Document:

exv10w1

 

Exhibit 10.1

AMENDMENT NO. 1

TO

CREDIT AGREEMENT AND CONSENT

     This Amendment No. 1 to Credit Agreement and Consent, dated as of September 30, 2005 (the
“Amendment”), among LIFE TIME FITNESS, INC., a Minnesota corporation (the “Borrower”), the
banks from time to time party hereto (individually, a “Bank” and, collectively, the
“Banks”), and U. S. BANK NATIONAL ASSOCIATION, a national banking association, one of the
Banks, as Administrative Agent for the Banks (in such capacity, the “Agent”) and Lead
Arranger, and J. P. MORGAN SECURITIES INC., as Syndication Agent.

RECITALS:

     A. The Borrower, the Banks, the Agent and the Syndication Agent are the parties to that
certain Credit Agreement dated as of April 15, 2005 (the “Original Agreement”).

     B. The Borrower has requested that the Agent and the Banks amend certain provisions of the
Original Agreement and that the Agent and the Bank consent to the consummation of the
“Restructuring” hereinafter described.

     C. Subject to the terms and conditions of this Amendment, the Agent and the Banks will agree
to the foregoing requests of the Borrower based in part on the Borrower’s agreement to execute
and/or deliver, and to cause the “Restructuring Subsidiaries” hereinafter defined to execute and/or
deliver, this Amendment and the other documents that are required to be executed and/or delivered
by the terms hereto so that, after giving effect to the Restructuring, the Agent and the Banks
shall be in substantially the same position relative to the Borrower, its Subsidiaries, their
respective property and their respective liability for the payment and performance of the
Obligations as existed prior to the Restructuring.

     NOW, THEREFORE, the parties agree as follows:

     1. Defined Terms. All capitalized terms used in this Amendment shall, except where
the context otherwise requires, have the meanings set forth in the Original Agreement as amended
hereby.

     2. Amendments. The Original Agreement is hereby amended as follows:

     (a) The Original Agreement is generally amended so that any reference to:

     (i) “LTF Real Estate Holdings, LLC” or “Holdings” shall be deemed to be a
reference to “LTF TIAA Real Estate Holdings, LLC”;

     (ii) “FCA Construction Holdings, LLC” or “FCA Construction” shall be deemed to
be a reference to “FCA Construction Company, LLC”; and

     (iii) “FCA Restaurant Holdings, LLC” or “FCA Restaurant Holdings” shall be
deemed to be a reference to “FCA Restaurant Company, LLC”.

 

 

     (b) The Original Agreement is further generally amended so that any reference to the
“Borrower” as the lessee under a LTF Lease shall be deemed to be a reference to LTF Club
Operations Company, Inc., a Minnesota corporation, after the consummation of the
Restructuring.

     (c) The definition of “Acquisition” appearing in Section 1.1 of the Original
Agreement is amended in its entirety to read as follows:

     “‘Acquisition’: Any transaction or series of transactions by which the
Borrower acquires, either directly or through an Affiliate or otherwise, (a) any or
all of the stock or other securities of any class of any Person if, after giving
effect to such transaction, such Person would be an Affiliate of the Borrower; or
(b) a substantial portion of the assets (other than real estate that, a substantial
portion of which, the Borrower intends to develop and operate as a Club and related
businesses), or a division, or line of business of any Person.”

     (d) The definition of “LTF Lease” appearing in Section 1.1 of the Original
Agreement is amended in its entirety to read as follows:

     “‘LTF Lease’: A long term lease agreement between a Real Estate
Subsidiary, as lessor, and the Borrower (or, after the consummation of the
Restructuring, LTF Club Operations Company, Inc., a Minnesota corporation
(‘Operations’)), as lessee, relating to a Club.”

     (e) The definition of “Real Estate Subsidiary” appearing in Section 1.1 of the
Original Agreement is amended in its entirety to read as follows:

     “‘Real Estate Subsidiary’: Any Subsidiary that is the obligor on a
Permitted Permanent Loan; provided, however, that none of OP
Holdings, Operations, FCA Construction, FCA Restaurant Holdings, LTF Real Estate
Holdings, LLC, a Delaware limited liability company (‘RE Holdings’), LTF Club
Management Company, LLC, a Delaware limited liability company (‘Management’), or LTF
Real Estate Company, Inc., a Minnesota corporation (‘RE CO’) are, or shall become, a
Real Estate Subsidiary. The Real Estate Subsidiaries in existence on the Closing
Date are described on Schedule 1.1(a) of the Disclosure Schedules.”

     (f) Subparts (b)(vi) and (vii) of the definition of “Permitted Permanent Loan”
appearing in Section 1.1 of the Original Agreement are respectively amended in their
entireties to read as follows:

     “(vi) the Clubs are leased to the Borrower (or, after the consummation of the
Restructuring, Operations) pursuant to an LTF Lease; provided, that such LTF Lease
shall not require the Borrower or Operations, as the case may be, to pay more than
the market rate for such Club as of the effective date of such LTF Lease, plus
annual increases not to exceed 2.5% on a compounded basis;

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     (vii) the Net Proceeds from such Indebtedness are sufficient to repay at least
50% of the aggregate costs paid or incurred by the Borrower or Operations, as the
case may be, in connection with the acquisition and improvement of the Clubs
comprising security for such Indebtedness except that this clause (vii) does not
apply to any Teachers’ Re-financing;”.

     (g) Section 1.1 of the Original Agreement is further amended by adding the following
new definitions in proper alphabetical order:

     “‘Collateral’: Any property in which the Agent has been granted a Lien
pursuant to any Loan Document.

     ‘Restructuring’: The transactions set forth on Schedule A
attached to that certain Amendment No. 1 to Credit Agreement and Consent dated as of
September 30, 2005 (the ‘First Amendment’).

     ‘Restructuring Documents’: The documents listed on Schedule B
attached to the First Amendment.

     ‘Restructuring Subsidiary”: Each of OP Holdings, Operations, RE
Holdings, Management and RE CO.”

     (h) Section 5.12 of the Original Agreement is amended in its entirety to read as
follows:

     “Section 5.12 LTF Leases. The Borrower shall comply with, or, after
the consummation of the Restructuring, shall cause Operations to comply with, its
obligations under each LTF Lease in all respects such that neither the Real Estate
Subsidiary that is the lessor party thereto nor any third party lender whose
Permitted Permanent Loan is secured by such LTF Lease shall have the right to
terminate such LTF Lease by reason of default by the Borrower or Operations, as the
case may be, thereunder.”

     (i) Section 5.13 of the Original Agreement is amended in its entirety to read as
follows:

     “Section 5.13 Real Estate. The Borrower shall take all actions
necessary to assure that the Borrower or, after the consummation of the
Restructuring, RE CO, holds in its name fee title interest (or, if the Borrower’s
and its Subsidiaries’ greatest estate in any parcel of real estate is a leasehold
estate, then such leasehold estate) to all parcels of real property in which the
Borrower or any Subsidiary has any interest except for Clubs that are owned by a
Real Estate Subsidiary subject to Lien securing a Permitted Permanent Loan made to
such Real Estate Subsidiary or for the Clubs respectively located in Champlin, MN
and Savage, MN if the Borrower does not transfer them to RE CO pursuant to Section
12(c) of the First Amendment.”

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     (j) Section 5.14 of the Original Agreement is amended in its entirety to read as
follows:

     “Section 5.14 Mandatory Distributions. The Borrower shall cause:

     (a) FCA Restaurant Holdings and each other Subsidiary (other than Holdings, RE
Holdings, RE CO and any Real Estate Subsidiary) to distribute (not less often than
monthly) to its owners all cash and cash equivalents that come into the possession
of FCA Restaurant Holdings or such other Subsidiary and that are not required by FCA
Restaurant Holdings or such other Subsidiary to satisfy its immediate working
capital requirements.

     (b) Holdings, RE Holdings, RE CO and each Real Estate Subsidiary to enter into
an agreement (an ‘Upstream Distribution Agreement’) with the Borrower in form and
substance satisfactory to the Agent: (i) requiring Holdings, RE Holdings, RE CO and
such Real Estate Subsidiary to promptly distribute (and not less often than monthly)
to the Borrower all cash and cash equivalents that come into the possession of such
Subsidiary and that are not required by such Subsidiary to satisfy: (A) its
immediate obligations to contractors and vendors entered into in the ordinary course
of business; and (B) its obligations under the Permitted Permanent Loans made to
Holdings or such Real Estate Subsidiary; and (ii) assigning to the Agent a Lien in
all of the Borrower’s right, title and interest in, to and under such agreement and
to all payments required to be made thereunder, and the Borrower shall cause each
Subsidiary to comply with such agreement.”

     (k) Section 6.5(a)(ii) of the Original Agreement is amended by changing the reference
to “Section 6.2 or 6.19” to a reference to “Section 6.2 or 6.18.”

     (l) Section 6.6 of the Original Agreement is amended in its entirety to read as
follows:

     “Section 6.6 Negative Pledges. The Borrower will not enter into, and
will not permit any of its Subsidiaries to enter into, any agreement , bond, note or
other instrument with or for the benefit of any Person other than the Banks which
would (a) prohibit such Person from granting, or otherwise limit the ability of such
Person to grant, to the Banks any Lien on any assets or properties of such Person,
or, in the case of any of the Borrower’s Subsidiaries, would prohibit such
Subsidiary from paying distributions or dividends to its equity holders except for
the Related Agreements evidencing or securing: (i) a Permitted Permanent Loan so
long as such restriction applies only to the Real Estate Subsidiaries that are
bound by the relevant Related Agreements and terminates upon the payment of such
Permitted Permanent Loan; and (ii) Purchase Money Indebtedness (including
Capitalized Leases) which prohibit the granting of additional Liens on the property
securing such Purchase Money Indebtedness, or (b) require the Borrower

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or any of its Subsidiaries to grant a Lien to any other Person if such Person
grants any Lien to the Banks.”

     (m) Section 6.7(b) of the Original Agreement is amended in its entirety to read as
follows:

     “(b) any wholly-owned Subsidiary of the Borrower may pay dividends or make
distributions to its parent; provided, however, that, if such
wholly-owned Subsidiary is indirectly owned by the Borrower through one or more
intermediate Subsidiaries, then such Subsidiary may not pay dividends or make
distributions to its parent unless all of such intermediate Subsidiaries can pay
dividends or make distributions to their respective parents without any restriction
or limitation set forth in any Related Agreement;”.

     (n) Section 6.10(n) of the Original Agreement is amended in its entirety to read as
follows:

     “(n) Investments by the Borrower in its Subsidiaries in existence on the
Closing Date and Investments by the Borrower in the Restructuring Subsidiaries as of
September 30, 2005.”

     3. Conditions to Effectiveness. This Amendment shall become effective on the date
(the “Effective Date”) when, and only when, the Agent shall have received:

     (a) Counterparts of this Amendment executed by the Borrower and the Majority Banks;

     (b) An Amendment No. 1 to Pledge Agreement in the form provided by the Agent
appropriately completed and duly executed by the Borrower;

     (c) A certificate of the Secretary of the Borrower having attached (i) a copy of the
corporate resolution of the Borrower authorizing the execution, delivery and performance of
this Amendment and any other documents to be executed and/or delivered by the Borrower in
connection herewith, certified by the Secretary or an Assistant Secretary of the Borrower;
and (ii) an incumbency certificate showing the names and titles, and bearing the signatures
of, the officers of the Borrower authorized to execute this Amendment and such other
documents to be executed and/or delivered by the Borrower in connection herewith;

     (d) A certificate of good standing for the Borrower in the jurisdiction of its
incorporation or organization;

     (e) An Amendment No. 1 to Pledge Agreement in the form provided by the Agent
appropriately completed and duly executed by Holdings;

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     (f) One or more Subsidiary Guaranties in the form provided by the Agent appropriately
completed and duly executed by OP Holdings, , Operations, RE Holdings, Management, and RE
CO, respectively;

     (g) A Subsidiary Security Agreement in the form provided by the Agent appropriately
completed and duly executed by OP Holdings, Operations, Management and RE CO, respectively;

     (h) A Subsidiary Pledge Agreement in the form provided by the Agent appropriately
completed and duly executed by OP Holdings and RE Holdings, respectively;

     (i) An Amended and Restated Upstream Distribution Agreement in the form provided by the
Agent appropriately completed and duly executed by the Borrower, Holdings, RE Holdings, RE
CO and each Real Estate Subsidiary in existence on the date of this Amendment;

     (j) A certificate of the Secretary or Assistant Secretary (or other appropriate
officer) of each Subsidiary that is executing and/or delivering any document in connection
with this Amendment dated as of a current date and certifying to the following:

     (i) a true and accurate copy of the corporate or company (or other) resolutions
of such Subsidiary authorizing the execution, delivery and performance of the Loan
Documents to which such Subsidiary is a party contemplated hereby and thereby;

     (ii) the incumbency, names, titles and signatures of the officers of such
Subsidiary authorized to execute the Loan Documents to which such Subsidiary arty is
a party;

     (iii) a true and accurate copy of the Articles of Incorporation or Organization
(or the equivalent) of such Subsidiary with all amendments thereto, certified by the
appropriate governmental official of the jurisdiction of organization as of a date
acceptable to the Agent; and

     (iv) a true and accurate copy of the bylaws, operating agreement and member
control agreement (or other constituent documents) for such Subsidiary;

     (k) A certificate of good standing for each of the Subsidiaries described in Section
3(i) in the jurisdiction of such Subsidiary’s incorporation or organization and in the
jurisdictions where the character of the properties owned or leased by such Subsidiary or
the business conducted by such Subsidiary makes such qualification necessary, certified by
the appropriate governmental officials as of a date acceptable to the Agent;

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     (l) Evidence that the Borrower’s insurance policies have been amended in a manner
reasonably acceptable to the Agent to reflect the consummation of the Restructuring;

     (m) A copy of the Restructuring Documents, each in form and substance satisfactory to
the Agent and Majority Banks and certified as a true and correct copy by an officer of the
Borrower;

     (n) A copy of all amendments to Related Agreements previously delivered to the Agent
and all additional Related Agreements to be executed in connection with the consummation of
the Restructuring as more particularly set forth on Schedule C attached to this
Amendment and incorporated herein by reference, each in form and substance satisfactory to
the Agent and Majority Banks and certified as a true and correct copy by an officer of the
Borrower;

     (o) Evidence satisfactory to the Agent that the occurrence of the Effective Date is the
last condition to be satisfied to the consummation of the Restructuring; and

     (p) Such other approvals, opinions or documents as the Agent or any Bank may reasonably
request.

     4. Representations and Warranties. To induce the Agent and the Banks to enter into
this Amendment, the Borrower represents and warrants to the Agent and the Banks as follows:

     (a) The execution, delivery and performance by the Borrower of this Amendment and any
other document to be executed and/or delivered by the Borrower in connection herewith have
been duly authorized by all necessary corporate action, do not require any approval or
consent of, or any registration, qualification or filing with, any government agency or
authority or any approval or consent of any other person (including, without limitation, any
stockholder) that has not been obtained, do not and will not conflict with, result in any
violation of or constitute any default under, any provision of the Borrower’s articles of
incorporation or bylaws, any agreement binding on or applicable to the Borrower or any of
its property, or any law or governmental regulation or court decree or order, binding upon
or applicable to the Borrower or any of its property and will not result in the creation or
imposition of any security interest or other lien or encumbrance in or on any of its
property pursuant to the provisions of any agreement applicable to the Borrower or any of
its property except pursuant to the Loan Documents to which the Borrower is a party;

     (b) The representations and warranties respectively contained in Article IV of the
Original Agreement are true and correct as of the date hereof as though made on that date
except: (i) to the extent such representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct in all material respects as of such
earlier date; and (ii) the representations and warranties set forth in Section 4.5 to the
Borrower’s financial statements shall be deemed to refer to the financial statements then

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most recently delivered to the Banks pursuant to Section 5.1(a) or (b), as the case may
be; provided, that the unaudited interim financial statements do not comply with GAAP
because of the absence of footnotes and are subject to immaterial year-end audit
adjustments;

     (c) No events have taken place and no circumstances exist at the date hereof which
would give the Borrower the right to assert a defense, offset or counterclaim to any claim
by the Agent or any Bank for payment of the Obligations now existing or hereafter arising
under the Original Agreement as amended by this Amendment or any other Loan Document;

     (d) The Original Agreement, as amended by this Amendment, and each other Loan Document
to which the Borrower is a party remain in full force and effect and are the legal, valid
and binding obligations of the Borrower and are enforceable in accordance with their
respective terms, subject only to limitations as to enforceability which might result from
bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights
generally and subject to limitations on the availability of equitable remedies; and

     (e) No Default, Event of Default or Material Adverse Occurrence has occurred and is
continuing as of the date hereof after giving effect to this Amendment.

     5. Reference to and Effect on the Loan Documents.

     (a) From and after the date of this Amendment, each reference in the Original Agreement
to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to
the Original Agreement, and each reference to the “Agreement”, “thereunder”, “thereof”,
“therein” or words of like import referring to the Original Agreement in any other Loan
Document shall mean and be a reference to the Original Agreement as amended hereby.

     (b) The execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of the Agent or
any Bank under the Original Agreement or any other Loan Document, nor constitute a waiver of
any provision of the Original Agreement or any such other Loan Document.

     6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the preparation, reproduction, execution and delivery of
this Amendment and the other documents to be delivered hereunder or thereunder, including their
reasonable attorneys’ fees and legal expenses. In addition, the Borrower shall pay any and all
stamp and other taxes and fees payable or determined to be payable in connection with the execution
and delivery, filing or recording of this Amendment and the other instruments and documents to be
delivered hereunder, and agrees to save the Agent and each Bank harmless from and against any and
all liabilities with respect to, or resulting from, any delay in the Borrower’s paying or omission
to pay, such taxes or fees.

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     7. Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AMENDMENT AND
THE REPLACEMENT REVOLVING NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES APPLICABLE TO NATIONAL BANKS.

     8. Headings. Section headings in this Amendment are included herein for convenience
of reference only and shall not constitute a part of this Amendment for any other purpose.

     9. Counterparts. This Amendment may be executed in separate counterparts and by
separate parties in separate counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same Amendment.

     10. Recitals. The Recitals hereto are incorporated herein by reference.

     11. Consent. Notwithstanding anything in this Agreement or any other Loan Document to
the contrary but subject to the satisfaction of the conditions subsequent set forth in Section 12
of this Amendment, the Agent and the Banks, on the Effective Date of this Amendment, hereby consent
to the Borrower’s and its Subsidiaries’ consummation of the Restructuring. The Agent’s and the
Banks’ consent are limited to the specific circumstances described above, and shall not be
construed to be a consent to any other transaction or a general waiver of any term or provision of
the Original Credit Agreement or any other Loan Document.

     12. Conditions Subsequent. As conditions subsequent to this Amendment, the Agent and
the Banks require that by no later than:

     (a) October 7, 2005, the Borrower shall deliver evidence to the Agent that the Borrower
has dissolved LTF Corporate Businesses Company, LLC, a Delaware limited liability company
(“CBC”) and LTF Air Company, LLC, a Delaware limited liability company (“AIR CO”);
provided, however, that:

     (i) the Borrower covenants and agrees with the Agent and the Banks that, prior
to the dissolution of CBC and AIR CO, neither the Borrower nor any of the Borrower’s
other Subsidiaries shall contribute any assets to either CBC or AIR CO and that
neither CBC nor AIR CO shall engage in any business; and

     (ii) if the Borrower fails to timely dissolve CBC and AIR CO, then the Agent,
upon 10 Business Days’ prior written notice to the Borrower, may impose the Default
Rate commencing on the first day following the end of such notice period and
continuing thereafter until CBC and AIR CO are dissolved;

     (b) October 31, 2005, the Borrower shall deliver to the Agent all Related Agreements
and/or amendments to existing Related Agreements that may be required by

9

 

Teachers in connection with the Borrower’s obtaining Teachers’ consent to the
Restructuring; provided, however, that all such Related Agreements and
amendments shall be subject to the Agent’s determination, in its sole and absolute
discretion, that such Related Agreements and amendments establish a post-Restructuring claim
against the Borrower, the Restructuring Subsidiaries and their respective assets that is
similar to the pre-Restructuring claim that Teachers had against the Borrower and its
assets; provided further, however, that if the Agent notifies the
Borrower that such Related Agreements and amendments enhance Teachers’ pre-Restructuring
claim, then the Borrower shall immediately unwind the Restructuring and shall execute such
documents as may be required by the Agent as being necessary or convenient to effect such
unwinding; and

     (c) October 31, 2005, the Borrower shall deliver to the Agent all Related Agreements
and/or amendments to existing Related Agreements that may be required by Associated Bank
Minnesota or Associated Bank, National Association in connection with the Borrower’s
obtaining the respective bank’s consent to the Restructuring; provided,
however, that all such Related Agreements and amendments shall be subject to the
Agent’s determination, in its sole and absolute discretion, that such Related Agreements and
amendments establish a post-Restructuring claim against the Borrower, the Restructuring
Subsidiaries and their respective assets that is similar to the pre-Restructuring claim that
the relevant bank had against the Borrower and its assets; provided
further, however, that if the Agent notifies the Borrower that such Related
Agreements and amendments enhance the relevant bank’s pre-Restructuring claim, then the
Borrower shall exclude the Clubs respectively located in Champlin, MN and Savage, MN from
the Restructuring.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their
respective officers thereunto duly authorized as of the date first written above.

	 	 	 	 	 
	 	LIFE TIME FITNESS, INC.

 	 
	 	By:  	 	 
	 	Name:  	Eric J. Buss 	 
	 	Title:  	Secretary 	 
	 

	 	 	 	 	 
	 	U.S. BANK NATIONAL ASSOCIATION,

as Agent and as a Bank

 	 
	 	By:  	 	 
	 	Name:  	Karen E. Weathers 	 
	 	Title:  	Vice President 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	 	JPMorgan Chase Bank, N. A.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

	 	 	 	 	 
	 	 	M&I Marshall & Ilsley Bank
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	and	 	 
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

	 	 	 	 	 
	 	 	National City Bank of the Midwest
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

	 	 	 	 	 
	 	 	Merrill Lynch Capital, a Division of Merrill
Lynch Business Financial Services Inc.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

	 	 	 	 	 
	 	 	Harris Trust and Savings Bank
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

	 	 	 	 	 
	 	 	Associated Bank, National Association
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

	 	 	 	 	 
	 	 	MB Financial Bank, N.A.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:exv10w1

 

Maarten D. Hemsley

Executive Employment Agreement

This Executive Employment Agreement (this “Agreement”) is made and entered into as of the
13th day of July, 2005 to become effective except as noted below on July 18, 2005 (the “Effective
Date”) by and between Sterling Construction Company, Inc. with a place of business in Harris
County, Texas, (the “Company”) and Maarten D. Hemsley (“Mr. Hemsley”).

In consideration of the following covenants and conditions and for other good and valuable
consideration, the parties agree as follows:

	1.	 	Prior Agreements. The term of Mr. Hemsley’s employment agreement that terminated on the date
hereof is hereby extended to the Effective Date. Upon the Effective Date, this Agreement
supersedes that agreement and any and all other employment agreements, written or oral between
the Company and Mr. Hemsley.

	2.	 	Employment. The Company hereby employs Mr. Hemsley, and Mr. Hemsley hereby accepts
employment for the term, at the salary, with the benefits and for the other consideration set
forth herein and on the conditions specified herein.
	 
	3.	 	Duties and Responsibilities.

	 	(a)	 	Mr. Hemsley agrees to perform to the best of his ability the duties of Chief Financial
Officer of a publicly traded company with such other duties relating to that position as
the Chief Executive Officer and the Board of Directors of the Company (the “Board”) may
assign from time to time.
	 
	 	(b)	 	Mr. Hemsley agrees (i) to devote such portion of his productive time, ability and
attention to the diligent prosecution of the business and affairs of the Company as is
necessary for the discharge of his duties hereunder; and (ii) to conform to, and/or comply
with, all lawful rules, regulations, instructions, personnel practices and policies of the
Company that are not inconsistent with this Agreement, whether now in force or hereafter
adopted.
	 
	 	(c)	 	The foregoing provisions shall not prevent or restrict Mr. Hemsley from undertaking
other employment, provided such other employment does not interfere with the carrying out
of his duties hereunder.

	4.	 	Term and Place of Employment.

	 	(a)	 	Term.

	 	(i)	 	The original term of this Agreement shall commence on the Effective Date and
shall expire (unless renewed) at the close of business on the second anniversary of the
Effective Date (the “Original Term”) unless sooner terminated in accordance with the
terms and provisions hereinafter set forth.
	 
	 	(ii)	 	This Agreement shall be renewed and extended for a period of twelve (12) months
on the second anniversary of the Effective Date and on each successive anniversary
thereafter if not less than ninety (90) days prior to the second anniversary (or, if
previously renewed and extended, any succeeding anniversary) of the Effective Date (the
“Renewal Notice Date”) (A) the Company pursuant to a resolution of the Board shall have
given Mr. Hemsley written notice that it has determined to renew this Agreement; and
(B) Mr. Hemsley shall not have exercised any right herein to terminate his employment
and this Agreement.

	 	(b)	 	Place of Employment. Although Mr. Hemsley will not be based at the Company’s offices
in Houston, Texas, he shall travel to the Company’s offices at such time and with such
frequency as is reasonably required to fulfill his duties.

	5.	 	Compensation and Benefits. The compensation and benefits payable hereunder shall be in
consideration of the performance by Mr. Hemsley of his responsibilities, duties and
obligations described in this Agreement for the Company.

 

 

	 	(a)	 	Base Salary. The Company shall pay Mr. Hemsley an annual base salary of $135,000
(“Base Salary”) in bi-weekly installments, subject to pro-ration as to any partial period
and to withholding and other deductions as provided in this Agreement.
	 
	 	(b)	 	Incentive Compensation.

	 	(i)	 	Bonus. In addition to his Base Salary, the Company shall pay Mr.
Hemsley a bonus of $50,000 in respect of any fiscal year during which the Company on a
consolidated basis achieves 75% or greater of the EBITDA projected in the budget for
the fiscal year in question after adjusting the same by adding to such EBITDA any
bonuses paid to employees of the Company and its Affiliates that are directly based on
the profitability of the Company or of any Affiliate. For purposes of this Section
5(b)(i), the budget for a given fiscal year shall mean the budget that has been
approved by the Board. If the Board fails to approve a budget for a fiscal year, the
“EBITDA projected in the budget” shall be the actual EBITDA for the preceding fiscal
year. For purposes of this Agreement, EBITDA shall have the meaning assigned to such
term in Schedule A hereto. In calculating EBITDA for a given year, appropriate
adjustments shall be made for any material changes in the Company’s business that occur
during such year, such as the sale of a part of the business. In the case of such a
change, the budgeted results for that part of the Company for the period following the
sale would be excluded from the budget.
	 
	 	(ii)	 	Additional Bonus. In addition to any amounts payable pursuant to
Section 5(b)(i), above, the Company shall pay Mr. Hemsley such additional
incentive bonus, if any, with respect to each fiscal year as the Compensation Committee
of the Board deems appropriate after taking into consideration the Company’s
consolidated financial results, the number of non-routine business transactions to
which Mr. Hemsley devoted substantial time and such other matters as the Compensation
Committee deems relevant. In no event shall such additional incentive bonus exceed
$75,000.

	 	(c)	 	Equity Compensation. On or as of each anniversary of the Effective Date, the Company
shall grant Mr. Hemsley an option to purchase 2,800 shares of the Company’s common stock at
an exercise price per share equal to the fair market value of a share of the Company’s
common stock on the date of grant. Each such option shall be an incentive stock option to
the extent permitted by applicable tax laws, shall expire five (5) years from the date of
grant, and shall become exercisable in full on July 18, 2007. Each such option shall
continue in full force and effect notwithstanding the termination of Mr. Hemsley’s
employment hereunder unless such termination is pursuant to Section 6(c) (“The
Company’s Right to Terminate for Good Cause”), below, in which event each such option shall
terminate on the date that Mr. Hemsley’s employment terminates.
	 
	 	(d)	 	Benefits; Other Compensation. Mr. Hemsley shall be entitled to participate in those
fringe benefits, benefit plans, bonus plans or programs and other compensation of the
Company and the Affiliates (“Benefit Plans”) at any time made available generally to its
employees or senior employees.
	 
	 	(e)	 	Payroll Taxes and Other Deductions. The Company shall withhold from Base Salary and
any other compensation paid to Mr. Hemsley all applicable withholding and other payroll
taxes due with respect thereto and such other deductions as shall be related to Mr.
Hemsley’s participation in the insurance or other Benefit Plans, if any, from time to time
established and maintained by the Company or the Affiliates for salaried employees.
	 
	 	(f)	 	The Company shall provide a minimum of $100,000 of term life insurance for Mr.
Hemsley’s benefit and shall continue to provide for his benefit the long-term disability
policy which is has provided heretofore.
	 
	 	(g)	 	Business Expenses. The Company shall reimburse to Mr. Hemsley his reasonable and
necessary business expenses incurred by him in the performance of his duties and
responsibilities
	 
	 	 	 	 

			
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	 	 	 	hereunder, including, without limitation, travel to the Company’s facilities, all in
accordance with applicable policies, as such may exist from time to time.
	 
	 	(h)	 	Directors and Officers Liability Insurance. The Company shall obtain and maintain, at
its sole expense, a policy or contract of insurance to insure its directors and officers
and the directors and officers of its subsidiaries against personal liability for acts or
omissions in connection with service as a director or officer of the Company or of any
Affiliate (as defined below) or service in other capacities at the request of the Company.
The insurance coverage provided to Mr. Hemsley shall be at the same limits and of the same
scope and on the same terms and conditions as the coverage provided to the other directors
and officers of the Company. The scope, terms and conditions of such coverage shall be
reasonably comparable to the directors and officers insurance coverage provided by public
companies of comparable size.
	 
	 	(i)	 	Indemnification. The Company shall defend and indemnify Mr. Hemsley against, and hold
him harmless from, any and all costs, liabilities, losses, claims and exposures for his
services as an employee, officer or director of the Company or any Affiliate to the maximum
extent permitted under applicable laws or under the Company’s charter or bylaws.

	6.	 	Termination.

	 	(a)	 	Mr. Hemsley’s Right to Terminate for Good Reason.

	 	(i)	 	Mr. Hemsley may terminate this Agreement and his employment with the Company
for Good Reason, as defined below. In the event of Mr. Hemsley’s termination of this
Agreement and his employment with the Company for Good Reason, the Company shall
continue to pay Mr. Hemsley his Base Salary through the expiration of the then
remaining term of this Agreement, but in no event for less than twelve (12) additional
months, and all stock options held by Mr. Hemsley shall thereupon become exercisable in
full.
	 
	 	(ii)	 	For purposes of Section 6(a)(i), above, “Good Reason” shall be deemed
to exist if (A) the Company fails to comply with any material provision of this
Agreement and such failure has not been cured within ten (10) days after notice of such
noncompliance has been given by Mr. Hemsley to the Board pursuant to the notice
provisions of this Agreement specifying the nature of such noncompliance in reasonable
detail; or (B) Mr. Hemsley is removed from, or is not elected to, the Board after the
Effective Date; or (C) Mr. Hemsley is assigned any duties materially inconsistent with
Mr. Hemsley’s authority, duties or responsibilities on the Effective Date, including
without limitation any action of the Company that results in Mr. Hemsley no longer
having the titles and responsibilities specified in Section 3(a), above; or (D)
the Company fails to renew the Original Term or any extended term of this Agreement in
the manner provided in Section 4(a)(ii), above, by the Renewal Notice Date.

	 	(b)	 	Mr. Hemsley’s Right to Terminate Without Good Reason. At any time, Mr. Hemsley may
terminate this Agreement and his employment with the Company for any reason not described
in Section 6(a), above, but only after at least one hundred eighty (180) days’
advance written notice is given to the Board by Mr. Hemsley pursuant to the notice
provisions hereof; provided, however, that Mr. Hemsley shall terminate his employment on
any earlier date after giving such notice if so required by the Board. If Mr. Hemsley
terminates his employment in accordance with the preceding sentence, the Company shall not
be obligated to make any further payments hereunder, except for (i) the amount of any
accrued Base Salary through the effective date of termination in the manner set forth in
Section 5(a), above; and (ii) any vested benefits, amounts or payments due Mr.
Hemsley or his beneficiaries under any Benefit Plan in which he is a participant. The
Company may deem such notice as notice of resignation by Mr. Hemsley of all offices and
directorships then held by him in the Company and in any entity controlling, controlled by,
or under common control with, the Company (each an “Affiliate”) such resignation to be
effective upon Mr. Hemsley’s termination of employment.
	 
	 	(c)	 	The Company’s Right to Terminate for Good Cause. The Company may terminate this
Agreement and Mr. Hemsley’s employment for good cause, as defined below, at any time
	 
	 	 	 	 

			
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	 	 	 	effective immediately upon giving written notice of termination to Mr. Hemsley. For the
purposes of this Section 6(c) “good cause” for termination shall mean any of the
following:

	 	(i)	 	Mr. Hemsley’s gross neglect of his duties, gross negligence in the performance
of his duties, refusal to perform his duties, or willful disobedience of a lawful order
or directive given to Mr. Hemsley by the Board and within the scope of Mr. Hemsley’s
duties.
	 
	 	(ii)	 	Mr. Hemsley’s unsatisfactory performance of his duties that is not cured within
twenty (20) working days after written notice is given to Mr. Hemsley pursuant to a
duly adopted resolution of the Board specifically identifying each reason why the
Board, in its judgment, believes that Mr. Hemsley’s performance is unsatisfactory and
what Mr. Hemsley can do to cure such unsatisfactory performance to the full
satisfaction of the Board.
	 
	 	(iii)	 	Any act of theft or other dishonesty on the part of Mr. Hemsley, including,
but not limited to any intentional misapplication of the Company’s funds or other
property that the Board has found pursuant to a duly adopted resolution, with Mr.
Hemsley not participating in such action, that Mr. Hemsley has committed.
	 
	 	(iv)	 	Mr. Hemsley’s conviction of any criminal activity not described in Section
6(c)(iii), above, or participation in an activity involving moral turpitude that
the Board has found pursuant to a duly adopted resolution, with Mr. Hemsley not
participating in such action, is or could reasonably be expected to be injurious to the
business or reputation of the Company.
	 
	 	(v)	 	Mr. Hemsley’s immoderate use of alcohol and/or the use of non-prescribed
narcotics that the Board has found pursuant to a duly adopted resolution, with Mr.
Hemsley not participating in such action, adversely affects the performance of his
duties.

	 	(d)	 	Consequences of Termination for Good Cause. If the Company terminates this Agreement
and Mr. Hemsley’s employment for good cause, the Company shall not be obligated to make any
further payments hereunder except for (i) the amount of any accrued Base Salary due at the
time of termination in the manner set forth in Section 5(a), above; and (ii) any
vested benefits, amounts or payments due Mr. Hemsley or his beneficiaries under any Benefit
Plan in which he is a participant.
	 
	 	(e)	 	The Company’s Right to Terminate Without Good Cause. The Company may terminate this
Agreement and Mr. Hemsley’s employment at any time for any reason not described in
Section 6(c), above, but only after at least one hundred eighty (180) days’ advance
written notice is given to Mr. Hemsley pursuant to the notice provisions hereof. If Mr.
Hemsley’s employment is terminated in accordance with the preceding sentence, the Company
shall continue to be obligated to make all payments of Base Salary that would have been
payable under Section 5(a), above, during the period commencing on the date of such
termination and ending on the earlier of (i) the end of the Original Term (or, if
applicable, any renewal term) hereof; or (ii) the date Mr. Hemsley breaches or ceases to be
subject to the provisions of Section 7 (“Proprietary and Confidential Information
of the Company”) or Section 8 (“Covenant Not to Solicit or Compete”), below.
	 
	 	(f)	 	Mr. Hemsley’s Right to Terminate in the Event of a Change in Control of the Company.
For purposes of this Section 6(f), the word “Company” shall mean and include any
one or more of the Company, Sterling Houston Holdings, Inc., Sterling General, Inc. and
Texas Sterling Construction, L.P. so long as they are Affiliates.

	 	(i)	 	A “Change in Control of the Company” shall occur or be deemed to have occurred
only if one of the following events occurs.

	 	(A)	 	Any “person” as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”) (other than (1) the Company;
(2) any trustee or other fiduciary holding securities under an employee benefit
plan of the Company; or (3) any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their ownership
of stock of the Company) becomes
	 
	 	 	 	 

			
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	 	 	 	the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) directly or
indirectly, of securities of the Company representing 50% or more of the combined
voting power of the Company’s then outstanding securities;
	 
	 	(B)	 	During any period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company together
with any new director (other than a new director designated by a person who has
entered into an agreement with the Company to effect any transaction described in
Section 6(f)(i)(A), 6(f)(i)(C) or 6(f)(i)(D)) whose election by the Board
of Directors or nomination for election by the Company’s stockholders was approved
by a vote of at least two-thirds of the directors then still in office who were
either directors at the beginning of the period or whose election or whose
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board of Directors;
	 
	 	(C)	 	the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (1) a merger or consolidation
that would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 50% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or (2) a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person (as defined in Section 6(f)(i)(A),
above) acquires more than 50% of the combined voting power of the Company’s then
outstanding securities; or
	 
	 	(D)	 	the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.

	 	(1)	 	For purposes of the application of the provisions of this
Section 6(f) to Texas Sterling Construction, L.P., stockholders shall
mean the general partner or partners; securities and voting power shall refer
to general partnership interests; election shall refer to selection as a
general partner; and directors and the board shall refer to the general partner
or partners all as the context requires in order to achieve the intent of such
provisions.

	 	(ii)	 	Upon the occurrence of either a Change in Control of the Company or the
execution by the Company of any agreement that will result in a Change in Control that
is not consented to in writing by Mr. Hemsley on or before its consummation, Mr.
Hemsley shall have a period of thirty (30) days after such consummation in which to
elect by written notice to the Board to terminate this Agreement and his employment
hereunder. If such notice is timely given, Mr. Hemsley’s employment and this Agreement
shall terminate on the date such notice is given. If Mr. Hemsley terminates his
employment and this Agreement in accordance with this Section 6(f), no further
payments hereunder shall be made to Mr. Hemsley, except for (A) the amount of any
accrued Base Salary through the effective date of termination in the manner set forth
in Section 5(a), above; and (B) any vested benefits, amounts or payments due
Mr. Hemsley or his beneficiaries under any Benefit Plan in which he is a participant.
For the avoidance of doubt, any bonus earned but not yet paid shall be paid in the
event Mr. Hemsley terminates his employment pursuant to this Section 6(f) and
all stock options held by Mr. Hemsley shall become exercisable in full. Such
written notice shall be construed as a resignation by Mr. Hemsley of all offices and
directorships then held by him in the Company or Company as to which there has been a
Change In Control and in any Affiliate.
	 
	 	(iii)	 	The termination of Mr. Hemsley’s employment under Section 6(f)(ii),
above, shall relieve Mr. Hemsley of his obligations set forth in Section 8
(“Covenant Not to Solicit or Compete”), below, but shall not relieve Mr. Hemsley of his
obligations set forth in Section 7 (“Proprietary and Confidential Information
of the Company”), below.
	 
	 	 	 	 

			
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	 	(g)	 	In the Event of Death. In the event of Mr. Hemsley’s death during the Original Term or
any renewal term of this Agreement, this Agreement shall be terminated automatically as of
the date of Mr. Hemsley’s death, and the Company shall have no further or continuing
obligation to Mr. Hemsley or his estate under the provisions of Section 5
(“Compensation and Benefits”), above, other than to pay any salary or benefits accrued but
not paid for the period ending on the date of Mr. Hemsley’s death. For the avoidance of
doubt, any bonus earned but not yet paid shall be paid in the event of Mr. Hemsley’s death.
	 
	 	(h)	 	In the Event of Permanent Disability. In the event Mr. Hemsley is or becomes
permanently disabled, as such term is defined below, during the Original Term or any
renewal term of this Agreement, this Agreement and Mr. Hemsley’s employment may at the
option of the Company be terminated at any time after the occurrence of such disability.
Any such termination shall be exercised by written notice to Mr. Hemsley or his personal
representative. Mr. Hemsley shall be deemed to have become permanently disabled if during
any consecutive twelve (12) month period, because of ill health, physical or mental
disability, or for other causes beyond his control, he shall have been continuously unable
or unwilling or shall have failed to have performed his duties under this Agreement, in
whole or in substantial part, for one hundred eighty (180) consecutive days.

	7.	 	Proprietary and Confidential Information.

	 	(a)	 	Nondisclosure Covenant. During the term of his employment hereunder, Mr. Hemsley shall
have access to confidential and/or proprietary information of the Company and its
Affiliates including, but not limited to, their books and records, financial information,
personnel information, lists of existing or prospective clients and customers (and their
special needs and requirements) market research, fee and pricing structures, intellectual
property, and other information (hereafter collectively called “Confidential Information.”)
Mr. Hemsley recognizes and acknowledges that Confidential Information is a valuable,
special and unique asset of the owner thereof (whether such owner is the Company, an
Affiliate or a third party) and that the owner’s business is dependent on the same. To
insure the continued secrecy of Confidential Information, and in consideration of his
employment or continued employment, Mr. Hemsley agrees and covenants, subject to the next
succeeding sentence, that during the Original Term and any renewal term of this Agreement
and at all times following the termination of this Agreement and/or his employment (whether
such termination occurs as a result of the expiration of the Original Term or any renewal
term of this Agreement or by the election of either party) Mr. Hemsley will not, except as
is reasonably believed by him to be in the best interest of, or necessary to, the conduct
of the business of the Company and/or the Affiliates —

	 	(i)	 	disclose or divulge to any person, firm, corporation, partnership, joint
venture or other business entity, or to any local, state or federal governmental agency
(collectively referred to as an “Entity”) any Confidential Information or any other
proprietary information that is used by, or becomes known to, Mr. Hemsley;
	 
	 	(ii)	 	use Confidential Information for any purpose other than the performance by Mr.
Hemsley of his obligations under this Agreement and/or the performance of his duties as
an employee of the Company; or
	 
	 	(iii)	 	disclose to any Entity any information that is not otherwise known to the
public concerning the business, customers, clients or affairs of the Company or the
Affiliates that Mr. Hemsley may acquire in the course of, or as an incident to,
employment and service hereunder.

	 	(b)	 	Exceptions. Notwithstanding the immediately preceding sentence to the contrary, Mr.
Hemsley shall not be considered to have violated the requirements of such sentence if Mr.
Hemsley makes a disclosure of Confidential Information in response to a subpoena or is
ordered by a court of competent jurisdiction to do so. Confidential Information shall not
include information that (i) becomes known to the public through no fault of Mr. Hemsley;
(ii) is properly disclosed by the Company to a third party under no obligation of
confidentiality; or (iii) becomes available to
	 
	 	 	 	 

			
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	 	 	 	Mr. Hemsley on a non-confidential basis from a third party under no obligation of
confidentiality to the Company or to an Affiliate.
	 
	 	(c)	 	Work Product. Upon the termination of his employment, Mr. Hemsley shall not take from
the premises of the Company or an Affiliate or otherwise retain any records, files or other
documents, or copies thereof, relating to the business or affairs of the Company or an
Affiliate or any Confidential Information. As further consideration for his employment,
Mr. Hemsley hereby assigns and agrees to assign jointly to the Company, its successors and
assigns, all rights to documents, manuals, notes, computer programs, data bases, research
material, prospective customer lists, etc. that Mr. Hemsley may have made, conceived, or
received during the term of, and relating to his employment with the Company. Mr. Hemsley
will promptly disclose to the Company information relating to said documents, manuals,
notes, computer programs, databases, research materials, prospective customer lists, etc.
and will execute, acknowledge, and deliver all papers and perform such other acts as may be
necessary in the opinion of the Company to vest title to such material in the Company, its
successors and assigns. Without limiting the generality of the foregoing, Mr. Hemsley
covenants and agrees to assign jointly to the Company, its successors and assigns, at any
time and from time to time as may be requested by the Company, its successors and assigns,
at any time or times, any and all works, whether constituting derivative works or
improvements that he develops, invents or creates from and after the Effective Date and
during the term of, and in connection with his employment hereunder, and agrees that the
same are and will be works for hire and owned by the Company, its successors and assigns.
	 
	 	(d)	 	Remedies. In the event of a breach or threatened breach by Mr. Hemsley of the
provisions of this Section 7, the Company shall be entitled to seek an injunction
restraining Mr. Hemsley from disclosing, in whole or in part, any Confidential Information
or mandating the assignment by Mr. Hemsley of any and all such works to the Company.
Nothing herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the recovery of
damages from Mr. Hemsley.

	8.	 	Covenant Not to Solicit or Compete. Mr. Hemsley hereby agrees, covenants and warrants
subject to the terms and conditions of this Section 8 that during the Original Term
and any renewal term of this Agreement and —

	 	(a)	 	For the two (2) year period following the expiration of the Original Term or any
renewal term or following the termination of Mr. Hemsley’s employment under Section
6(b) (Mr. Hemsley’s Right to Terminate Without Good Reason”) or Section 6(c)
(“The Company’s Right to Terminate for Good Cause”), above; as the case may be, or
	 
	 	(b)	 	For the one (1) year period following the termination of Mr. Hemsley’s employment under
Section 6(a) (“Mr. Hemsley’s Right to Terminate for Good Reason”) or Section
6(e) (“The Company’s Right to Terminate Without Good Cause”), above,
	 
	 	 	 	Mr. Hemsley will not, within the State of Texas or the Commonwealth of
Pennsylvania, directly or indirectly:

	 	(i)	 	compete with the Company in any business in which it or any Affiliate is
actively engaged at the termination of Mr. Hemsley’s employment;
	 
	 	(ii)	 	solicit, contract, contact or consult with any of the Company’s or its
Affiliates’ then existing or actively prospective customers or clients for the purpose
of providing, either directly or indirectly, goods or services in competition with the
Company or any Affiliate;
	 
	 	(iii)	 	take any action that would tend to divert from the Company or any Affiliate
any Entity that was a client or customer thereof on the date of the termination of Mr.
Hemsley’s employment or any Entity with respect to which the Company or an Affiliate
was actively seeking to establish a client relationship on the date of the termination
of Mr. Hemsley’s employment; or
	 
	 	(iv)	 	solicit for employment or employ as an employee, independent contractor or
consultant any person who is a party to an employment, independent contractor or
consulting agreement
	 
	 	 	 	 

			
	Maarten D. Hemsley Executive Employment Agreement
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	 	 	 	with the Company or an Affiliate or was an employee, independent contractor or
consultant of the Company or an Affiliate on the date of the termination of Mr.
Hemsley’s employment to perform or provide (or aid in the providing or performing) on
behalf of any Entity any service that is the same as, or similar to, any service
performed or provided by such person in the scope of such person’s employment,
independent contractor or consulting arrangements with the Company or an Affiliate.

	 	(c)	 	As sole consideration for Mr. Hemsley’s agreement not to compete for the period
specified above following the termination of his employment, the Company shall pay and
hereby agrees to pay Mr. Hemsley one thousand dollars ($1,000) per month in advance for
each month in such period.
	 
	 	(d)	 	Notwithstanding the foregoing provisions of this Section 8, Mr. Hemsley may
elect by written notice to the Company after termination of employment by the Company other
than for good cause and prior to any breach of (i) Section 7 (“Proprietary and
Confidential Information of the Company”), above; (ii) this Section 8; or (iii) of
any other provisions hereof by Mr. Hemsley, to cease to be subject to this Section
8. Upon the giving of such notice, Mr. Hemsley shall cease to be subject to the
provisions of this Section 8 (but shall continue to be subject to the provisions of
Section 7), and the Company shall cease to have any further obligations to make any
further payments to Mr. Hemsley pursuant to Section 6(e) (“The Company’s Right to
Terminate Without Good Cause”) (if otherwise applicable) or pursuant to Section
8(c), above.
	 
	 	(e)	 	Mr. Hemsley agrees that the provisions contained in this Section 8 are of vital
importance to the Company, and that if any question shall ever arise as to whether any act
of Mr. Hemsley is prohibited by this Section 8, then, in all instances in which it
is reasonable to interpret any provision of this Section 8 to prohibit such act,
such interpretation shall be controlling, notwithstanding that it may also be reasonable to
interpret such provision not to prohibit such act.
	 
	 	(f)	 	Mr. Hemsley further agrees that such limitations as to the period of time, geographic
area and types and scopes of restriction on his activities specified herein are reasonable
and necessary for the protection of the goodwill and other business interests of the
Company and its Affiliates. However, should either the time period or the geographic area
provided herein be deemed invalid or unenforceable in any respect by a court of competent
jurisdiction, then Mr. Hemsley recognizes and agrees that, upon request of the Company, a
modification shall be made to such time period or geographic area to protect the Company
with respect to the purpose of this covenant not to compete.
	 
	 	(g)	 	Mr. Hemsley recognizes and agrees that any violation by him of any of the provisions
contained in this Section 8 will cause such damage or injury to the Company as
would be irreparable and continuing and that the exact amount of such damage might be
difficult or impossible to ascertain and that for such reason, among others, the Company
shall be entitled to seek an injunction from any court of competent jurisdiction
restraining any further violation by him of this Section 8 in addition to
recovering such damages as the Company may have sustained as a result thereof. Such right
to damages or an injunction shall be in addition to, and not in limitation of, any other
rights and remedies the Company may have under Section 15.50 et seq. of the Texas Business
and Commerce Code for breach of this Section 8 or any other provisions of this
Agreement.
	 
	 	(h)	 	The existence of any claim or cause of action of Mr. Hemsley against the Company or an
Affiliate, whether predicted on this Agreement or otherwise, shall not constitute a defense
to the enforcement of this covenant.

	9.	 	Assignment of Agreement. The Company may not assign this Agreement without the prior written
consent of Mr. Hemsley. In the event of an assignment, the rights and obligations of the
Company under this Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of the Company. Any assignment by the Company of its rights hereunder
shall not relieve the Company of its financial obligation to Mr. Hemsley. The rights and
obligations of Mr. Hemsley under this Agreement are personal to him, and no such rights,
benefits or obligations shall be subject to voluntary or involuntary alienation, assignment or
transfer by him.
	 
	 	 	 

			
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	10.	 	Notices.

	 	(a)	 	Any notice given under this Agreement to the other parties shall be given in writing.
Any such notice shall be given by personal delivery or by registered or certified mail
(return receipt requested) postage prepaid, addressed —

	 	(i)	 	In the case of the Company to its headquarters address; and
	 
	 	(ii)	 	In the case of Mr. Hemsley, to his most recent residence address on the books
of the Company;

	 
	 	 	 	or to such other address of a party as that party may by written notice hereafter
designate.
	 
	 	(b)	 	Notice given in accordance herewith shall be effective five (5) days after the date of
the postmark if mailed via registered or certified mail and the return receipt is received
by the sender, or upon actual receipt by the party receiving the notice in the event that
(i) such return receipt is not received by the sender; or (ii) notice was given by personal
delivery.

	11.	 	Waiver of Breach. The waiver by a party of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach of the same or any other
provision of this Agreement.
	 
	12.	 	Entire Agreement. This Agreement together with Schedule A contains the entire
agreement of the parties with respect to the subject matter hereof except as otherwise
expressly provided herein.
	 
	13.	 	Amendment. This Agreement may be changed, modified or amended at any time and in any respect
by the agreement of the parties hereto without the consent of any other person; provided,
however, that no change, modification or amendment shall be binding unless the same shall have
been reduced to a writing and signed by the party against whom enforcement of the change,
modification or amendment is sought.
	 
	14.	 	Applicable Law and Venue. The parties intend and agree that the terms and provisions of
this Agreement and the performance of the parties hereunder shall be governed by the laws of
the State of Texas, excluding its conflicts of laws provisions, and all disputes hereunder are
subject exclusively to the jurisdiction of courts, state or federal, sitting in Harris County,
Texas.
	 
	15.	 	Severability. In the event that any portion of this Agreement is declared to be invalid or
illegal by final judgment of any court of competent jurisdiction, the remainder of this
Agreement shall remain in full force and effect notwithstanding the invalidity or illegality
of such portion.
	 
	16.	 	Headings and References. The headings contained in this Agreement are solely for the
convenience of the parties and have no bearing upon the interpretation and/or enforcement of
this Agreement. All references in this Agreement to sections shall refer to the sections of
this Agreement unless otherwise explicitly stated, and the words “hereof,” “herein,” and
“hereunder,” and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
	 
	17.	 	Number and Gender of Words. Whenever herein the singular number is used, the same shall
include the plural where appropriate, and words of any gender shall include each other gender
where appropriate.
	 
	18.	 	Counterparts and Execution. This Agreement may be executed in multiple counterparts, each of
which may be considered an original, but all of which together shall constitute but one and
the same instrument. This Agreement when signed by a party may be delivered by telecopier or
other facsimile transmission with the same force and effect as if the same were an executed
and delivered original manually signed counterpart.

[The balance of this page is intentionally left blank]

 

			
	Maarten D. Hemsley Executive Employment Agreement
	 	Page 9 of 10

 

 

Executed effective as of the Effective Date.

Sterling Construction Company, Inc.

	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Robert W. Frickel
 

Robert W. Frickel
	 	 
	 	/s/ Maarten D. Hemsley
 

          Maarten D. Hemsley
	 	 
	 

	 	Chairman of the Compensation Committee	 	 	 	 	 	 

 

Schedule A

Definition of EBITDA

“EBITDA” shall mean the net income determined in accordance with generally accepted accounting
principles of the Company and its consolidated subsidiaries for a given fiscal year —

	 	 	 
	Plus

	 	Interest expense for the period;
	 
	 	 
	Plus

	 	Depreciation and amortization expense for the period;
	 
	 	 
	Plus

	 	Federal and state income tax expense incurred for the period;
	 
	 	 
	Plus

	 	Extraordinary Items and non-recurring items (to the extent negative) if any, for the period;
	 
	 	 
	Plus

	 	Any fees paid to non-employee directors;
	 
	 	 
	Minus

	 	Extraordinary Items and non-recurring items (to the extent positive) if any; and
	 
	 	 
	Minus

	 	Interest income for the period.

 

 

			
	Maarten D. Hemsley Executive Employment Agreement
	 	Page 10 of 10

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