Benefits. The benefits payable to the Executive under this
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Agreement are not in lieu of any benefits payable under any employee benefit
plan, program or arrangement of the Company, and upon termination the Executive
will receive such benefits or payments, if any, as he may be entitled to receive
pursuant to the terms of such plans, programs and arrangements.
7. Restrictive Covenants.
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(a) Covenant Not to Compete.
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(i) During the Employment Period and until (A) the expiration of the then-
current remaining term of this Agreement, in the event the Executive is
terminated by the Company for Cause or the Executive voluntarily resigns other
than for Good Reason or (B) the expiration of the Severance Period, if the
Executive is terminated by the Company without Cause or resigns for Good
Reason (the "Restricted Period"), the Executive will not, within any
geographical area in which the Company or any of its subsidiaries, affiliates
or owner-operators conducts business, directly or indirectly own, manage,
operate, control, be employed by or participate in the ownership, management,
operation or control of, or be connected in any manner with, any entity that
engages in the bulk transportation services business or any related service in
the bulk transportation services industry in which the Company or any of its
subsidiaries is engaged on the date of the Executive's termination of
employment (the "BTS Business"), except that the Executive shall be allowed to
invest his assets in the securities of public companies engaged in the BTS
Business if such holdings are passive investments which do not involve the
Executive's holding with respect to any such entity the position of officer,
director, employee, consultant or general partner, or owning directly or
indirectly two percent (2%) or more of the stock, whether voting or not, of
any such entity, and which do not involve the Executive becoming a secured or
unsecured creditor of any such entity.
(ii) At its sole option, the Company may extend by a period of up to one
year the Restricted Period applicable under Sections 7(a)(i) and (iii) hereof
by providing to the Executive the severance payments and benefits referred to
in Section 6(d)(i)-(ii) hereof for the duration of any such extended period.
The Company shall notify the Executive if it wishes to exercise this option
not later than 90 days prior to the expiration of the then-current Restricted
Period.
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(iii) During the Restricted Period, the Executive agrees to refrain from
interfering with the employment relationship between the Company, its
subsidiaries and its affiliates and their respective employees, members of the
Company's "Affiliate Program" (as defined in the Merger Agreement) or other
independent owner/operators by soliciting any of such individuals to
participate in independent business ventures, and the Executive agrees to
refrain from soliciting business from any client or prospective client of the
Company or any of its subsidiaries or affiliates for the Executive's benefit
or for any entity in which the Executive has an interest or is employed.
(iv) In the event of a knowing, willful and material breach of the
restrictive covenants set forth in this Section 7(a), the Company shall have
the right, in its sole discretion, and in addition to its right of enforcement
under Section 8 hereof and any other right of enforcement or recovery
available to the Company at law or equity or under this Agreement, to (a)
suspend or cancel the Executive's right to exercise the New Options (whether
or not then otherwise exercisable), (b) suspend or cancel the Executive's
pending right to receive an issuance of shares in settlement of any New Option
exercise, and/or (c) either (1) cancel the shares issued upon exercise of the
New Options (with repayment to the Executive of the full purchase price paid
for such shares) or (2) require the Executive to pay to the Company in cash an
amount equal to the gain realized by the Executive upon exercise of any New
Option; provided, however, that the foregoing shall not apply to any New
Options exercised more than six months prior to the date of termination of
employment. The Company shall provide at least five days advance notice and
opportunity to cure before exercising this right.
(b) Intellectual Property. During the Employment Period, the Executive
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will disclose to the Company all ideas, inventions, creations, business plans
and other intellectual property developed by the Executive during such period
which relate directly or indirectly to the BTS Business, including, without
limitation, any process, operation, product or improvement which may be
patentable or copyrightable. The Executive agrees that such will be the
property of the Company and that the Executive will, at the Company's request
and cost, do whatever is necessary to secure the rights thereto by patent,
copyright or otherwise to the Company. The Executive shall be prohibited from
making use of or implementing any such ideas, inventions or business plans in
connection with his employment with a business that is considered a competitor
under Section 7(a)(i) hereof.
(c) Confidentiality. During the Employment Period and at all times
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thereafter, the Executive agrees that he will not divulge to anyone (other than
the Company or any persons employed or designated by the Company) any knowledge
or information of any type whatsoever of a confidential nature relating to the
business of the Company or any of its subsidiaries or affiliates, including,
without limitation, all types of trade secrets (unless readily ascertainable
from public or published information or trade sources), product design and
customer and supplier information. The Executive further
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agrees not to disclose, publish or make use of any such knowledge or information
for personal purposes or for the benefit of any person, firm, corporation or
other entity (other than the Company or any persons employed or designated by
the Company) without the prior written consent of the Company.
(d) Remedy for Breach. In addition to any remedies available to the
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Company at law or under this Agreement, the Executive hereby consents and agrees
that the Company shall be entitled to seek a restraining order or injunction in
any court of competent jurisdiction to prevent any continuation of any violation
of the provisions of this Section 7 and the Executive hereby consents that such
restraining order or injunction may be granted.
8. Enforcement. It is the desire and intent of the parties hereto that
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the provisions of this Agreement be enforceable by a court of competent
jurisdiction to the fullest extent permissible under the laws and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, to the extent that a restriction contained in this Agreement is
more restrictive than permitted by the laws of any jurisdiction where this
Agreement may be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such restriction in such
jurisdiction, will be the maximum restriction allowed by the laws of such
jurisdiction and such restriction will be deemed to have been revised
accordingly herein.
9. Survival. Notwithstanding anything contained in this Agreement to the
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contrary, the provisions of Sections 6, 7 and 8 hereof will survive the
expiration or other termination of this Agreement until, by their terms, such
provisions are no longer operative.
10. Effectiveness. This Agreement shall become effective upon
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consummation of the transactions contemplated by the Merger Agreement and prior
thereto shall be of no force and effect. If the Merger Agreement shall be
terminated in accordance with its terms, this Agreement shall automatically be
deemed to have been terminated and shall thereafter be of no force or effect.
11. Notices. Notices and other communications hereunder will be in writing
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and will be delivered personally or sent by air courier or first class certified
or registered mail, return receipt requested and postage prepaid, addressed as
follows:
if to the Executive: ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇ #▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
and if to the Company: ▇▇▇▇▇▇▇▇▇▇ Tank Lines, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
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with a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇
c/o Apollo Management, L.P.
1301 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on the
date of delivery, if personally delivered; on the business day after the date
when sent, if sent by air courier; and on the third business day after the date
when sent, if sent by mail, in each case addressed to such party as provided in
this Section 11 or in accordance with the latest unrevoked direction from such
party.
12. Arbitration. Except as specifically provided in Section 8 hereof, any
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dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a single arbitrator in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The attorney's fees and expenses of the prevailing party shall be
paid by the non-prevailing party, based on a determination made by the
arbitrator for this purpose as to which party is the prevailing party hereunder.
Arbitrators will be selected from the American Arbitration Association's panel
of arbitrators in the New York region and the location of the arbitration
proceeding shall be in Hillsborough County, Florida.
13. Governing Law. This Agreement will be governed by, and construed and
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enforced in accordance with, the laws of the State of Florida, without reference
to conflict of law principles.
14. Waiver of Breach. The waiver by either party of a breach of any
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provision of this Agreement by the other party must be in writing and will not
operate or be construed as a waiver of any subsequent breach by such other
party.
15. Entire Agreement; Amendments. This Agreement contains the entire
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agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings among the parties with respect
thereof. This Agreement may be amended only by an agreement in writing signed
by the parties hereto.
16. Headings. The section headings contained in this Agreement are for
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reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
17. Severability. Any provision of this Agreement that is prohibited or
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unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
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18. Assignment; Successors. This Agreement is personal in its nature and
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the parties hereto shall not, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided, that
(i) the provisions hereof will inure to the benefit of, and be binding upon,
each successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of its assets or otherwise and (ii) all of the Executive's
rights to compensation following his death shall inure to the benefit of his
heirs, estate, personal representatives or designees or other legal
representatives as the case may be.
19. Shareholders Agreement. The parties hereto shall use reasonable
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efforts to enter into a Shareholders Agreement effective as of the Effective
Date hereof substantially in accordance with the terms attached hereto as
Exhibit B.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
▇▇▇▇▇▇▇▇▇▇ TANK LINES, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
_____________________________
By: ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
Title: Vice President
EXECUTIVE
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
_____________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
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Attachment A
OPTION PLAN
Issuer MTL Inc. ("Company")
Percent of Outstanding Assuming $68,000,000 in initial equity at $40 per
Common Stock share and 1,700,000 shares outstanding, options with
respect to a total of 188,889 shares will be
available for grant.
Allocation The option shares shall be allocated by the
Compensation Committee of the Board of Directors (the
"Compensation Committee"), except that ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇'▇▇▇▇▇ will
each receive initial option grants of 25,500 shares.
Time Vesting 50% of each option grant will time vest in equal
increments over four years ending on the fourth
anniversary of the last day of the quarter during
which the Merger shall become effective. Assuming the
Merger becomes effective on April 15, 1998, such
options will vest in equal 25% increments on June 30,
1999, 2000, 2001 and 2002.
Performance Vesting 50% of each option grant will vest upon the
attainment by the Company of per share equity targets
on annual target dates commencing with the first
anniversary of the last day of the calendar quarter
during which the Merger shall become effective. For
purposes of vesting, the performance-based options
shall be divided into three equal tiers subject to
the following per share equity targets:
Year 1 Year 2 Year 3 Year 4
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Tier 1 56.00 78.40 109.76 153.66
Tier 2 54.00 72.90 98.42 132.86
Tier 3 52.00 67.60 87.88 114.24
Options not vested under the above schedule will
still vest based on continued employment until 10
years or sooner as determined by the Board of
Directors of the Company.
For each target that is achieved, the options
attributable to the tier meeting the target for such
year will vest on the last day of the applicable
calendar quarter, provided that the determination as
to whether a target was achieved shall be made when
the Company's audited financials for the applicable
period become available. If the target per share
equity levels for a tier are not achieved for any
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year, the Compensation Committee, upon consultation with
management, will have the discretion to cause all or part of
such options to vest. In addition, for any year in which a per
share equity target for a tier is missed by less than 20%, the
shares that did not vest in such year with respect to such tier
shall vest if either (i) the per share equity target for such
tier is attained for the next succeeding year, or (ii) for the
next succeeding year the per share equity target for a tier is
missed by less than 20% and the per share equity target is
attained for the second succeeding year. Awards not vested by
year 4 will no longer be qualified for performance vesting.
Per share equity will equal ((i) EBITDA for the relevant
trailing twelve-month period times (ii) 6.5); plus ((i) cash
plus the aggregate exercise price of "in the money" options,
minus (ii) liquidation value of debt and preferred stock);
divided by (as of the date of calculation) ((i) number of
shares outstanding plus (ii) number of shares subject to "in
the money" options and (iii) other in the money convertible and
derivative securities).
The calculation of EBITDA shall be subject to the following
adjustments: (1) EBITDA shall exclude non-recurring
extraordinary items other than business acquisitions and
dispositions, as well as other unusual gains and losses as
approved by the Compensation Committee in its sole discretion;
(2) EBITDA shall be adjusted to reflect business acquisitions
or dispositions occurring in the first three quarters of a year
on a pro-forma combined basis as if the transaction had
occurred at the beginning of such year, taking into account
synergies (as mutually agreed) that are allowed to be included
in pro-forma calculations under regulation S-X; and (3) EBITDA
shall exclude Apollo's annual management fee charged to the
company.
In the event of the sale of the Company (including a merger or
the sale of substantially all of the assets or the stock of the
Company) other than to an affiliate of Apollo: (i) if such sale
occurs prior to the end of Year 4, all performance-based
options shall become time vested options to the extent that the
fair market value of the per share consideration received in
the sale (after giving effect to the vesting described herein)
equals or exceeds the per share equity target established for
the applicable tier for the year in which such transaction
occurs (with such target to be prorated for the time that a
sale closes during any such year); (ii) if such sale occurs
after Year 4, and the performance target for any tier has not
been met (but is missed by less than 20%), the options with
respect to such
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tier shall be eligible for full vesting upon such sale to the
extent that the fair market value of the per share
consideration received in the sale (after giving effect to the
vesting described herein) equals or exceeds the per share
equity target that would be applicable for such year assuming
that the targets set forth in the foregoing schedule were
extrapolated based on a progression rate consistent with the
annual targets for such tier (with such target to be prorated
for the time that a sale closes during any such year).
Exercise Price $40 per share, Apollo's assumed per share buy-in price.
Expiration Date Options expire ten years from the date of grant.
Vesting Vesting of options will occur only during an employee's term of
employment, provided that options will become fully vested in
the event of a termination of employment without "cause" or for
"good reason" (as defined in the Employment Agreement) within
six months following the sale of the Company.
IPO If the Company sells shares of Common Stock in a qualified
public offering (the "Offering") before the end of Year 4, the
per share equity performance targets for December 31 of each
year after the close of the Offering will be measured against
the average closing stock price for the 30 trading days
immediately preceding the applicable target date.
Adjustments The options will be subject to standard adjustment provisions
in the event of corporate reorganization, recapitalization,
stock dividends, stock splits, etc.
Shareholders
Agreement All stock acquired pursuant to exercise of the options will be
subject to the terms of the Shareholders Agreement.
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Attachment B
TERM SHEET FOR SHAREHOLDERS' AGREEMENT
--------------------------------------
. Parties:
- Apollo Entities ("Apollo")
- Management Shareholders ("Management Shareholders")
- ▇▇▇▇▇▇▇ Shareholders (the Management Shareholders and the ▇▇▇▇▇▇▇
Shareholders, collectively, the "Shareholders")
. Board of Directors:
- The parties agree that, if employed by the Company, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇. shall
be appointed to serve as directors of the Company if they so choose.
. Affiliate Transactions:
- Any transactions between the Company and any affiliate (including
Apollo) shall be on an arms-length basis as determined in good faith by the
board of directors of the Company in their reasonable business judgment. The
parties agree and acknowledge that the Company will pay the management fees to
Apollo as set forth in the Management Agreement between Apollo and the Company.
The parties further agree that Apollo shall be entitled to a transaction fee of
up to one point per transaction as determined in the sole discretion of Apollo.
Except as set forth above, no other fees shall be payable to Apollo, except as
approved by a majority of the disinterested directors of the Company.
. Restrictions on Transfer:
- Common Stock, Options, and, to the extent applicable, Preferred
Stock will be restricted securities under the Securities Act.
- Certificates shall contain standard legends.
- Tag-Along Rights: If Apollo transfers shares (i) in a public
offering (as provided below under Registration Rights including, without
limitation, underwriters' cutbacks) or (ii) individually, or in any series of
related transactions, greater than 10% of the class of securities outstanding,
Shareholders can tag-along their pro rata share on the
same terms and conditions as Apollo as set forth in the tag-along notice
required to be given by Apollo to the Shareholders.
- Drag-Along Rights: If Apollo proposes to sell 50% or more of its
initial ownership or 50% or more of the outstanding capital stock of the
Company, Apollo may require Shareholders to sell their pro rata portion of their
shares (including requiring the exercise of Options held by Shareholders and the
sale of such shares) on the same terms and conditions as Apollo as set forth in
the drag-along notice. If the drag-along sale would include a prohibition on
Shareholders from competing in any line of business or geographic area, the
Shareholders shall not be required to sell to such third party, but shall be
obligated to sell their pro rata portion directly to Apollo. The drag-along
rights shall not apply to a sale to an affiliate of Apollo.
- No Sale Period: Shareholders will not sell their shares or options
for a period of two and one-half years, subject to the rights contained herein
under the headings "Tag-Along Rights," "Drag-Along Rights," "Registration
Rights" and "Other Liquidity Events."
- Right of First Refusal: Following the end of the no sale period,
if any Shareholder proposes to sell its shares (other than to a permitted
transferee), such Management Shareholder shall submit to Apollo a right of first
refusal notice which shall state the terms of the proposed transaction. Apollo
shall give notice of its intention to purchase all, but not less than all of
such shares at the price and on the terms set forth in the right of first
refusal notice. Any transferee shall be required to execute the Shareholders
Agreement.
. Registration Rights:
- Shareholders will have unlimited piggy-back registration rights
other than with respect to an initial public offering. The Company will give at
least five days notice prior to the anticipated filing date, and the
Shareholders will have two business days to notify the Company of its desire to
be included in such registration statement. The Company will use its reasonable
best efforts to include the Shareholders shares in such registration statement;
provided that if such registration involves an underwritten public offering,
such Shareholders agree to sell their shares to the underwriters on the same
terms as the Company. In addition, Shareholders' piggy-back rights shall be
subject to certain public offering limitations, including pro rata cut-backs of
Shareholders shares due to underwriter market limitations and non-pro rata cut-
backs at the underwriter's request. Each shareholder will agree not to sell any
shares during the black-out period prior to a public offering by the Company and
during the period after the effective date of a registration statement equal to
the lesser of 180 days and such shorter period as the Company and the lead
managing underwriter agree. Registration expenses shall be the responsibility of
the Company and selling expenses relating to the underwriting shall be the
responsibility of the selling Shareholders. It is expressly understood that the
rights of
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any selling shareholder to include shares in a piggy-back registration shall be
subordinate to those of the Company.
. Indemnification:
- The Company shall provide standard indemnification to all
Shareholders against liability arising out of untrue statements of material
facts in the registration statement or prospectus (except for information
provided by such Shareholders, in their capacity as a Shareholder.)
- All Shareholders shall indemnify the Company against liability
arising out of untrue statements of material facts in connection with
information provided by such Shareholders, in their capacity as a Shareholder,
for inclusion in the registration statement or prospectus.
. Contribution:
- If indemnification is unavailable, then each indemnifying party
shall contribute such amount payable as a result of such liability in proportion
to reflect the relative benefits and relative faults of the Company and the
Shareholders.
. Public Offerings:
- Shareholders may not participate in any underwritten public
offering, unless they agree to sell their shares on the basis provided in the
underwriting arrangements and comply with the covenants and agreements contained
in such underwriting agreement.
- All Shareholders shall maintain the confidentiality of information
made available in connection with their investment in the Company.
- Expiration of Registration Rights: The rights of Shareholders to
registration rights shall expire on the date which is the earlier of (i) the
date upon which all such securities may be resold under Rule 144 without
limitation and (ii) four years from the date of the Shareholders' Agreement.
. Other Liquidity Events:
- Upon termination of any Management Shareholder under the conditions
specified, the parties shall have the following put/call options with respect to
the Stock and Options held by such terminating Management Shareholder:
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For Cause (other Without Cause
than Special Cause): For Special Cause: Voluntary Termination or Good Reason
-------------------- ------------------ --------------------- --------------
Stock: Company or Apollo can Company or Apollo can Company or Apollo can Management Shareholder
call at Fair Market call at cost, purchase call at Fair Market may put Stock with a
Value, purchase price price payable Value, purchase price Fair Market Value equal
payable immediately. immediately. payable immediately. to the Management
Shareholder's original
investment in the
Stock, purchase price
payable promptly (after
allowing the Company a
reasonable time period
to finance such
purchase), subject to
debt and legal
requirements. Apollo
may, but shall not be
required to, honor the
Company's obligations
with respect to the put.
Vested Company or Apollo can Company or Apollo can Company or Apollo can No put or call.
Options: call at Fair Market call at cost. call at Fair Market Options will continue
Value, purchase price Value, purchase price throughout the exercise
payable immediately. payable immediately. If period.
not purchased, Options
will continue
throughout the exercise
period.
- If a Management Shareholder remains employed after four years he
shall be entitled to put Stock with a Fair Market Value equal to such Management
Shareholder's original investment in the Stock. The purchase price shall be paid
promptly (after allowing the Company a reasonable time period to finance such
purchase), subject to debt and legal requirements. Apollo may, but shall not be
required to, honor the Company's obligations with respect to the put.
- For the purposes of the foregoing "Cause" and "Good Reason" shall
be defined as set forth in the relevant Employment Agreement of the Management
Shareholder and "Special Cause" shall mean a Cause event which results in damage
to the business, reputation or financial condition of the Company. In each case,
if not purchased pursuant to the put or call, the Shareholder can continue to
hold the Stock
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- The Fair Market Value of a share of Stock will be calculated on the
same basis as "Per share equity" as set forth under the heading "Performance
Vesting" in the Option Plan term sheet of today's date.
- All puts and calls above must be exercised and closed within 180
days of the date on which they are triggered.
- The Company will use commercially reasonable efforts to cause the
covenants in its debt agreements to allow exercise of the put/call options in
the event of Management Shareholder termination. However, decision to call
remains at the Company's sole discretion.
- The foregoing provisions under the heading "Other Liquidity Events"
replace the provisions relating to "Repurchase Rights" set forth in the draft
Options Plan term sheet and only apply to the Management Shareholders.
. Financial Reporting:
- The Company shall provide each Shareholder with copies of its
quarterly (unaudited) and annual audited financial statements promptly upon
their completion in any period during which a Shareholder remains a Shareholder,
but is not an officer of the Company.
. Preemptive Rights:
- The Shareholders shall be entitled to customary preemptive rights
with respect to the sale of Common Stock or other equity convertible into Common
Stock of the Company; provided, that (i) the Shareholder remains an employee (or
consultant) and a Shareholder at the time he exercises such right and (ii) such
Shareholder must act within the time frame presented by the Company with respect
to the exercise of such preemptive rights.
. Public Offering:
- If the Company is a public company, this agreement shall be of no
further force and effect, except the provisions under the headings "Registration
Rights," "Tag-Along Rights" and "Drag-Along Rights" shall survive
notwithstanding the Company being a public company.
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