DI INDUSTRIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") made as of March
17, 1997 by and between DI INDUSTRIES, INC., a corporation organized under the
laws of the State of Texas (the "Corporation"), and XXXX X. XXX, an individual
residing in the State of Texas (the "Optionee");
W I T N E S S E T H:
WHEREAS, as an inducement to the Optionee to enter into a contract of
employment with the Corporation under the terms of an Employment Agreement dated
of even date herewith by and between the Optionee and the Corporation (the
"Employment Agreement") and to provide Optionee with additional incentive to
further the business of the Corporation, the Corporation has agreed to grant the
Optionee options to purchase shares of common stock, $0.10 par value ("Common
Stock"), of the Corporation; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement, the Corporation intends to carry
out the purposes set forth in the 1996 Employee Stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective as of July 29, 1996 and the shareholders of
the Corporation effective as of August 27, 1996; and
WHEREAS, it is intended that the options granted to Optionee pursuant to
this Agreement constitute incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Corporation and the Optionee desire to set forth the terms
and conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee an option (the "Option") to
purchase all or any part of an aggregate number of 150,000 shares of Common
Stock (such shares, as increased or decreased in accordance with Section 8
hereof, being referred to hereinafter as the "Option Shares") at an exercise
price of $2.8750 per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. The Option shall be exercisable by Optionee as to
twenty percent (20%) of the Option Shares one (1) year after the date of this
Agreement, as to an additional twenty percent (20%) of the Option Shares, two
(2) year after the date of this Agreement, as to an additional twenty percent
(20%) of the Option Shares, three (3) years after the date of this
Agreement, as to an additional twenty percent (20%) of the Option Shares, four
(4) years after the date of this Agreement, until the fifth anniversary of the
date of this Agreement, after which time the Option shall be exercisable in
full. The Option shall expire and terminate as to any Option Shares not
purchased by the Optionee on or before the tenth anniversary of the date of this
Agreement (the "Expiration Date"), subject to earlier termination as set forth
herein.
Except as provided in Section 10 hereof, the Option may not be exercised
at any time unless the Optionee shall have been in the continuous employ of the
Corporation, or a parent or a subsidiary corporation, from the date hereof to
the date of the exercise of the Option.
3. METHOD OF EXERCISING THE OPTION. The Option shall be exercised by the
Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee is exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to ANNEX I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the Optionee
is entitled to purchase, which Exercise Price must be in the form of (a) cash or
a cashier's or certified check payable to the order of the Corporation, or (b)
the tender to the Corporation of such number of shares of Common Stock owned by
the Optionee having an aggregate fair market value as of the date of exercise
that is not greater than the total Exercise Price for the shares of Common Stock
with respect to which the Option is being exercised and by paying the remaining
amount of the Exercise Price.
4. TRANSFERABILITY OF OPTION. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 10
of this Agreement, the Option shall be exercisable (i) only by the Optionee
during his lifetime, or (ii) in the event of his death, by his heirs,
representatives, distributees, or legatees in accordance with his will or the
laws of descent and distribution (but only to the extent that the Option would
be exercisable by the Optionee under Section 2).
5. INVESTMENT REPRESENTATION. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with a view toward resale or distribution.
6. SECURITIES LAW REQUIREMENTS; LEGENDS. The Optionee agrees and
understands that the Option Shares may be restricted securities as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, as now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and agrees
that, unless issued pursuant to an effective registration statement under the
Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER THE
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BLUE SKY LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED
EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN
OPINION OF COUNSEL FOR THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED FOR SUCH SALE, ASSIGNMENT OR TRANSFER."
In addition, the following legend shall be placed on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS OF
THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY 29,
1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND A
COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
7. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any rights as a
shareholder with respect to any of the Option Shares until the date of issuance
by the Corporation to the Optionee of a stock certificate representing such
Option Shares. Except as otherwise provided in Section 8 hereof, the Optionee
shall not be entitled to any dividends, cash or otherwise, or any adjustment of
the Option Shares for such dividends, if the record date therefor is prior to
the date of issuance of such stock certificate. Upon valid exercise of the
Option by the Optionee, the Corporation agrees to cause a valid stock
certificate for the number of Option Shares then purchased to be issued and
delivered to the Optionee within seven (7) business days thereafter.
8. CORPORATE PROCEEDINGS OF THE CORPORATION.
(a) The existence of the Option shall not affect in any way the
right or power of the Corporation or its officers, directors and
shareholders, as the case may be, to (i) make or authorize any
adjustments, recapitalizations, reorganizations or other changes in the
capital structure or business of the Corporation, (ii) participate in any
merger or consolidation of the Corporation, (iii) issue any Common Stock,
bonds, debentures, preferred or prior preference stock or any other
securities affecting the Common Stock or the rights of holders thereof,
(iv) dissolve or liquidate the Corporation, (v) sell or transfer all or
any part of the assets or business of the Corporation, or (vi) perform any
other corporate act or proceedings, whether of a similar character or
otherwise.
(b) If the Corporation merges into or with or consolidates with
(such events collectively referred herein as a "Merger") any corporation
or corporations and is not the surviving corporation, then the surviving
corporation may assume the Option or substitute a new option of the
surviving corporation for the Option; provided, however, that the excess
of the aggregate fair market value of the securities subject to the Option
immediately after such assumption, or the new option immediately after
such substitution, over the aggregate Exercise Price of such shares must
be, based upon a good faith determination by the Board of Directors of the
Corporation, not less than the excess of the aggregate fair market value
of the Common Stock subject to the Option immediately
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before such substitution or assumption over the aggregate Exercise Price
of such Common Stock.
(c) In the event that the surviving corporation does not utilize the
provisions of (b) above, or in the event of a dissolution or liquidation
of the Corporation, the Corporation shall cause written notice of such
Merger or dissolution or liquidation (and the material terms and
conditions thereof) to be delivered to the Optionee at least ten (10) days
prior to the proposed effective date (the "Effective Date") of such event.
The Optionee shall be entitled to exercise the Option until the Effective
Date, or until the Expiration Date if earlier. To the extent that the
Merger or liquidation is consummated after the Effective Date, the Option
shall terminate and the Corporation shall have no further obligations of
any type hereunder. The provisions of this paragraph shall not apply to
any merger or reorganization, the principal purpose of which is to change
the jurisdiction of the domicile of the Corporation.
(d) If, while the Option is outstanding, the Corporation shall
effect a subdivision or consolidation of the shares of Common Stock or
other capital readjustment, the payment of a common stock dividend, or
other increase or reduction of the number of shares of Common Stock
outstanding, without receiving compensation therefor in money, services or
property, then (i) in the event of an increase in the number of shares of
Common Stock outstanding, the number of Option Shares shall be
proportionately increased, and the per share Exercise Price shall be
proportionately reduced, and (ii) in the event of a reduction in the
number of shares of Common Stock outstanding, the number of Option Shares
shall be proportionately reduced, and the per share Exercise Price shall
be proportionately increased. No fractional share of Common Stock shall be
issued upon any such exercise and the Exercise Price shall be
appropriately reduced on account of any fractional share not issued.
(e) The issuance by the Corporation of shares of stock of any class
of securities convertible into shares of stock of any class, including
Common Stock, for cash, property, labor or services rendered, either upon
direct sale or upon the exercise of rights, options, or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Corporation convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
the number of Option Shares or the Exercise Price.
9. REGISTRATION RIGHTS. The Optionee shall have no registration
rights with respect to the Option Shares.
10. TERMINATION.
(a) If the Optionee for any reason whatsoever, other than death or
permanent and total disability, as defined in (b) below, ceases to be
employed by the Corporation, or a parent or subsidiary corporation of the
Corporation, and prior to such cessation, the
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Optionee was employed at all times from the date of the granting of the
Option until the date of such cessation, the Option must be exercised by
the Optionee (to the extent that the Optionee is entitled to do so at the
date of cessation) within three (3) months following the date of cessation
of employment, subject to the Expiration Date; provided, however, that if
the Optionee is terminated for cause (as defined in the Employment
Agreement), the Option will immediately terminate.
(b) If the Optionee becomes permanently and totally disabled, as
hereinafter defined, while employed by the Corporation or a parent or
subsidiary corporation of the Corporation, and prior to such disability
the Optionee was employed at all times from the date of the granting of
the Option until the date of disability, the Option must be exercised by
the Optionee (to the extent that the Optionee is entitled to do so at the
date of disability) at any time within one (1) year after the date of
disability or the Expiration Date, whichever is earlier.
"Permanently and totally disabled" means being unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months. Such determination of permanent and total
disability must be made in accordance with the requirements of Section
22(e)(3), and applicable regulations, of the Code, or any other applicable
method necessary for the continued qualification of this Plan under
Section 422 of the Code, or any equivalent successor provision, if
applicable. In the absence of any specific requirements for this
determination, the decision of the Corporation, as aided by any physicians
designated by the Corporation shall be conclusive and the Corporation
shall send written notice to the Optionee of the determination that the
Optionee has become permanently and totally disabled.
(c) In the event that the Optionee dies while employed by the
Corporation or a parent or subsidiary corporation of the Corporation, and
prior to death the Optionee was employed at all times from the date of the
granting of the Option until the date of death, the Option must be
exercised (to the extent that the Optionee is entitled to do so at the
date of death) by a legatee or legatees of the Optionee under the
Optionee's will, or by the Optionee's personal representatives or
distributes, at any time within one (1) year after the date of death or
the Expiration Date, whichever is earlier, and if not so exercised, the
Option shall thereupon terminate.
Nothing in (a), (b) or (c) shall extend the time for exercising the
Option granted pursuant to this Agreement beyond the Expiration Date.
11. DISPOSITION OF STOCK AFTER EXERCISE OF OPTION. Notwithstanding any
other provision of this Agreement to the contrary, in consideration of the
granting of the Option, the Optionee agrees (i) not to dispose of any Option
Shares within two (2) years after the date of this Agreement nor within one (1)
year after the date of exercise of the Option and (ii) not to dispose of any
Option Shares thereafter without the prior approval of the Corporation unless
such shares
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have been registered under the Securities Act.
12. NOTICES. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received through U.S. Express Mail or any private
express service (as evidenced by a written receipt), or, if earlier, and
regardless of whether actually received (except where receipt is specified in
this Agreement), four (4) days following deposit in a regularly maintained
receptacle for the United States mail, registered or certified, return receipt
requested, postage fully prepaid, addressed to the addressee at its address set
forth below or at such other address as such party may have specified
theretofore by notice delivered in accordance with this Section:
If to the Corporation: DI Industries, Inc.
000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: President
If to Optionee: Xxxx X. Xxx
00000 Xxxxxxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxx 00000
13. TRANSFERABILITY; BINDING EFFECT. The Option shall be transferable only
as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the Corporation and the Optionee relating to the
subject matter hereof.
15. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean any present or future corporation which would be a
"parent corporation" or a "subsidiary corporation" of the Corporation, as such
term is defined in Section 425 of the Internal Revenue Code.
16. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas.
17. CAPTIONS. The section and paragraph headings in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in multiple
original counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
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CORPORATION:
DI INDUSTRIES, INC.
By: /S/T.P. Richards_______________
Name: X. X. Xxxxxxxx
Title: President and CEO
OPTIONEE:
/S/ XXXX X. Lee_____________________
Xxxx X. Xxx
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