EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is by and between Dril-Quip, Inc., a
Delaware corporation (the "Company"), and _______________ (the "Executive"),
dated as of the _____ day of _____________, 1997 and is to be effective as of
the Agreement Effective Date (as defined herein).
In entering into this Agreement, the Board of Directors of the Company
(the "Board") desires to provide the Executive with substantial incentives to
serve the Company as one of its senior executives performing at the highest
level of leadership and stewardship, without distraction or concern over minimum
compensation, benefits or tenure, to manage the Company's future growth and
development, and maximize the returns to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. DEFINITIONS
A. Certain Definitions. As used herein, the following terms have the
meanings assigned to them below:
"Accrued Obligations" shall have the meaning set forth in Section
5(A).
"Affiliate" has the meaning ascribed to such term in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the
Agreement Effective Date.
"Agreement" shall have the meaning set forth in the Preamble.
"Agreement Effective Date" means the date on which the Company first
receives payment for shares of Common Stock that it sells pursuant to a
Registration Statement on Form S-1 (Reg. No. 333-33447) filed under the
Securities Act of 1933.
"Annual Base Salary" shall have the meaning set forth in Section 3(A).
"Annual Bonus" shall have the meaning set forth in Section 3(B).
"Board" shall have the meaning set forth in the Preamble.
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"Cause" means for the Company's termination of the Executive's
employment: (i) the Executive's final conviction of a felony crime that
enriched the Executive at the expense of the Company; provided, however, that
after indictment, the Company may suspend the Executive from the rendition of
services, but without limiting or modifying in any other way the Company's
obligations under this Agreement; or (ii) the Executive's continuing failure to
substantially perform his duties and responsibilities hereunder (except by
reason of the Executive's incapacity due to physical or mental illness or
injury) for a period of 45 days after the Required Board Majority has delivered
to the Executive a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Executive has not substantially performed his duties and
responsibilities hereunder (that period being the "Grace Period"); provided,
that for purposes of this clause (ii), the Company shall not have Cause to
terminate the Executive's employment unless (a) at a meeting of the Board called
and held following the Grace Period in the city in which the Company's principal
executive offices are located, of which the Executive was given not less than 10
days' prior written notice and at which the Executive was afforded the
opportunity to be represented by counsel, appear and be heard, the Required
Board Majority shall adopt a written resolution which (1) sets forth the
Required Board Majority's determination that the failure of the Executive to
substantially perform his duties and responsibilities hereunder has (except by
reason of his incapacity due to physical or mental illness or injury) continued
past the Grace Period and (2) specifically identifies the bases for that
determination, and (b) the Company, at the written direction of the Required
Board Majority, shall deliver to the Executive a Notice of Termination for Cause
to which a copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached.
"Change of Control" shall mean a change in control of the Corporation
after the Agreement Effective Date, which shall be deemed to have occurred in
any one of the following circumstances occurring after such date: (i) there
shall have occurred an event required to be reported with respect to the
Corporation in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item or any similar schedule or form) promulgated under
the Exchange Act, whether or not the Corporation is then subject to such
reporting requirement; (ii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) other than the Stockholder Group shall have
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 30% or
more of the combined voting power of the Corporation's then outstanding voting
securities; (iii) the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or (iv) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (including,
for this purpose, any new director whose election or nomination for election by
the Corporation's stockholders was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
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"Code" means the Internal Revenue Code of 1986.
"Common Stock" means the Common Stock, par value $0.01 per share, of
the Company.
"Company" shall have the meaning set forth in the Preamble.
"Compensation Committee" means the committee of the Board to which the
Board has delegated duties respecting the compensation of executive officers and
the administration of incentive plans, if any, intended to qualify for the
Exchange Act Rule 16b-3 exemption.
"Compensatory Award" shall have the meaning set forth in Section
5(A)(iii).
"Confidential Information" shall have the meaning set forth in Section
9(A).
"Date of Termination" shall have the meaning set forth in Section
4(C).
"Disability" means the absence of the Executive from the Executive's
duties with the Company on a full-time basis for either (i) 180 consecutive
business days or (ii) in any two-year period, 270 nonconsecutive business days,
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
"Disability Effective Date" shall have the meaning set forth in
Section 4(A)(i).
"Employment Period" means the period commencing on the Agreement
Effective Date and ending on the fifth anniversary of the Agreement Effective
Date; provided, that on the second anniversary of the Agreement Effective Date
and each anniversary of the Agreement Effective Date thereafter, the Employment
Period shall automatically renew for an additional one year without any further
action by either the Company or the Executive, it being the intention of the
parties that there shall be continuously a remaining term of not less than three
years' duration of the Employment Period until an event has occurred as
described in, or one of the parties shall have made an appropriate election
pursuant to, the provisions of Section 4.
"Exchange Act" means the Securities Exchange Act of 1934.
"Executive" shall have the meaning set forth in the Preamble.
"Final Expiration Date" shall have the meaning set forth in Section
5(A)(ii).
"Good Reason" means:
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(i) the assignment to the Executive of any duties materially
inconsistent in any respect with the Executive's position (including
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2 or any other action by the
Company which results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office located more than 50 miles from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇;
(iv) any failure by the Company to comply with and satisfy the
requirements of Section 11(B), provided that (A) the successor described in
Section 11(B) has received, at least 10 days prior to the Date of
Termination, written notice from the Company or the Executive of the
requirements of such provision and (B) such failure to be in compliance and
satisfy the requirements of Section 11 shall continue as of the Date of
Termination; or
(v) any failure to reelect Executive as a member of the Board,
Co-Chairman of the Board and Co-Chief Executive Officer or the removal of
him from any of such positions.
"Highest Price Per Share" shall mean the highest price per share that
can be determined to have been paid or agreed to be paid for any share of Common
Stock at any time during the six-month period immediately preceding the
applicable date of determination. In determining the Highest Price Per Share,
the price paid or agreed to be paid will be appropriately adjusted to take into
account (i) distributions paid or payable in stock, (ii) subdivisions of
outstanding stock, (iii) combinations of shares of stock into a smaller number
of shares and (iv) similar events.
"1997 Plan" shall have the meaning set forth in Section 3(C).
"Option Grant Date" shall have the meaning set forth in Section 3(C).
"Person" means any individual, firm, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
entity.
"Prohibited Activity" shall have the meaning set forth in Section
10(A).
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"Relevant Geographic Area" shall have the meaning set forth in Section
10(A).
"Remaining Employment Period" shall have the meaning set forth in
Section 5(A)(ii).
"Required Board Majority" means a majority of the members of the Board
at that time, which majority shall include at least a majority of members who
have not been employees of the Company or any of its Affiliates.
"Stockholder Group" shall mean, to the extent such group is deemed to
be a "person" under Section 13(d) of the Exchange Act, collectively, but not
individually, J. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Family Partners, Ltd.,
▇▇▇▇ ▇. ▇▇▇▇▇ and Four ▇▇▇▇▇'▇ Company, Ltd.
"Window Period" shall mean the 365-day period immediately following
any Change of Control.
B. Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein to
any statute defined or referred to herein, including the Code and the
Exchange Act, shall be deemed references to that statute or any successor
statute, as the same may have been or may be amended or supplemented from
time to time, and any rules or regulations promulgated thereunder.
(ii) When used in this Agreement, the words "herein," "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as a
whole and not to any provision of this Agreement, and the word "Section"
refers to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number includes
the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) The word "including" (and, with correlative meaning, the word
"include") means including, without limiting the generality of any
description preceding such word, and the words "shall" and "will" are used
interchangeably and have the same meaning.
2. EMPLOYMENT
A. As of the Agreement Effective Date, the Company hereby agrees to
employ the Executive and the Executive hereby agrees to accept employment with
the Company, in accordance with, and subject to, the terms and provisions of
this Agreement, for the Employment Period.
B. During the Employment Period, (i) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least
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commensurate in all material respects with the most significant of those held,
exercised and assigned on the Agreement Effective Date, which shall in any event
include status as Co-Chairman of the Board and Co-Chief Executive Officer of the
Company, and (ii) the Executive's services shall be performed within the
Houston, Texas metropolitan area.
C. During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote full attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a violation of
this Agreement for the Executive to (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (iii) manage personal investments, so long
as such activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Agreement
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Agreement
Effective Date shall not thereafter be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
3. COMPENSATION
A. Annual Base Salary. An Annual Base Salary (the "Annual Base Salary")
shall be payable to the Executive by the Company as a guaranteed minimum annual
amount hereunder for each 12-month period during the period from the Agreement
Effective Date to the Date of Termination. The Annual Base Salary shall be
payable in the intervals consistent with the Company's normal payroll schedules
(but in no event less frequently than semi-monthly), and shall be payable at the
annual rate of $350,000.
B. Annual Bonus. In addition to the Annual Base Salary, the Executive
shall be awarded a cash bonus of $250,000 payable on or before December 31,
1997. For each 12-month period ending on September 30 (commencing with the 12-
month period ending September 30, 1998) or December 31 (commencing with the 12-
month period ending December 31, 1998), as the case may be, or portion thereof
during the Employment Period, the Executive shall be awarded an Annual Bonus
(the "Annual Bonus") calculated and paid in the manner provided in Exhibit 1 to
this Agreement.
C. Stock Options. As a long-term incentive, the Executive shall be
granted options to acquire such number shares of Common Stock on the Agreement
Effective Date and on the first and each subsequent anniversary of the Agreement
Effective Date (each, an "Option Grant Date") as shall equal (i) 300% of the
Executive's then-applicable Annual Base Salary divided by (ii) the Fair
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Market Value (as such term is defined on the Agreement Effective Date in the
Company's 1997 Incentive Plan (the "1997 Plan")) per share of Common Stock on
the Option Grant Date. Such options shall be granted pursuant to the 1997 Plan
or any successor or supplemental plan thereto, shall have a term of 10 years
from the Option Grant Date and shall vest at the rate of 25% per year on each
anniversary of the Option Grant Date.
D. Compensation Committee. The amount of the Annual Base Salary, and the
formulae used to determine the Annual Cash Bonus pursuant to Section 3(B) and
the number of shares subject to options granted pursuant to Section 3(C), shall
be reviewed at least annually by the Compensation Committee and shall be subject
to increase (but not decrease) at any time and from time to time on a basis
determined by the Compensation Committee, in the exercise of its sole
discretion. Any such action taken by the Compensation Committee shall be
evidenced by the written minutes or records of the Compensation Committee.
E. Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans that are tax-qualified under Section 401(a) of the Code,
and all plans that are supplemental to any such tax-qualified plans, in each
case to the extent that such plans are applicable generally to other executives
of the Company and its Affiliates, but in no event shall such plans provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities that are, in each case, less favorable to the Executive, in the
aggregate, than the most favorable plans of the Company and its Affiliates. As
used in this Agreement, the term "most favorable" shall, when used with
reference to any plans, practices, policies or programs of the Company and its
Affiliates, be deemed to refer to the plans, practices, policies or programs of
the Company and its Affiliates, as in effect at any time during the Employment
Period and provided generally to other executives of the Company or its
Affiliates, which are most favorable to the Executive.
F. Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company or its Affiliates
(including medical, prescription, dental, vision, disability, salary
continuance, group life and supplemental group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other executives of the Company or its Affiliates, but in no event shall such
plans, practices, policies and programs provide the Executive with benefits that
are less favorable, in the aggregate, than the most favorable such plans,
practices, policies and programs of the Company and its Affiliates.
G. Reimbursement of Business and Other Expenses; Perquisites.
(i) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in
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accordance with the most favorable plans, practices, policies and programs
of the Company and its Affiliates.
(ii) Fringe Benefits and Perquisites. During the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites in
accordance with the most favorable plans, practices, policies and programs
of the Company and its Affiliates applicable to similarly situated
executives, subject to the following:
(a) the Company shall maintain a flexible perquisites spending
account in the amount of $25,000 for each 12-month period in the
Employment Period for use by the Executive in paying the actual costs
of (1) annual country club, luncheon and health club membership dues,
(2) the portion of the costs of an automobile purchased or leased by
the Company for the Executive's use (including costs of insurance,
repair and maintenance) that is allocated to the Executive as a result
of his personal use of such automobile, (3) personal financial
(including tax) counseling and return preparation by a firm chosen by
the Executive, and (4) a mobile phone or phones, and shall pay to the
Executive in cash at the end of each 12-month period in the Employment
Period the remaining balance, if any, in such account; and
(b) the Company shall pay for the initiation membership fee
(including any bond requirements) for one country, luncheon or health
club on behalf of the Executive.
(iii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance
to the extent needed to fulfill his corporate responsibilities, at least
equal to the most favorable of the foregoing provided to the Executive by
the Company and its Affiliates at any time during the Employment Period.
(iv) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
practices, policies and programs of the Company and its Affiliates. In
addition, the Company acknowledges that the Executive may have substantial
vacation time accrued during periods prior to the Agreement Effective Date.
The Company agrees that the Executive shall be entitled to take any and all
of such accrued vacation at any time notwithstanding any other provision of
this Agreement.
H. Personal Income Taxes. If the Executive relocates from a state
without a personal income tax at the time of his relocation to a state having a
personal income tax, or if the Executive resides in a state without a personal
income tax on the Agreement Effective Date which subsequently adopts a personal
income tax, then, in either case, the Company shall pay to the Executive such
additional compensation as is necessary (after taking into account all federal,
state and local taxes payable by the Executive as a result of the receipt of
such additional compensation) to place the
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Executive in the same after-tax position (including federal, state and local
taxes) he would have been in had no such excise or similar purpose tax (or
interest or penalties thereon) been paid or incurred.
4. TERMINATION OF EMPLOYMENT
A. Termination. This Agreement may be terminated at any time during the
Employment Period provided that the amounts and obligations set forth in Section
5 are paid and performed by the Company and only in the following events:
(i) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period, it may give to the Executive
written notice of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties.
(ii) Good Reason; During a Window Period. The Executive may
terminate his employment during the Employment Period (a) at any time for
Good Reason or (b) for any reason during a Window Period. The Company may
terminate the Executive's employment (x) for any reason, including for
Cause, during a Window Period or (y) for any reason other than for Cause at
any time.
(iii) Cause or Voluntary Resignation (other than during a Window
Period). The Company may terminate the Executive's employment during the
Employment Period for Cause and the Executive may terminate his employment
during the Employment Period for any reason. Any termination of this
Agreement that purportedly is pursuant to this Section 4(A)(iii) but which
meets the more specific requirements of a termination pursuant to Section
4(A)(ii) shall be deemed for all purposes of this Agreement to be a
termination pursuant to Section 4(A)(ii).
B. Notice of Termination. Any termination by the Company or the
Executive pursuant to Section 4(A)(ii) or 4(A)(iii) shall be communicated by a
"Notice of Termination" to the other party hereto. The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
▇. ▇▇▇▇ of Termination. For purposes of this Agreement, the term "Date
of Termination" means (i) if the Executive's employment is terminated pursuant
to Section 4(A)(ii) or
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4(A)(iii), the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, and (ii) if the Executive's employment is
terminated by reason of the events set forth in Section 4(A)(i), the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
A. If, during the Employment Period, the Executive's employment is
terminated in accordance with Section 4(A)(i) or 4(A)(ii), the Company shall pay
or provide to or in respect of the Executive, within 10 days after the Date of
Termination, the following amounts and benefits:
(i) a lump sum in cash in an amount equal to the sum of (a) the
Executive's Annual Base Salary through the Date of Termination, (b) any
deferred compensation previously awarded to or earned by the Executive
(together with any accrued interest or earnings thereon) and (c)
compensation for all of the Executive's accrued vacation time based upon
the Executive's current Annual Base Salary, notwithstanding any limitation
on payment for accrued vacation then set forth in the Company's policies or
practices relating to payment for accrued vacation time, in each case to
the extent not theretofore paid (the sum of the amounts described in
clauses (a), (b) and (c) shall be hereinafter referred to as the "Accrued
Obligation"); and
(ii) a lump sum in cash in an amount equal to the Annual Base Salary
that would have been paid to the Executive pursuant to this Agreement for
the period (the "Remaining Employment Period") beginning on the Date of
Termination and ending on the latest possible date of termination of the
Employment Period in accordance with the definition of Employment Period if
the Executive's employment had not been terminated (the "Final Expiration
Date"); and
(iii) a lump sum in cash in an amount equal to the Annual Bonus that
would have been paid to the Executive pursuant to this Agreement for the
Remaining Employment Period, assuming for such purpose that the Annual
Bonus payable for each applicable period during the Remaining Employment
Term would equal the highest amount paid pursuant to Section 3(B) in
respect of the most recent three applicable 12-month periods (ending on
September 30 and December 31, as the case may be) prior to the Date of
Termination;
(iv) effective as of the Date of Termination, (a) immediate vesting
and exercisability of, and termination of any restrictions on sale or
transfer (other than any such restriction arising by operation of law)
with respect to, each and every stock option, restricted stock award,
restricted stock unit award and other equity-based award and performance
award (each, a "Compensatory Award") that is outstanding as of a time
immediately prior to the Date of Termination, (b) the extension of the term
during which each and every Compensatory Award may be exercised by the
Executive until the earlier of (x) the first
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anniversary of the Date of Termination or (y) the date upon which the right
to exercise any Compensatory Award would have expired if the Executive had
continued to be employed by the Company under the terms of this Agreement
until the Final Expiration Date and (c) at the sole election of Executive,
in exchange for any or all Compensatory Awards that are either denominated
in or payable in Common Stock, an amount in cash equal to the excess of (x)
the Highest Price Per Share over (y) the exercise or purchase price, if
any, of such Compensatory Awards; and
(v) continued participation in medical, dental and life insurance
coverage until Executive receives equivalent coverage and benefits under
the plans and programs of a subsequent employer (such coverage and benefits
to be determined on a coverage-by-coverage or benefit-by-benefit basis) or
the later of (a) the death of the Executive, (b) the death of the
Executive's spouse and (c) the youngest child of the Executive reaching age
21; provided that (x) if the executive is precluded from continuing his
participation in any benefit plan or program as provided in this clause
(v), he shall be provided with the after-tax economic equivalent of the
benefits provided under the plan or program in which he is unable to
participate for the period specified in this clause (v), (y) the economic
equivalent of any benefit foregone shall be deemed to be the lowest cost
that would be incurred by the Executive in obtaining such benefit himself
on an individual basis, and (z) payment of such after-tax economic
equivalent shall be made quarterly in advance.
B. If, during the Employment Period, the Executive's employment is
terminated in accordance with Section 4(A)(iii), this Agreement shall terminate
without further obligations to the Executive, other than for (i) the payment of
Accrued Obligations and (ii) unless the termination in accordance with Section
4(A)(iii) is for Cause, receipt of the benefits and payments specified in
Section 5(A)(v). In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination and
the benefits and payments specified in Section 5(A)(v) shall be provided as set
forth in such Section.
6. NON-EXCLUSIVITY OF RIGHTS.
Except as provided in Section 5, nothing in this Agreement (including
any termination pursuant to Section 4(A)(iii)) shall prevent or limit the
Executive's continuing or future participation in any plan, practice, policy or
program provided by the Company or any of its Affiliates and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its Affiliates. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, practice, policy
or program of, or any contract or agreement with, the Company or any of its
Affiliates at or subsequent to the Date of Termination shall be payable in
accordance with such plan, practice, policy or program or contract or agreement.
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7. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
A. The Company's obligation to make payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any setoff, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any such payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the annual percentage rate which is three percentage
points above the interest rate shown as the Prime Rate in the Money Rates column
in the then most recently published edition of The Wall Street Journal
(Southwest Edition), or, if such rate is not then so published on at least a
weekly basis, the interest rate announced by Chase Manhattan Bank (or its
successor), from time to time, as its Base Rate (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Executive until those amounts are finally and fully paid or reimbursed;
provided, however, that in no event shall the amount of interest contracted for,
charged or received hereunder exceed the maximum non-usurious amount of interest
allowed by applicable law.
B. If there shall be any dispute between the Company and the Executive
concerning (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause or Disability or occurred
during a Window Period, or (ii) in the event of any termination of employment by
the Executive, whether Good Reason existed or whether such termination occurred
during a Window Period, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or Disability or that the determination by the Executive of the
existence of Good Reason was not made in good faith or that the termination did
not occur during a Window Period, the Company shall pay all amounts, and provide
all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 5(A) as though such termination were by the Company
without Cause or by the Executive with Good Reason or during a Window Period;
provided, however, that the Company shall not be required to pay any disputed
amounts pursuant to this Section 7(B) except upon receipt of an undertaking by
or on behalf of the Executive to repay all such amounts to which the Executive
is ultimately adjudged by such court not to be entitled.
8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
Should any of the payments of Annual Base Salary, Annual Bonus, other
incentive or supplemental compensation, benefits, allowances, awards, payments,
reimbursements or other perquisites, or any other payment in the nature of
compensation, singly, in any combination or in the aggregate, that are provided
for hereunder to be paid to or for the benefit of the Executive be
12
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Executive such
additional compensation as is necessary (after taking into account all federal,
state and local taxes payable by the Executive as a result of the receipt of
such additional compensation) to place the Executive in the same after-tax
position (including federal, state and local taxes) he would have been in had no
such excise or similar purpose tax (or interest or penalties thereon) been paid
or incurred. The Company hereby agrees to pay such additional compensation
within the earlier to occur of (i) five business days after the Executive
notifies the Company that the Executive intends to file a tax return taking the
position that such excise or similar purpose tax is due and payable in reliance
on a written opinion of the Executive's tax counsel (such tax counsel to be
chosen solely by the Executive) that it is more likely than not that such excise
tax is due and payable or (ii) 24 hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Executive in good faith, the conclusions reached
in such opinion shall not be challenged or disputed by the Company. If the
Executive intends to make any payment with respect to any such excise or similar
purpose tax as a result of an adjustment to the Executive's tax liability by any
federal, state or local tax authority, the Company will pay such additional
compensation by delivering its cashier's check payable in such amount to the
Executive within five business days after the Executive notifies the Company of
his intention to make such payment. Without limiting the obligation of the
Company hereunder, the Executive agrees, in the event the Executive makes any
payment pursuant to the preceding sentence, to negotiate with the Company in
good faith with respect to procedures reasonably requested by the Company which
would afford the Company the ability to contest the imposition of such excise or
similar purpose tax; provided, however, that the Executive will not be required
to afford the Company any right to contest the applicability of any such excise
or similar purpose tax to the extent that the Executive reasonably determines
(based upon the opinion of his tax counsel) that such contest is inconsistent
with the overall tax interests of the Executive.
9. CONFIDENTIAL INFORMATION.
A. The Executive shall hold in a fiduciary capacity for the benefit of
the Company all secret or confidential information, knowledge or data relating
to the Company or any of its Affiliates, and their respective businesses, which
shall have been obtained by the Executive during the Executive's employment by
the Company or any of its Affiliates and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement) (referred to herein as "Confidential
Information"). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute
13
a basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement. Within 30 days of the termination of Executive's
employment for any reason, Executive shall return to Company all documents and
other tangible items of or containing Company information which are in
Executive's possession, custody or control.
B. The Executive shall disclose promptly to the Company any and all
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by the Executive solely
or jointly with any other Person or Persons during the Employment Period and
which pertain primarily to the material business activities of the Company, and
the Executive hereby assigns and agrees to assign all his interests therein to
the Company or to its nominee; whenever requested to do so by the Company, the
Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters of Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein. These obligations shall (i) continue
beyond the Date of Termination with respect to inventions, improvements and
valuable discoveries, whether patentable or not, conceived, made or acquired by
the Executive during the Employment Period and (ii) be binding upon the
Executive's assigns, executors, administrators and other legal representatives.
10. COVENANT NOT TO COMPETE
A. Executive recognizes that in each of the highly competitive businesses
in which the Company is engaged, personal contact is of primary importance in
securing new customers and in retaining the accounts and goodwill of present
customers and protecting the business of the Company. The Executive, therefore,
agrees that during the Employment Period and, if the Date of Termination occurs
by reason of the termination of Executive's employment in accordance with
Section 4(A)(iii), for a period of one year after the Date of Termination, he
will not, within any country with respect to which he has devoted substantial
attention to the material business interests of the Company or any of its
Affiliates as of the Date of Termination without regard, in either case, to
whether the Executive has worked at such location (the "Relevant Geographic
Area"), with respect to only the Relevant Geographic Area, (i) accept employment
or render service to any person that is engaged in a business directly
competitive with the business then engaged in by the Company or any of its
Affiliates or (ii) enter into or take part in or lend his name, counsel or
assistance to any business, either as proprietor, principal, investor, partner,
director, officer, executive, consultant, advisor, agent, independent
contractor, or in any other capacity whatsoever, for any purpose that would be
competitive with the business of the Company or any of its Affiliates (all of
the foregoing activities are collectively referred to as the "Prohibited
Activity").
B. In addition to all other remedies at law or in equity which the
Company may have for breach of a provision of this Section 10 by the Executive,
it is agreed that in the event of any breach or attempted or threatened breach
of any such provision, the Company shall be entitled, upon application to any
court of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of (i) proving irreparable harm, (ii)
establishing that monetary
14
damages are inadequate or (iii) posting any bond with respect thereto) against
the Executive prohibiting such breach or attempted or threatened breach by
proving only the existence of such breach or attempted or threatened breach. If
the provisions of this Section 10 should ever be deemed to exceed the time,
geographic or occupational limitations permitted by the applicable law, the
Executive and the Company agree that such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by the applicable law.
C. The covenants of the Executive set forth in this Section 10 are
independent of and severable from every other provision of this Agreement; and
the breach of any other provision of this Agreement by the Company or the breach
by the Company of any other agreement between the Company and the Executive
shall not affect the validity of the provisions of this Section 10 or constitute
a defense of the Executive in any suit or action brought by the Company to
enforce any of the provisions of this Section 10 or seek any relief for the
breach thereof by Executive.
D. The Executive acknowledges, agrees and stipulates that: (i) the terms
and provisions of this Agreement are reasonable and constitute an otherwise
enforceable agreement to which the terms and provisions of this Section 10 are
ancillary or a part of as contemplated by Tex. Bus. & Com. Code ▇▇▇. (S)(S)
15.50-15.52; (ii) the consideration provided by the Company under this Agreement
is not illusory; and (iii) the consideration given by the Company under this
Agreement, including the provision by the Company of Confidential Information to
the Executive as contemplated by Section 9, gives rise to the Company's interest
in restraining and prohibiting the Executive from engaging in the Prohibited
Activity within the Relevant Geographic Area as provided under this Section 10,
and the Executive's covenant not to engage in the Prohibited Activity within the
Relevant Geographic Area pursuant to this Section 10 is designed to enforce the
Executive's consideration (or return promises), including the Executive's
promise to not disclose Confidential Information under this Agreement.
11. GENERAL PROVISIONS.
A. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws that would require the application of the laws of any other
state or jurisdiction.
B. Successors.
(i) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's heirs, executors and other legal representatives.
(ii) This Agreement shall inure to the benefit of and be binding
upon the Company and may only be assigned to a successor described in
Section 11(B)(iii).
15
(iii) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
C. Headings. The headings of Sections and subsections hereof are
included for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
D. Amendments; Waivers. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and heirs, executors and other legal representatives.
E. Notices. Any notice, demand, request, consent, approval, declaration,
delivery or other communication hereunder to be made pursuant to the provisions
of this Agreement shall be sufficiently given or made if in writing and (i)
delivered in person with receipt acknowledged, (ii) sent by registered or
certified mail, return receipt requested, postage prepaid, (iii) sent by
overnight courier with guaranteed next day delivery or (iv) sent by telex or
telecopier to the party to whom directed at the following address: ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, or at such other address as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Any notice or other communication hereunder shall be effective
when actually received by the addressee.
F. Severability. If any one or more of the provisions of this Agreement
shall, for any reason, be held or found by final judgment of a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
(i) such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement, (ii) this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein
(except that this clause (ii) shall not prohibit any modification allowed under
Section 10) and (iii) if the effect of a holding or finding that any such
provision is invalid, illegal or unenforceable is to modify to the Executive's
detriment, reduce or eliminate any compensation, reimbursement, payment,
allowance or other benefit to the Executive intended by the Company and the
Executive in entering into this Agreement, the Company shall, within 30 days
after the date of such finding or holding, negotiate and expeditiously enter
into an agreement with the Executive which contains alternative provisions
(reasonably acceptable to the Executive) that will restore to the Executive (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Executive would have enjoyed had
such provision been upheld as legal, valid and enforceable.
16
G. Tax Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
H. No Waiver. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including the right of the Executive to terminate employment for
Good Reason or during a Window Period pursuant to Section 4 of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
I. Entire Agreement. This agreement contains the complete and total
understanding of the parties concerning the subject matter hereof and expressly
supersedes any previous agreement between the parties relating to the subject
matter hereof as well as any agreement between Executive and Dril-Quip, Inc., a
Texas corporation.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
DRIL-QUIP, INC.
By:_________________________________
[Name]
[Title]
____________________________________
[Executive]
17
EXHIBIT 1
---------
DRIL-QUIP ANNUAL INCENTIVE PLAN
-------------------------------
PERFORMANCE MEASURES AND AWARDS MATRIX
--------------------------------------
The Executive shall be entitled to an annual cash bonus equal to up to
120% of his then applicable Annual Base Salary, with (i) a bonus equal to up to
60% of the Annual Base Salary based on the Company's actual earnings before
interest and taxes ("EBIT") measured relative to the Company's budget or plan
for each 12-month period ended December 31 and (ii) a bonus equal to up to 60%
of the Annual Base Salary based on the Company's return on capital (defined as
(a) EBIT divided by (b) total assets less current liabilities) assessed relative
to the Company's industry peers during each 12-month period ended September 30.
The Company's budget or plan for each 12-month period utilized for purposes of
clause (i) above, and the companies comprising the Company's industry peers
utilized for purposes of clause (ii) above, shall be as proposed by the
Executive and approved by the Compensation Committee in the exercise of its
reasonable discretion. The calculation of EBIT and return on capital for each
applicable 12-month period shall be as determined by the Company's independent
public accountants and contained in a written report delivered to the Executive
and the Compensation Committee. The determination of the return on capital for
the industry peers, and the applicable performance percentages for purposes of
the Incentive Awards Matrix set forth below, shall be made by the Compensation
Committee in the exercise of its reasonable discretion. Amounts owing in
respect of clause (i) and clause (ii) above shall be paid no later than 90 days
following the end of each applicable 12-month period.
ANNUAL INCENTIVE AWARDS MATRIX
--------------------------------------------------------------------------------------------------------
EBIT ELEMENT ROCE ELEMENT
-------------------------------------------------------------------------------------
EBIT ROCE ROCE
INCENTIVE PERFORMANCE INCENTIVE AS TOTAL AWARD
PAY AS % (RELATIVE % OPPORTUNITY
EBIT PERFORMANCE AS % OF BASE TO OF BASE (% OF BASE
OF BUDGET SALARY INDUSTRY SALARY SALARY)
PEERS)
---------------------------------------------------------------------------------------------------------
Maximum 130% 60.0 75th%ile 60.0 120%
127 57.0 72 57.0 114
124 54.0 69 54.0 108
121 51.0 66 51.0 102
118 48.0 63 48.0 96
115 45.0 60 45.0 90
112 42.0 58 42.0 84
109 39.0 56 39.0 78
106 36.0 54 36.0 72
103 33.0 52 33.0 66
Target 100% 30.0 + 50%ile 30.0 = 60
97 28.0 48 28.0 56
94 26.0 46 26.0 52
91 24.0 44 24.0 48
88 22.0 42 22.0 44
85 20.0 40 20.0 40
82 18.0 38 18.0 36
79 16.0 36 16.0 32
76 14.0 34 14.0 28
73 12.0 32 12.0 24
Threshold 70% 10.0 30th %ile 10.0 20
less than 70% 0.0 0.0 0.0 0
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