**Exhibit 10.3**

 

**EMPLOYMENT AGREEMENT**

 

This Employment Agreement (the “Agreement”)dated this 18th day of February, 2003 by and between Metals USA, Inc., aDelaware corporation (the “Company”), and Celso Lourenço Gonçalves(“Executive”).

 

**RECITALS**

 

A.            Asof the date hereof, the Company is engaged primarily in the business ofproviding metals processing, metals fabricating, and/or specialty metalsservices; and

 

B.            Executiveand the Company desire that Executive shall be employed by the Company underthe terms and provisions of this Agreement.

 

**NOW,THEREFORE,** in consideration of the mutual promises andcovenants set forth herein, it is hereby agreed as follows:

 

1.             Employmentand Duties.

 

(a)           TheCompany hereby employs Executive as President and Chief Executive Officer ofthe Company.  As such, Executive shallhave the responsibilities, duties and authority reasonably accorded to andexpected of, and consistent with Executive’s position(s) and will reportdirectly to the Board of Directors of the Company (the “Board”).  Executive hereby accepts employment by theCompany upon the terms and conditions herein contained and, subject to Section3 hereof, agrees to devote Executive’s full business time, attention andefforts to promote and further the business of the Company.

 

(b)           Executiveshall faithfully adhere to, execute and fulfill all policies established by theCompany, as such policies may be changed from time to time by the Company,including the Company’s Code of Conduct.

 

2.             Compensation.  For all services rendered by Executive, theCompany shall compensate Executive as follows as of February 24, 2003 (the“Effective Date”):

 

(a)           *Base Salary.*  The initial base salary payable to Executiveshall be $375,000 per year, payable on a regular basis in accordance with theCompany’s standard payroll procedures. On an annual basis, the Company will review Executive’s performance andmay make increases to such base salary if, in its discretion, any such increaseis warranted.

 

(b)           *ExecutivePerquisites, Benefits, Annual Bonus and Other Compensation*.  Executive shall be entitled to receiveadditional benefits and compensation from the Company in such form and to suchextent as specified below:

 

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(i)            Inthe discretion of the Compensation Committee of the Board, (the “CompensationCommittee”), Executive shall be eligible for an annual bonus which may bepayable in either cash or shares of the Company’s common stock (“CompanyStock”).  Payment of a bonus shall becontingent upon such terms and conditions as the Compensation Committee shalldecide in its sole discretion.

 

(ii)           TheCompany shall pay Executive a one-time sign-on bonus of $50,000.

 

(iii)          Uponthe Effective Date, the Compensation Committee shall grant Executive an optionto purchase 100,000 shares of Common Stock at a strike price of $4.75 pershare, an option to purchase 100,000 shares of Common Stock at a strike priceof $9.50 per share, and an option to purchase 100,000 shares of Common Stock ata strike price of $14.25 per share (the “Options”).  The Options will each have a five-year term and one-third of theshares subject to the Options will vest on each of the first threeanniversaries of the Effective Date.  Tothe extent not previously vested, the Options shall become completely vestedupon a termination of employment or other service by the Company without Causeor upon a termination by Executive for Good Reason or upon a Change inControl.  Upon termination of employmentor other service with the Company and its subsidiaries for any reason otherthan Cause, Executive may exercise the vested portion of the Options during thethree-month period following such termination of employment or other service;the portions of the Options that are not vested on or prior to the date oftermination shall be forfeited upon the date of termination.  Upon a termination for Cause, all Options,vested and unvested, shall be forfeited on the date of termination.

 

(iv)          TheCompany will cover all reasonable relocation costs including, but not limitedto, broker fees, movers, appraisal costs, inspections, and all other reasonablecosts related to the sale of Executive’s current home in California andpurchase of a new home.  To the extentthat the Company’s coverage of these expenses or those under clause (viii) istaxable to Executive, the Company shall provide Executive with a completegross-up payment to cover the taxes on the reimbursement amount.  For the avoidance of doubt, the purpose ofthis provision is to make Executive “whole” such that Executive is in the sameposition as he would have been in if the Company’s coverage of relocation costswere not taxable.

 

(v)           Executiveand Executive’s dependent family members shall participate in the health,hospitalization, disability, dental, life and other insurance plans that theCompany may have in effect from time to time, with benefits provided toExecutive under this clause (v) to be at least equal to such benefits providedto Company employees generally, and shall participate in any senior executivehealth plans established by the Company.

 

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(vi)          TheCompany shall reimburse Executive for all business travel and otherout-of-pocket expenses reasonably incurred by Executive in the performance ofExecutive’s services pursuant to this Agreement.  All reimbursable expenses shall be appropriately documented inreasonable detail by Executive upon submission of any request forreimbursement, and in a format and manner consistent with the Company’s expensereporting policy.

 

(vii)         TheCompany shall provide Executive with executive perquisites as may be availableto or deemed appropriate for Executive by the Compensation Committee, includingparticipation in all other Company-wide employee benefits, including equityincentive plans and programs as are available from time to time.

 

(viii)        Untilthe Company has established its permanent corporate headquarters or hasaffirmatively elected to retain its headquarters in Houston (either such actionis subsequently referred to herein as the “Relocation Action,” the Companyshall provide Executive with a fully furnished corporate apartment in Houston,Texas at a monthly cost to the Company of no more than $2,500; and until theearlier of such time that the Company has effected its Relocation Action orExecutive’s family has moved to join Executive, the Company shall reimburseExecutive for airfare to visit his family in California on weekends, it beingunderstood that Executive shall use his best efforts to relocate his family asquickly as possible.

 

(ix)           TheCompany shall provide Executive a monthly car allowance of $1,250.

 

(x)            Duringthe sixty (60) days from the date the Board has effected its Relocation Action,Executive shall make reasonable efforts to sell his current home.  If he is unsuccessful at doing so, theCompany shall contract for the services of a relocation firm which firm shallpurchase or sell Executive’s home in California.  From the Effective Date until Executive has purchased or rented ahome near the Company’s new corporate headquarters, the Company shall reimburseExecutive for reasonable expenses associated with Executive’s family’s travelto Texas to look for a home, visit schools and other activities related torelocation.

 

(xi)           Executiveshall be entitled to four weeks of paid vacation on an annual basis, to betaken in accordance with Company policy.

 

(xii)          Subjectto Executive’s insurability, the Company shall provide a life insurance policywith a benefit equal to no less than two times Executive’s current base salary.

 

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3.             Non-CompetitionAgreement.

 

(a)           Executiveshall not, during the term of Executive’s employment hereunder, be engaged inany other business activity pursued for gain, profit or other pecuniary advantageunless, in its sole discretion, the Company has determined that such businessactivity will not interfere with Executive’s duties and responsibilitieshereunder.  The foregoing limitationsshall not be construed as prohibiting Executive from making personalinvestments in such form or manner as will neither require Executive’s servicesin the operation or affairs of the companies or enterprises in which suchinvestments are made nor violate the terms of this Section 3.  In addition, Executive shall not, during theperiod of Executive’s employment by or with the Company, and for a period oftwenty-four (24) months immediately following the termination of Executive’semployment for any reason including non-renewal under this Agreement (the“Restricted Period”), directly or indirectly, alone, or on behalf of, or inconjunction with any other person, persons, company, partnership, corporationor business of whatever nature:

 

(i)            engage,as an officer, director, shareholder, owner, partner, joint venturer, or in amanagerial capacity, whether as an employee, independent contractor, consultantor advisor, or as a sales representative, in any business in competition withthe Company or any of its subsidiaries, within 200 miles of the Company orwhere the Company or any of the Company’s subsidiaries conduct business,including any territory serviced by the Company or any of such subsidiaries(the “Territory”);

 

(ii)           callupon any person who is, at that time, within the Territory, an employee of theCompany or any of its subsidiaries in a managerial capacity for the purpose orwith the intent of enticing such employee away from or out of the employ of theCompany or any of its subsidiaries;

 

(iii)          callupon any person or entity which is, at that time, or which has been, withintwenty-four (24) months prior to that time, a customer of the Company or any ofits subsidiaries within the Territory for the purpose of soliciting or sellingproducts or services in competition with the Company or its subsidiaries withinthe Territory; or

 

(iv)          callupon any prospective acquisition candidate, on Executive’s own behalf or onbehalf of any competitor, which candidate was, to Executive’s actual knowledgeafter due inquiry, either called upon by the Company or any of its subsidiariesor for which the Company or any of its subsidiaries made an acquisitionanalysis, for the purpose of acquiring such entity.

 

Notwithstanding the above, the foregoingcovenant shall not be deemed to prohibit Executive from acquiring as aninvestment not more than one percent (1%) of the capital stock of a competingbusiness, whose stock is traded on a national securities exchange orover-the-counter.

 

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(b)           Becauseof the difficulty of measuring economic losses to the Company as a result of abreach of the covenants in this Section 3, and because of the immediate andirreparable damage that could be caused to the Company for which it would haveno other adequate remedy, Executive agrees that the foregoing covenant may beenforced by the Company in the event of breach by Executive, by injunctions andrestraining orders.

 

(c)           Itis agreed by the parties that the foregoing covenants in this Section 3 imposea reasonable restraint on Executive in light of the activities and business ofthe Company and its subsidiaries on the date of the execution of this Agreementand the current plans of the Company and its subsidiaries, but it is also theintent of the Company and Executive that such covenants be construed and enforcedin accordance with the changing activities, business and locations of theCompany and its subsidiaries throughout the term of this covenant, whetherbefore or after the date of termination of the employment of Executive.  For example, if, during the term of thisAgreement, the Company or any of its subsidiaries engages in new and differentactivities, enters a new business or establishes new locations for its currentactivities or business in addition to or other than the activities or businessenumerated under the recitals above or the locations currently establishedtherefor, then Executive will be precluded from soliciting the customers oremployees of such new activities or business or from such new location and fromdirectly competing with such new business within 200 miles of itsthen-established operating location(s) through the term of this covenant.  It is further agreed by the parties heretothat, in the event that Executive shall cease to be employed hereunder, andshall enter into a business or pursue other activities not in competition withthe Company or any of its subsidiaries, or similar activities or business inlocations the operation of which, under such circumstances, does not violateclause (a) of this Section 3, and in any event such new business, activities orlocation are not in violation of this Section 3 or of Executive’s obligationsunder this Section 3, if any, Executive shall not be chargeable with aviolation of this Section 3 if the Company or any of its subsidiaries shallthereafter enter the same, similar or a competitive (i) business, (ii) courseof activities or (iii) location, as applicable unless the business plans of theCompany or any of its subsidiaries known to Executive at the time ofExecutive’s termination of employment include similar lines of business oractivities.  Executive further expresslyagrees that employment by the Company and the compensation Executive receivesfrom the Company pursuant to this Agreement is adequate consideration for theobligations of Executive under this Section 3.

 

(d)           Thecovenants in this Section 3 are severable and separate, and theunenforceability of any specific covenant shall not affect the provisions ofany other covenant.  Moreover, in theevent any court of competent jurisdiction shall determine that the scope, timeor territorial restrictions set forth are too broad or unreasonable, then it isthe intention of the parties that such restrictions be enforced to the fullestextent which the court deems reasonable, and the Agreement shall thereby bereformed.  If any portion of thisSection 3 shall be invalid or unenforceable, such invalidity orunenforceability shall in no way be deemed or construed to affect in any waythe enforceability of any other portion of this Section 3.

 

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(e)           Allof the covenants in this Section 3 shall be construed as an agreementindependent of any other provision in this Agreement, and the existence of anyclaim or cause of action of Executive against the Company, whether predicatedon this Agreement or otherwise, shall not constitute a defense to theenforcement by the Company of such covenants. It is specifically agreed that the period of twenty-four (24) monthsfollowing termination of employment stated at the beginning of this Section 3,during which the agreements and covenants of Executive made in this Section 3shall continue to be effective, shall be computed by excluding from suchcomputation any time during which Executive is in violation of any provision ofthis Section 3.  Executive specificallyagrees that the restrictions in this Section 3 are reasonable, and that none ofthe restrictions shall cause any unreasonable hardship to Executive.

 

4.             Term;Termination; Rights on Termination.

 

(a)           Theinitial term of this Agreement shall begin on the Effective Date and shallcontinue for three years through the last day of February, 2006 unless it isterminated earlier as provided herein. The term of this Agreement shall automatically be extended through thelast day of February, 2007 unless either party gives the other party at leastninety (90) days written notice prior to the last day of February, 2006 thatsuch party does not agree to the extension of the term.  The term of this Agreement shall continue tobe extended for additional one-year periods unless, at least ninety (90) daysprior to the last day of any February, either party gives the other partywritten notice that such party does not agree to the extension of the term ofthis Agreement.

 

(b)           *Termination,.*  This Agreement and Executive’s employmentmay be terminated during the Term in any one of the following ways:

 

(i)            *Death.*  The death of Executive shall immediatelyterminate this Agreement with no severance compensation due to Executive’sestate.

 

(ii)           *Disability.*  If, as a result of incapacity due tophysical or mental illness or injury, Executive shall have been absent fromfull-time duties hereunder for four (4) consecutive months, or one hundredtwenty (120) days in any rolling one-year period, then thirty (30) days afterreceiving written notice (which notice may occur before or after the end ofsuch four (4) month or one hundred twenty (120) day period, but which shall notbe effective earlier than the last day of either such period), the Company mayterminate Executive’s employment hereunder provided Executive is unable toresume full-time duties with or without reasonable accommodation at theconclusion of such notice period.  Also,Executive may terminate Executive’s employment hereunder if Executive’s healthshould become impaired to an extent that makes the continued performance ofExecutive’s duties hereunder hazardous to Executive’s physical or mental healthor life, provided that Executive shall have furnished the Company with awritten statement from a qualified doctor to such effect and provided, further,that, at the Company’s request made within thirty (30) days of the date of suchwritten statement, Executive shall submit to an examination by a doctorselected by the Company who is reasonably acceptable to Executive orExecutive’s doctor.  In the

 

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event this Agreement is terminated as aresult of Executive’s disability, Executive shall receive from the Company, ina lump-sum payment due within ten (10) days of the effective date oftermination, the base salary at the rate then in effect for whatever timeperiod is remaining under the Term or for one (1) year, whichever amount isgreater; provided, however, that any such payments shall be reduced by theamount of any disability insurance payments payable to the Executive as aresult of such disability.

 

(iii)          *Cause.*  The Company may terminate this Agreementimmediately for Cause (defined below). In the event of a termination for Cause, Executive shall have no rightto any severance compensation.

 

(iv)          *WithoutCause or by Executive for Good Reason*.  At any time after the commencement of employment, the Company mayterminate this Agreement without Cause or Executive may terminate thisAgreement for Good Reason (defined below), effective thirty (30) days afterwritten notice is provided to the other party. Should Executive be terminated by the Company without Cause or shouldExecutive terminate with Good Reason under this Agreement, Executive shallreceive from the Company continuation of his current base salary for two yearspayable in accordance with the Company’s normal payroll practices; provided,however that the second year of salary continuation payments hereunder shall beoffset on a payroll basis against any amounts Executive may earn fromemployment with another company or from self-employment after one year from thedate of termination.

 

(v)           *Resignationor Termination without Good Reason or Nonrenewal*.  If Executive resigns or otherwise terminateshis employment without Good Reason, or if either party decides not to renewthis Agreement, Executive shall receive no severance compensation.

 

(c)           *CertainTerminations.*  If Executiveis terminated without Cause or terminates his employment hereunder with GoodReason, (1) the Company shall make the insurance premium payments contemplatedby COBRA until the earlier of such time that Executive and his dependents areno longer entitled to continuation coverage under COBRA, or a period of twelve(12) months after such termination provided that Executive has timely electedCOBRA coverage, and (2) all of Executive’s unvested stock grants or stockoptions  (if any are then outstanding)shall vest upon the date of termination of employment and, with respect to anystock options, shall remain outstanding and exercisable for the period setforth in the applicable option agreement or option plan.

 

(d)           *Effect ofAny Termination of Employment*. Upon termination of this Agreement for any reason including non-renewal,Executive shall be entitled to receive all earned and unpaid compensation andall benefits and reimbursements due through the effective date of terminationand shall remain subject to the provisions set forth in Section 3 for theentire Restricted Period.  Additionalcompensation subsequent to

 

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termination, if any, will be due and payableto Executive only to the extent and in the manner expressly providedherein.  Except with respect to anybenefits or payments to which Executive may be entitled under the terms andconditions of any benefit plan or applicable law, all other rights andobligations of the Company and Executive under this Agreement shall cease as ofthe effective date of termination; provided, however, that the parties agreethat their respective obligations under Sections 3, 4, 5, 6, 7, 8, 14 and 16herein shall survive such termination in accordance with their terms unlessotherwise provided herein.

 

(e)           *Definitions.*

 

(i)            “Cause”shall mean any of the following:  (a)Executive’s material breach of this Agreement, including any of Company’spolicies included or applicable under Section 1(b) above; (b) Executive’snegligence in the performance or nonperformance of any of Executive’s materialduties and responsibilities hereunder after ten (10) days written notice duringwhich Executive has not cured such negligence or nonperformance; (c)Executive’s dishonesty, fraud or misconduct with respect to the business or affairsof the Company which  adversely affectthe operations or reputation of the Company.

 

(ii)           “GoodReason” shall mean any of the following: (a) Executive is demoted by means of an absolute reduction in authority,responsibilities or duties to a position of less stature or importance withinthe Company than the position described in Section 1 hereof; or (b) Executive’sannual base salary as determined pursuant to Section 2 hereof is reduced,unless Executive has agreed in writing to that demotion or reduction or (c)Company materially breaches this Agreement with respect to payment ofcompensation hereunder; or (d) at any time after (but only after) the Board haseffected its Relocation Action (it being understood that the location of thecorporate headquarters may be anywhere in the continental United States andshall be determined in the discretion of the Board without the consent ofExecutive being required), the relocation of Executive’s office more than fifty(50) miles from the corporate headquarters without Executive’s writtenconcurrence; provided, however, that if any office relocation in excess offifty (50) miles should result in Executive’s home at the time of therelocation being closer to the new office than prior to the relocation, suchrelocation shall not be an occurrence of Good Reason.

 

5.             Returnof Company Property.  All records,designs, patents, business plans, financial statements, client lists, manuals,memoranda, lists and other property delivered to or compiled by Executive by oron behalf of the Company, its subsidiaries or their representatives, vendors orcustomers which pertain to the business of the Company shall be and remain theproperty of the Company and be subject at all times to its discretion andcontrol.  Likewise, all correspondence,reports, records, charts, advertising materials and other similar datapertaining to the business, activities or future plans of the Company which iscollected by Executive shall be delivered promptly to the Company withoutrequest by it upon termination of Executive’s employment.

 

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6.             Inventions.  Executive shall disclose promptly to theCompany any and all significant conceptions and ideas for inventions,improvements and valuable discoveries, whether patentable or not, which areconceived or made by Executive, solely or jointly with another, during theperiod of employment or within one (1) year thereafter, and which are directlyrelated to the business or activities of the Company or its subsidiaries andwhich Executive conceives as a result of Executive’s employment by theCompany.  Executive hereby assigns andagrees to assign all Executive’s interests therein to the Company or itsnominee.  Whenever requested to do so bythe Company, Executive shall execute any and all applications, assignments orother instruments that the Company shall deem necessary to apply for and obtainLetters Patent of the United States or any foreign country or to otherwiseprotect the Company’s interest therein.

 

7.             Confidentiality.  During the Restricted Period and thereafter,except as provided below, Executive shall not, without the written consent ofthe Board or a person authorized thereby, disclose to any person, other than anemployee of the Company or any of its subsidiaries or a person to whomdisclosure is reasonably necessary or appropriate in connection with theperformance by Executive of his duties as an executive of the Company, anyconfidential information learned by him while in the employ of the Company withrespect to the Company’s business, including but not limited to trade secrets,technology, know-how, processes, any business data, information regarding anyof the Company’s or its subsidiaries’ customers, practices, or operations, andother proprietary information, the disclosure of which Executive knows orshould know will be damaging to the business, strategy or reputation of theCompany or any of its subsidiaries; provided however, that confidentialinformation shall not include any information known generally to the public(other than as a result of unauthorized disclosure by Executive), anyinformation of a type not reasonably considered confidential by persons engagedin the same business or a business similar to that conducted by the Company orany subsidiary, or any information which Executive may be required to discloseby any applicable law, order, or judicial or administrative proceeding.

 

8.             Indemnification.  In the event Executive is made a party toany threatened, pending or contemplated action, suit or proceeding, whethercivil, criminal, administrative or investigative (other than an action by theCompany against Executive or by Executive against the Company), by reason ofthe fact that Executive is or was performing services under this Agreement,then the Company, to the extent permitted by law, shall indemnify Executiveagainst all expenses (including attorneys’ fees), judgments, fines and amountspaid in settlement, as actually and reasonably incurred by Executive inconnection therewith.  In the event thatboth Executive and the Company are made a party to the same third party action,complaint, suit or proceeding, the Company agrees to engage counsel, andExecutive agrees to use the same counsel, provided that if counsel selected bythe Company shall have a conflict of interest that prevents such counsel fromrepresenting Executive, Executive may engage separate counsel and the Companyshall pay all reasonable attorneys’ fees of such separate counsel.  The Company shall not be required to pay thefees of more than one law firm except as described in the

 

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preceding sentence, and shall not be requiredto pay the fees of more than two law firms under any circumstances.  Further, while Executive is expected at alltimes to use Executive’s best efforts to faithfully discharge Executive’sduties under this Agreement, Executive cannot be held liable to the Company forerrors or omissions made in good faith where Executive has not exhibited grossnegligence, intentional nonperformance of his duties hereunder, willfuldishonesty, fraud or misconduct, or performed criminal or fraudulent acts whichmaterially damage the business of the Company.

 

9.             NoPrior Agreements.  Executive herebyrepresents and warrants to the Company that the execution of this Agreement byExecutive and Executive’s employment by the Company and the performance ofExecutive’s duties hereunder will not violate or be a breach of any agreementwith a former employer, client or any other person or entity.  Further, Executive agrees to indemnify theCompany for any claim, including, but not limited to, attorneys’ fees andexpenses of investigation, by any such third party that such third party maynow have or may hereafter come to have against the Company based upon orarising out of any non-competition agreement, invention or secrecy agreementbetween Executive and such third party which was in existence as of the date ofthis Agreement.

 

10.           Assignment;Binding Effect.  Executiveunderstands that Executive has been selected for employment by the Company onthe basis of Executive’s personal qualifications, experience and skills.  Executive agrees, therefore, that Executivecannot assign all or any portion of Executive’s performance under thisAgreement.  Subject to the preceding,this Agreement shall be binding upon, inure to the benefit of and beenforceable by the parties hereto and their respective heirs, legalrepresentatives, successors and assigns.

 

11.           Changein Control.

 

(a)           Executiveunderstands and acknowledges that the Company may be sold, merged orconsolidated with or into another entity or that the Company may undergoanother type of Change in Control.  Inthe event such a sale, merger or consolidation or other Change in Control isinitiated and consummated prior to the end of the Term (or any extensionthereof), then the provisions of this Section 11 shall be applicable.

 

(b)           Inthe event of termination of Executive’s employment without Cause within twelve(12) months after or three (3) months prior to a Change in Control, orExecutive’s termination of his employment for any Good Reason within twelve(12) months after a Change in Control, then the Company shall pay Executive alump sum payment equal to the greater of (a) the base salary to which Executiveis entitled for the remainder of the term of this Agreement, or (b) two yearsof Executive’s current base salary, and shall provide Executive the benefitsset forth in Section 4(c) above.

 

(c)           Further,Executive will be given sufficient time and opportunity to elect whether toexercise all or any of his vested options/grants, such that he may convert the

 

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options/grants to shares of the Common Stockat or prior to the closing of the transaction giving rise to the Change inControl, if he so desires.

 

(d)           A“Change in Control” shall be deemed to have occurred if:

 

(i)            anyperson, other than the Company or an employee benefit plan of the Company,acquires directly or indirectly the beneficial ownership (as defined in Section13(d) of the Securities Exchange Act of 1934, as amended) of any votingsecurity of the Company and immediately after such acquisition such Person is,directly or indirectly, the Beneficial Owner of voting securities representing50% or more of the total voting power of all of the then-outstandingvoting securities of the Company;

 

(ii)           thefollowing individuals no longer constitute a majority of the members of theBoard of Directors of the Company:  (A)the individuals who, as of November 1, 2002, constitute the Board of Directorsof the Company (the “Original Directors”); (B) the individuals who thereafterare elected to the Board of Directors of the Company and whose election ornomination for election, to the Board of Directors of the Company was approvedby a vote of at least two-thirds (2/3) of the Original Directors thenstill in office (such directors becoming “Additional Original Directors”immediately following their election); and (C) the individuals who are electedto the Board of Directors of the Company and whose election or nomination forelection, to the Board of Directors of the Company was approved by a vote of atleast two-thirds (2/3) of the Original Directors and Additional OriginalDirectors then still in office (such directors also becoming “AdditionalOriginal Directors” immediately following their election); or

 

(iii)          thestockholders of the Company shall approve a plan of complete liquidation of theCompany or an agreement to sell or otherwise dispose of the three productgroups (“Flat Roll Group,” “Plates and Shapes Group,” and the “BuildingProducts Group”) and

 

(e)           (i)            Anything in this Agreement to thecontrary notwithstanding, in the event it shall be determined that any payment,award, benefit or distribution (or any acceleration of any payment, award,benefit or distribution) by the Company or any entity which effectuates achange in ownership or effective control of the Company, in either case, withinthe meaning of Section 280G of the Code and the regulations promulgatedthereunder to or for the benefit of Executive (the “Payments”) would be subjectto the excise tax imposed by Section 4999 of the Code, or any interest orpenalties are incurred by the Executive with respect to such excise tax (suchexcise tax, together with any such interest and penalties, are hereinaftercollectively referred to as the “Excise Tax”), whether before or after theexecution of this Agreement, then the Company shall pay to Executive an additionalpayment (a “Gross-Up Payment”) in an amount such that after payment byExecutive of all taxes (including any Excise Tax) imposed upon the Gross-UpPayment, Executive retains an amount of the Gross-Up Payment equal to the sum

 

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of (x) the Excise Tax imposed upon thePayments and (y) the product of any deductions disallowed because of theinclusion of the Gross-Up Payment in Executive’s adjusted gross income and thehighest applicable marginal rate of federal income taxation for the calendaryear in which the Gross-Up Payment is to be made.  For purposes of determining the amount of the Gross-Up Payment,Executive shall be deemed to (A) pay federal income taxes at the highestmarginal rates of federal income taxes at the highest marginal rate of taxationfor the calendar year in which the Gross-Up Payment is to be made, (B) payapplicable state and local income taxes at the highest marginal rate oftaxation for the calendar year in which the Gross-Up Payment is to be made, netof the maximum reduction in federal income taxes which could be obtained fromdeduction of such state and local taxes and (C) have otherwise allowabledeductions for federal income tax purposes at least equal to those which couldbe disallowed because of the inclusion of the Gross-Up Payment in Executive’sadjusted gross income.

 

(ii)           Subjectto the provisions of Section11(f)(i), all determinations required to be madeunder this Section 11(f), including whether and when a Gross-Up Payment isrequired, the amount of such Gross-Up Payment and the assumptions to beutilized in arriving at such determinations, shall be made by a nationallyrecognized public accounting firm that is selected by the Company (the“Accounting Firm”) which shall provide detailed supporting calculations both tothe Company and Executive at such time as is requested by the Company or theExecutive (collectively, the “Determination”). All fees and expenses of the Accounting Firm shall be borne solely bythe Company and the Company shall enter into any agreement requested by theAccounting Firm in connection with the performance of the serviceshereunder.  The Gross-Up Payment underthis Section 11(f) with respect to any Payments made to Executive shall be madeno later than thirty (30) days following the Determination.  If the Accounting Firm determines that noExcise Tax is payable by Executive, it shall furnish Executive with a writtenopinion to such effect, and to the effect that failure to report the ExciseTax, if any, on Executive’s applicable federal income tax return should notresult in the imposition of a negligence or similar penalty.

 

(iii)          Asa result of the uncertainty in the application of Section 4999 of the Code atthe time of the Determination, it is possible that Gross-Up Payments which willnot have been made by the Company should have been made (“Underpayment”) orGross-Up Payments are made by the Company which should not have been made(“Overpayment”), consistent with the calculations required to be madehereunder.  In the event that Executivethereafter is required to make payment of any Excise Tax or additional ExciseTax, the Accounting Firm shall determine the amount of the Underpayment thathas occurred and any such Underpayment (together with interest at the rateprovided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by theCompany to or for the benefit of Executive. In the event the amount of the Gross-Up Payment exceeds the amount necessaryto reimburse Executive for his Excise Tax, the Accounting Firm shall determinethe amount of the Overpayment that has been made and any

 

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such Overpayment (together with interest atthe rate provided in Section 1274(b)(2) of the Code) shall be promptly paid byExecutive (to the extent he has received a refund if the applicable Excise Taxhas been paid to the Internal Revenue Service) to or for the benefit of theCompany.  Executive shall cooperate, tothe extent his expenses are fully reimbursed by the Company, with anyreasonable requests by the Company in connection with any contest or disputeswith the Internal Revenue Service in connection with the Excise Tax.

 

12.           LegalReview:  The Company shall reimburseExecutive for reasonable attorney’s fees in connection with the review of thisAgreement provided that reimbursement shall not exceed $5,000.

 

13.           CompleteAgreement.  This Agreement setsforth the entire agreement of the parties hereto relating to the subject matterhereof and supersedes any other employment agreements or understandings,written or oral, between the Company and Executive.  This Agreement is not a promise of future employment.  Executive has no oral representations,understanding or agreements with the Company or any of its officers, directorsor representatives covering the same subject matter as this Agreement.  This written Agreement is the final,complete and exclusive statement and expression of the agreement between theCompany and Executive and of all the terms of this Agreement, and it cannot bevaried, contradicted or supplemented by evidence of any prior orcontemporaneous oral or written agreement. This written Agreement may not be later modified except by writtenagreement signed by a duly authorized officer of the Company and Executive, andno term of this Agreement may be waived except by a writing signed by the partywaiving the benefit of such term.

 

14.           Notice.  Whenever any notice is required hereunder,it shall be given in writing addressed as follows:

 
| To The  Company: |   | Metals USA,  Inc.                   |
|------------------|--------|-------------------------------------|
|             |   | Attn:  Chairman of the Board   |
|             |   | Three  Riverway, Suite 600          |
|             |   | Houston,  Texas  77056         |
|             |   | Telephone:  713/965-0990            |
|             |   | Fax:  713/965-0067             |
|             |   |                                |
| with a copy  to: |   | John  Hageman, General Counsel      |
|             |   |                                |
| To  Executive:   |   | Celso  Lourenço Gonçalves |
|             |   | c/o George  M. Reyes                |
|             |   | Best Best  & Krieger LLP        |
|             |   | 3750  University Avenue             |
|             |   | Riverside,  CA 92502                |

 

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| with a copy  to: |   | George M.  Reyes             |
|------------------|--------|------------------------------|
|             |   | Best Best  & Krieger LLP |
|             |   | 3750  University Avenue      |
|             |   | Riverside,  CA 92502         |

 

Notice shall be deemed given and effective onthe earlier of three (3) days after the deposit in the U.S. mail of a writingaddressed as above and sent first class mail, certified, return receiptrequested, or when actually received by means of hand delivery, delivery byFederal Express or other courier service, or by facsimile transmission.  Either party may change the address fornotice by notifying the other party of such change in accordance with thisSection 14.

 

15.           Severability;Headings.  If any portion of thisAgreement is held invalid or inoperative, the other portions of this Agreementshall be deemed valid and operative and, so far as is reasonable and possible,effect shall be given to the intent manifested by the portion held invalid orinoperative.  The Section headingsherein are for reference purposes only and are not intended in any way todescribe, interpret, define or limit the extent or intent of the Agreement orof any part hereof.

 

16.           Arbitration.  With the exception of Sections 3, 6 and 7,any unresolved dispute or controversy arising under or in connection with thisAgreement shall be settled exclusively by arbitration, conducted before a panelof three (3) arbitrators in Houston, Texas, or such other venue as the partiesmay agree in accordance with the National Rules for the Resolution ofEmployment Disputes of the American Arbitration Association (“AAA”) then ineffect, provided that Executive shall comply with the Company’s grievanceprocedures in an effort to resolve such dispute or controversy before resortingto arbitration, and provided further that the parties may agree to usearbitrators other than those provided by the AAA.  The arbitrators shall not have the authority to add to, detractfrom, or modify any provision hereof not to award punitive damages to anyinjured party.  The arbitrators shallhave the authority to order back-pay, severance compensation, vesting ofoptions (or cash compensation in lieu of vesting of options), reimbursement ofcosts, including those incurred to enforce this Agreement, and interest thereonin the event the arbitrators determine that Executive was terminated withoutdisability or Cause, or that the Company has otherwise materially breached thisAgreement.  A decision by a majority ofthe arbitration panel shall be final and binding.  Judgment may be entered on the arbitrator’s award in any courthaving jurisdiction.  The direct expenseof any arbitration proceeding shall be divided equally between the parties andeach party shall pay its own attorneys’ fees regardless of the outcome of thearbitration.

 

17.           GoverningLaw.  This Agreement shall in allrespects be construed according to the laws of the State of Texas.

 

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18.           Counterparts.  This Agreement may be executedsimultaneously in two (2) or more counterparts, each of which shall be deemedan original and all of which together shall constitute but one and the sameinstrument.

 

IN WITNESS WHEREOF, the parties hereto haveexecuted this Agreement as of the day and year first above written.

 
|   | COMPANY:                                               |
|--------|--------------------------------------------------------|
|   |                                                   |
|   | METALS USA, INC.                                       |
|   |                                                   |
|   |                                                   |
|   | By:                                                    | /s/ JOHN A. HAGEMAN |
|   | Name:  John A. Hageman                            |
|   | Title:  Sr. Vice President  & General Counsel |
|   |                                                   |
|   |                                                   |
|   | EXECUTIVE:                                             |
|   |                                                   |
|   |                                                   |
|   | /s/ CELSO LOURENCO GONCALVES                           |
|   | Celso Lourenço Gonçalves                     |

 

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