EXHIBIT 10.5
July 1, 1996
Mr. Ray Monteleone
3965 North 32nd Terrace
Hollywood, Florida 33021
RE: EMPLOYMENT AGREEMENT
Dear Ray:
This letter confirms our mutual agreement with respect to the
following:
First American Railways, Inc. (the "Company"), agrees to employ you and
you agree to accept such employment, upon the terms and conditions set forth
below beginning July 1, 1996, for a period of three years subject to the terms
of extension provided below. The term of your employment shall be automatically
renewed for consecutive additional one-year periods, unless and until you or the
Company gives the other party written notice, received not later than 120 days
prior to the then current expiration date of your employment, of your or the
Company's intention to terminate your employment hereunder.
During the period of your employment, you will serve as President and
Chief Operating Officer of the Company. You agree that, during the period of
your employment under this Agreement, you shall serve the Company faithfully,
diligently and to the best of your ability, under the direction and supervision
of the Board of Directors of the Company, devoting your full time, energy and
skill to such employment; provided, however, you may serve on the
Mr. Ray Monteleone
July 1, 1996
Page 2
Board of Directors of up to four "for-profit" entities (a current list of which
is attached as Schedule A, which schedule shall be updated by you from time to
time), and further provided that there shall be no such limitation on the
service provided by you on behalf of any "not-for-profit" entities, so long as
such entities are approved by the Chairman of the Board*. You further agree to
perform from time to time such services and to act in such capacities as the
Board of Directors of the Company shall request without further compensation
other than that for which provision is made in this Agreement.
During the initial term of your employment, the Company shall pay you a
salary (in accordance with the Company's regular payroll practices) as follows:
1996: (July 1 - December 31)
$75,000 ($150,000 annualized) with a bonus payable on
or before January 1, 1997, in an amount which shall
be no less than $12,500 for that year and may be up
to 50% of your base compensation for the subject
six-month period.**
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* Lynn University (Boca Raton) shall be an approved not-for profit
corporation.
** As determined by mutual agreement between you and the Chief Executive
Officer of the Company; provided, however, if such an agreement cannot be
reached, then the Board of Directors shall establish the amount of such bonus
within the applicable parameters.
Mr. Ray Monteleone
July 1, 1996
Page 3
1997: $175,000 base compensation along with a bonus
payable on or before January 1, 1998 in an amount
which shall be no less than $25,000 and may be up
to 50% of your base compensation for the subject
year.**
1998: Base compensation shall be at least 8% more than the
base compensation in 1997, along with a bonus payable
on or before January 1, 1999, in an amount which is
at least $25,000 and may be up to 50% of the
compensation for the subject year.**
1999: (January 1 - June 30)
Base compensation shall be at least 8% more than the
base compensation in 1998 (pro rated for the six
month period) with a bonus payable on or before June
30, 1999, in an amount which is at least $25,000 and
may be up to 50% of the base compensation for the
subject six-month period.**
The Company agrees to promptly grant you a total of 7,500 shares of
common stock which shares shall be fully paid, non-assessable and not subject to
forfeiture or return to the Company for any reason. In addition, the Company
will grant to you annually (beginning on the date hereof and thereafter on each
anniversary of this Agreement during its term and any extensions thereof)
non-qualified, ten-year stock options to purchase at least 30,000 shares of
common stock (subject to standard anti-dilutive protection) at an exercise price
which is equal to the then current
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** Footnote text on preceding page.
Mr. Ray Monteleone
July 1, 1996
Page 4
market price which for purposes of the initial grant shall be $3.50 per share,
each of such 30,000-share options shall vest in one-third increments (10,000
shares) annually, with the initial vesting beginning on the date hereof;
provided, however, any such options which remain to be granted and/or vested
hereunder shall be immediately and fully granted and vested in their entirety
upon your election to terminate this Agreement by reason of a "change in
control" of the Company as provided below, or in the event of the termination of
this Agreement by the Company for reasons other than for "cause." The Company
shall as soon as reasonably possible prepare and file a Form S-8 Registration
Statement covering the resale of the shares granted to you as provided above and
the shares underlying your granted stock option, as well as those shares
underlying all employee stock option plans.
It is contemplated that, in connection with your employment by the
Company, you will be required to incur travel, entertainment and other business
expenses which you deem necessary for the performance of your duties and
responsibilities. The Company also agrees to reimburse you for all such
necessary out-of-pocket expenses reasonably incurred by you upon the submission
to the Company of expense vouchers or other statements satisfactorily evidencing
the expenses for which reimbursement is sought. The Company will pay you a $500
per month car allowance and will
Mr. Ray Monteleone
July 1, 1996
Page 5
reimburse you at the rate of $.20 per mile for all mileage driven by you while
on Company business (for automobile expenses, e.g., gas, oil, maintenance,
etc.).
In the event that you are incapacitated by reason of mental or physical
disability or otherwise during the period of your employment so that you are
prevented from performing your principal duties and services to the Company for
a period of 120 consecutive days or for shorter periods aggregating 120 days
during any 12- month period, the Company shall have the right to terminate your
employment by sending or telecopying written notice of such termination to you
or to your legal representative, as the case may be. Upon such termination or in
the event of your death, the Company shall be relieved of any further
obligations under this Agreement with the exception of the obligation to pay to
you or your estate, as the case may be, any accrued and unpaid salary earned by
you, and all granted but unvested options shall become fully vested.
Notwithstanding the foregoing, in the event that you die prior to January 14,
1997 (the date upon which the life insurance policy described herein becomes
effective), the Company will continue to pay your salary, at normal payroll
intervals, to your estate for period of three months after the date of your
death.
Mr. Ray Monteleone
July 1, 1996
Page 6
The Company shall have the right to terminate your employment for
"cause" at any time by reason of one or more of the following occurrences: (i)
your conviction, by a court of competent and final jurisdiction, of any crime
(but only in the event such crime involves the Company or directly relates to
your duties thereto) which constitutes a felony in such jurisdiction; or (ii)
your commission of a material act of malfeasance, fraud, dishonesty or breach of
trust against the Company; or (iii) your material violation of the terms of this
Agreement; or (iv) your failure to devote sufficient time, e.g., averaging 40
hours per week (taking into account vacation and holiday time) to the Company's
business. In the event the Company elects to terminate your employment for
"cause," the Company shall send or telecopy written notice to you informing you
of such election and setting forth the action or omission constituting the
reason for terminating your employment for "cause." If your employment is
validly terminated for "cause" under this paragraph, notwithstanding any other
provisions of this Agreement, the Company will be relieved of any further
obligations under this Agreement with the exception of the obligation to pay you
any accrued and unpaid salary due to you, and those obligations (if any)
regarding the granting and/or vesting of your stock options as described in the
first full paragraph on page 3 as carried over to page 4, above.
Mr. Ray Monteleone
July 1, 1996
Page 7
You shall be entitled to paid sick days and paid vacation days
commensurate with that due to an executive at your level of employment, which
initially shall be up to four weeks of vacation time, with no more than two
weeks of which to be consecutive. The Company's Chief Executive Officer shall be
responsible for monitoring this aspect of your Employment Agreement to determine
that the amount of sick time and vacation time is in a manner consistent with
the policies of the Company and the effective discharge of your duties herein.
Beginning on January 14, 1997, the Company shall provide you with life
insurance (with coverage equal to at least twice your applicable annual base
compensation), medical insurance and disability insurance (with coverage equal
to at least 60% of your applicable annual base compensation). You shall also be
entitled to participate to the same extent as other employees of the Company of
a like capacity and position in any profit sharing plan, pension plan or
incentive compensation plan that the Board of Directors of the Company shall
determine to make available to such employees.
The Company shall fund an individual retirement plan established on
your behalf as follows: $5,000 in December 1996; $10,000 in December 1997;
$10,000 in December 1998; and $10,000 in June 1999. To supplement the foregoing,
the Company shall use its best efforts to establish a non-qualified defined
contribution or
Mr. Ray Monteleone
July 1, 1996
Page 8
defined benefit retirement plan in which you shall participate along with other
members of the Company's management, at a level commensurate with your position
with the Company. Any such retirement plan(s) shall immediately vest to you upon
(i) any termination of this Agreement by the Company other than for "cause", or
(ii) your election to terminate this Agreement upon the occurrence of a "change
in control" of the Company, as provided below.
In the event (i) there is a "change in control" of the Company (as
defined below) and you promptly terminate (within 12 months) this Agreement, or
(ii) you are terminated by the Company for any reason during the 12-month period
following such "change in control", then in either case you shall, within
fifteen days of such termination, receive a payment in cash of an amount equal
to twice your current annualized compensation (base compensation plus applicable
maximum bonus) as severance pay along with the above-described acceleration of
the granting and vesting of your stock options and the vesting of any retirement
plans (the "Termination Benefits"). Further, in the event you terminate this
Agreement because your duties hereunder have been substantially reduced during
the 12-month period following a "change in control", or if this Agreement is not
renewed beyond the expiration of any of the applicable one-year renewal term, as
provided above, you will be
Mr. Ray Monteleone
July 1, 1996
Page 9
entitled to receive the Termination Benefits. For purposes of this Agreement, a
"change in control" of the Company shall occur when (i) more than 50% of the
Company's voting capital stock is acquired by any "individual", "entity" or
"group" as those terms are defined in the Securities Exchange Act of 1934, or
(ii) someone other than Allen C. Harper or you, is the Company's Chief Executive
Officer.
It is further expressly understood and agreed that this Agreement must
be terminated as a result of a "change in control," or a substantial reduction
in your duties hereunder, in order for the Termination Benefits become available
and are payable to you.
You agree that during, and for a period of two years following
cessation of, your employment with the Company, you shall not, without the prior
written consent of the Board of Directors of the Company, disclose to any
person, firm, corporation or other entity, for any reason or for any purpose
whatsoever, any confidential or proprietary knowledge or information pertaining
to the Company or any of its affiliates.
You covenant and agree that during the term hereof and, if you or the
Company shall terminate this Agreement prior to the expiration of the term
hereof, then for a period ending two years from the termination date, you will
not be a consultant, director, officer or employee or have any interest either
directly or indirectly in any individual, partnership, corporation or other
Mr. Ray Monteleone
July 1, 1996
Page 10
entity which is engaged in a business competitive with the business of the
Company; provided, however, that the foregoing shall not prohibit the ownership
by you of less than 5% of any class of outstanding voting securities (or any
options, warrants or rights to acquire such securities or any securities
convertible into such securities) of any corporation.
You shall also be elected to the Board of Directors of the Company and
the Company agrees to use its best efforts to see that you are nominated as part
of management's slate of director nominees in connection with all subsequent
election(s) of directors by the Company's shareholders which are held during the
term of this Agreement. You will receive no additional compensation from the
Company for your service as a director.
You represent to the Company that you are not subject to any
restriction, contractual or otherwise, which prohibits you from undertaking
employment by the Company in accordance with the terms and provisions of this
Agreement. The Company acknowledges that you are party to a January 12, 1996
agreement with Sensormatic Electronics Corporation ("Sensormatic") which
provides, among other things, that you are subject to certain non-competition
and confidentiality provisions thereof. In addition, you have advised the
Company that you may be required to provide certain consulting services to
Sensormatic for a limited period of time; however, your
Mr. Ray Monteleone
July 1, 1996
Page 11
services thereunder will not materially interfere with your obligations
hereunder.
This Agreement represents the entire understanding and agreement
between us with respect to your employment by the Company and supersedes all
prior negotiations, representations and agreements made by and between us. No
alteration, amendment or modification of any of the terms or provisions of this
Agreement shall be valid unless made pursuant to an instrument in writing and
signed by each of us. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
Kindly indicate below that the foregoing represents our mutual
agreement with respect to the matters described in this Agreement by signing and
returning a copy of this Agreement, whereupon this Agreement shall constitute an
agreement between us.
Very truly yours,
FIRST AMERICAN RAILWAYS, INC.
By: /s/ ALLEN C. HARPER
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Allen C. Harper, Chairman
of the Board of Directors
Agreed to and Accepted this
10 day of July, 1996
/s/ RAYMOND MONTELEONE
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Ray Monteleone