SEVERANCE AGREEMENT
THIS
SEVERANCE AGREEMENT (“Agreement”) is made and entered into as of March 1, 2008,
by and between LUFKIN INDUSTRIES, INC., a Texas corporation (the “Company”) and
Xxxx X. Xxxxx of Lufkin, Texas (the “Executive”).
WHEREAS,
the Company currently employs the Executive as President and Chief Executive
Officer of the Company; and
WHEREAS,
the board of directors of the Company (the “Board”) has determined that it is in
the best interests of the Company and its shareholders to provide certain terms
and conditions of the Executive’s employment upon the occurrence of a “Change in
Control”, as defined below;
NOW,
THEREFORE, in consideration of the premises and mutual covenants contained
herein, and for other consideration mutually acknowledged, the Company and the
Executive (the “Parties”) agree as follows:
1. Term.
The term
of this Agreement (the “Term”) shall commence on the date first set forth above
(the “Start Date”), and shall continue through December 31, 2010; provided,
however, that on December 31, 2009 and on each succeeding December 31, the Term
shall automatically extend for one calendar year, unless either party gives
written notice to the contrary at least sixty (60) days prior to the date the
Agreement would otherwise be extended. Notwithstanding the above, if
the Executive’s employment terminates for any reason prior to a Change in
Control then, except as provided in Section 2(c), this Agreement shall
terminate.
2. Employment.
(a) If,
during the Term, a Change in Control occurs while the Executive is employed by
the Company, the Company shall continue to employ the Executive, and the
Executive shall remain in employment, subject to this Agreement, for the period
commencing on the Effective Date (as defined below) and ending on the earlier of
(A) the second anniversary of such date, or (B) the first day of the month
coinciding with or next following the Executive’s Normal Retirement Date (the
“Protection Period”).
(b) For
purposes of this Agreement, the Effective Date shall be the date on which occurs
the earliest of the following events, each of which is hereinafter referred as a
“Change in Control”:
(i) any
“person,” as such term is used in Section 13(d) and 14(d) of the Exchange Act
(other than the Company, any trustee or other fiduciary holding securities under
an executive benefit plan of the Company, or any company owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company) together with its
“Affiliates” and “Associates”, as such term is defined in Rule 12b-2 of the
Exchange Act, is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the Company’s common stock or of the combined voting
power of the Company’s then outstanding securities entitled to vote generally in
the election of directors;
(ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) , (iii) or (iv) of this definition)
whose election by the Board or nomination for election by the Company’s
shareholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii) the
shareholders of the Company approve a merger or consolidation of the Company
with any other company other than (A) a merger or consolidation which 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 65% of the
combined voting power of the voting securities of the Company (or such surviving
entity) outstanding immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no “person” (as hereinabove defined) acquires
more than 25% of the combined voting power of the Company’s then outstanding
securities; or
(iv) the
shareholders of the Company adopt a plan of complete liquidation of the Company
or approve an agreement for the sale, exchange or disposition by the Company
of “all or a significant portion of the Company’s assets,” which for
this purpose shall mean a sale or other disposition transaction or series of
related transactions involving assets of the Company or any subsidiary
(including the stock of any subsidiary) in which the value of the assets or
stock being sold or otherwise disposed of (as measured by the purchase price
being paid therefor or by such other method as the Board determines is
appropriate in a case where there is no readily ascertainable purchase price)
constitutes more than 35% of the fair market value of the Company (as
hereinafter defined). For purposes of the preceding sentence, the
“fair market value of the Company” shall be the aggregate market value of the
outstanding shares of common stock of the Company (on a fully diluted basis)
plus the aggregate market value of the Company’s other outstanding equity
securities. The aggregate market value of the shares of common stock
of the Company shall be determined by multiplying the number of shares of the
Company’s common stock (on a fully diluted basis) outstanding on the date of the
execution and delivery of a definitive agreement with respect to the transaction
or series of related transactions (the “Transaction Date”) by the market value
per share immediately preceding the Transaction Date or by such other method as
the Board shall reasonably determine is appropriate. The aggregate
market value of any other equity securities of the Company shall be determined
in a manner similar to that prescribed in the immediately preceding sentence for
determining the aggregate market value of the shares of common stock of the
Company or by such other method as the Board shall reasonably determine is
appropriate.
(c) If the
Executive’s employment with the Company is terminated other than for Cause prior
to a date on which a Change in Control occurs or if the Executive’s employment
with the Company is affected prior to the date on which a Change in Control
occurs in a way which if occurring after a Change in Control would constitute
Good Reason (as defined in Section 4.4(b) of this Agreement), and it is
reasonably demonstrated that such termination or effect (1) was at the request
of a third party who had taken steps reasonably calculated to effect a Change in
Control or (2) otherwise arose in connection with or anticipation of a Change in
Control, then both the Change in Control and the Effective Date shall be deemed
to have occurred on the date immediately prior to such termination of employment
or effect upon the Executive’s employment and the Executive’s rights shall be as
determined under Section 4.4 below on such basis.
3. Terms of
Employment.
(a) Position and
Duties.
(i) During
the Protection Period, (A) the Executive’s position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive’s services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date, or any office or location less than thirty-five
(35) miles from such location.
(ii) During
the Protection Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable
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 Protection Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive’s responsibilities as an executive 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 Effective Date, the continued conduct of such activities
(or the conduct of activities similar in nature and scope thereto), subsequent
to the Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive’s responsibilities to the Company.
(b) Compensation.
(i) Base
Salary. During the Protection Period the Executive shall
receive a base salary (“Base Salary”) at a monthly rate at least equal to the
highest monthly base salary paid or payable to the Executive by the Company
during the thirty-six month period immediately preceding the month in which the
Effective Date occurs. During the Protection Period, the Base Salary
shall be reviewed at least annually and shall be increased at any time and from
time to time as shall be substantially consistent with increases in base salary
awarded in the ordinary course of business to other key executives of the
Company and its subsidiaries. Any increase in Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Base Salary shall not be reduced after any such
increase.
(ii) Annual
Bonus. In addition to Base Salary, the Executive shall be
awarded, for each fiscal year during the Protection Period, an annual bonus (an
“Annual Bonus”) in cash at least equal to the highest bonus payable to the
Executive from the Company and its subsidiaries in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date
occurs.
(iii) Incentive, Savings and
Retirement Plans. In addition to Base Salary and Annual Bonus
payable as hereinafter provided, the Executive shall be entitled to participate
during the Protection Period in all incentive, savings and retirement plans,
practices, policies and programs applicable to other key executives of the
Company and its subsidiaries, in each case providing benefits which are the
economic equivalent to those in effect or as subsequently
amended. Such plans, practices, policies and programs, in the
aggregate, shall provide the Executive with compensation, benefits and reward
opportunities at least as favorable as the most favorable of such compensation,
benefits and reward opportunities provided by the Company for the Executive
under such plans, practices, policies and programs as in effect at any time
during the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with respect to
other key executives of the Company and its subsidiaries.
(iv) Welfare Benefit
Plans. During the Protection 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 and its subsidiaries, at least as favorable
as the most favorable of such plans, practices, policies and programs in effect
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive and/or the Executive’s family, as in
effect at any time thereafter with respect to other key executives of the
Company and its subsidiaries.
(v) Expenses. During
the Protection Period, the Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive in
accordance with the most favorable policies, practices and procedures of the
Company and its subsidiaries in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect at any time thereafter with respect to other key executives of the
Company and its subsidiaries.
(vi) Fringe
Benefits. During the Protection Period, the Executive shall be
entitled to fringe benefits in accordance with the most favorable plans,
practices, programs and policies of the Company and its subsidiaries in effect
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time thereafter with
respect to other key executives of the Company and its
subsidiaries.
(vii) Office and Support
Staff. During the Protection Period, the Executive shall be
entitled to an office or offices of a size and with furnishing and other
appointments, and to secretarial and other assistance, at least equal to the
most favorable of the foregoing provided to the Executive by the Company and its
subsidiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as provided at any time
thereafter with respect to other key executives of the Company and its
subsidiaries.
(viii) Vacation. During
the Protection Period, the Executive shall be entitled to paid vacation in
accordance with the most favorable plans, policies, programs and practices of
the Company and its subsidiaries as in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other key
executives of the Company and its subsidiaries.
4. Termination of
Employment.
The
Executive’s employment is subject to termination during the Protection Period
only as provided in this Section 4.
4.1 Death or
Disability.
If the
Executive’s employment is terminated due to his death or total disability, as
determined under the Company’s applicable long-term disability plan, this
Agreement shall terminate without further obligations to the Executive or in the
case of the Executive’s death to the Executive’s legal representatives under
this Agreement, other than those obligations accrued or earned and vested (if
applicable) by the Executive as of the date of termination of employment (the
“Termination Date”), including, for this purpose (i) the Executive’s full Base
Salary through the Termination Date at the rate in effect on the Termination
Date or, if higher, at the highest rate in effect at any time from the 90-day
period preceding the Effective Date through the Termination Date (the “Highest
Base Salary”), (ii) the product of (A) the Annual Bonus, if any, paid to the
Executive for the last full fiscal year and (B) a fraction, the numerator of
which is the number of days in the current fiscal year through the Termination
Date, and the denominator of which is 365, and (iii) any compensation previously
deferred by the Executive (together with any accrued interest or other earnings
thereon), and not yet paid by the Company and any accrued vacation pay not yet
paid by the Company (such amounts specified in clauses (i), (ii) and (iii) are
hereinafter referred to as “Accrued Obligations”). All such Accrued
Obligations shall be paid to the Executive or in the event of the Executive’s
death to the Executive’s estate or beneficiary, as applicable, in a lump sum in
cash within thirty (30) days of the Termination Date. Anything in
this Agreement to the contrary notwithstanding, the Executive, or the
Executive’s family as appropriate, shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the Company and any of
its subsidiaries under all plans, programs, practices and policies relating to
disability or family death benefits, as applicable, if any, in accordance with
the most favorable plans, programs, practices and policies of the Company and
its subsidiaries in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive and/or the
Executive’s family, as in effect on the date of the Executive’s disability or
death with respect to other key executives of the Company and its subsidiaries
and their families.
4.2 Termination by the Company
for Cause.
If the
Company terminates the Executive’s employment for Cause, as defined below, the
Executive shall be entitled only to Highest Base Salary and benefits accrued as
of the effective date of such termination plus the amount of any compensation
previously deferred by the Executive (together with accrued interest or other
earnings thereon). Any other benefits shall be determined under
applicable plans, programs or other coverages maintained by the
Company. For purposes of this Agreement, the term “Cause” shall
mean:
(i) an act or
acts of personal dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of the
Company;
(ii) repeated
violations by the Executive of the Executive’s obligations under Section 3 of
this Agreement which are demonstrably willful and deliberate on the Executive’s
part and which are not remedied in a reasonable period of time after receipt of
written notice from the Company; or
(iii) the
conviction of the Executive of, or plea of nolo contendere by the Executive to,
a felony.
The
Executive must be notified in writing of any termination of his employment for
Cause, which writing shall set forth in reasonable detail the facts and
circumstances relied upon therefor. The Executive will then have the
right, within ten days of receipt of such notice, to file a written request for
review. In such case, the Executive will be given the opportunity to
be heard, personally or by counsel, by the members of the Board who are not then
executives of the Company (the “Independent Directors”) and a majority of the
Independent Directors must thereafter confirm that such termination is for
Cause. If the Independent Directors do not provide such confirmation,
the termination shall be treated as a termination by the Company without
Cause.
4.3 Termination by the
Executive.
The
Executive may terminate his employment at any time in which case, except as
otherwise provided in Sections 4.4 and 4.5 below, the Executive shall be
entitled only to his salary and benefits accrued or earned and vested (if
applicable) as of the date of termination, including for this purpose, all
Accrued Obligations.
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4.4
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Termination of the
Executive for Good Reason; Termination by the Company without
Cause.
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(a) In
General. In the event the Executive’s employment is terminated
during the Protection Period (i) by the Executive for Good Reason (as defined
below), or (ii) by the Company without Cause, then:
(i) the
Company shall pay to the Executive in a lump sum in cash within
thirty (30) days after the Termination Date the aggregate of the
following amounts:
A. to
the extent not theretofore paid, the Executive’s Highest Base Salary through the
Termination Date;
B. the
product of (x) the Annual Bonus paid to the Executive for the last
full fiscal year (if any) ending during the Protection Period or, if higher, the
Annual Bonus paid to the Executive for the last full fiscal year prior to the
Effective Date (as applicable, the “Recent Bonus”) and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through the
Termination Date and the denominator of which is 365;
C. the
product of (x) 3.00 and (y) the sum of (i) the Highest Base Salary and (ii) the
Recent Bonus; and
D. in
the case of compensation previously deferred by the Executive, all amounts
previously deferred (together with any accrued interest or other earnings
thereon) and not yet paid by the Company, and any accrued vacation pay not yet
paid by the Company;
(ii) the
Executive shall be entitled to receive a lump sum retirement benefit equal to
the difference between (a) the actuarial equivalent of the benefit the Executive
would receive under all retirement plans if he remained employed by the Company
at the compensation level provided for in Section 3 of this Agreement for the
remainder of the Protection Period and (b) the actuarial equivalent of his
benefit, if any, actually accrued under the Company’s plans; and
(iii) for the
remainder of the Protection Period, or such longer period as any plan, program,
practice or policy may provide, the Company shall continue benefits to the
Executive and/or the Executive’s family at least equal to those which would have
been provided to them in accordance with the plans, programs, practices and
policies as described in Section 3 of this Agreement if the Executive’s
employment had not been terminated, including health insurance and life
insurance, in accordance with the most favorable plans, practices, programs or
policies of the Company and its subsidiaries during the 90-day period
immediately preceding the Effective Date, or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other key
executives of the Company and its subsidiaries and their families and for
purposes of eligibility for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have remained
employed until the end of the Protection Period, to have retired on the last day
of such period and to have satisfied all conditions for eligibility for all such
retiree benefits.
(b) Good
Reason. For purposes of this Agreement, Good Reason means any
one of the following shall have occurred and not been corrected within ten (10)
days following written notice to the Company:
(i) the
Executive reports to someone other than the Board of Directors of the
Company;
(ii) the
assignment to the Executive of any duties inconsistent in any respect with the
Executive’s position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by Section
3 of this Agreement, or any other action by the Company or any affiliate 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;
(iii) any
failure by the Company to comply with any of the provisions of Section 3 of this
Agreement, other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iv) the
Company’s requiring the Executive to be based at any office or location other
than that described in Section 3 hereof, except for travel reasonably required
in the performance of the Executive’s responsibilities;
(v) any
purported termination by the Company of the Executive’s employment otherwise
than as expressly permitted by this Agreement; or
(vi) any
failure by the Company to comply with and satisfy Section 10(c) of this
Agreement.
For
purposes of this Section 4.4(b), any good faith determination of “Good Reason”
made by the Executive shall be final and binding upon the Parties.
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4.5
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Termination by the
Executive Following the First Anniversary of the Protection
Period.
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In the
event that the Executive remains in the employ of the Company on the first day
of the month coinciding with or next following the first anniversary of the
Effective Date (the “Anniversary Date”), then the Executive may elect the
provisions of this Section 4.5 by delivering a notice of termination within the
period commencing on the Anniversary Date and ending thirty (30) days after the
Anniversary Date (the “Window Period”), resigning as a director if applicable,
and officer, and terminating his employment. If the Company receives
such notice of termination from the Executive within the Window Period, then the
Executive shall be entitled to the same compensation, benefits and other
remuneration as described in Section 4.4 applicable to a termination by the
Company without Cause.
5. Confidential
Information.
The
Executive shall not, at any time, except in good faith in the performance of his
duties for the Company, divulge any trade secrets or other proprietary or
confidential information concerning the accounts, business or affairs of the
Company, which shall have been obtained by the Executive during the Executive’s
employment by the Company and which shall not be or become public knowledge
other than by acts of the Executive in violation of this Agreement (except such
information as is required by law or legal process to be divulged, in which case
he shall give the Company prompt notice of such required disclosure and use his
reasonable best efforts, in cooperation with the Company, to defend against any
such required disclosure). However, in no event shall an asserted
violation of the provisions of this Section 5 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
6. Indemnification.
6.1 If
at any time the Executive is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, the Company shall indemnify the Executive and hold him
harmless against reasonable expenses (including attorneys’ fees), judgments,
fines, penalties, amounts paid in settlement and other liabilities actually and
reasonably incurred by him in connection with such action, suit or proceeding to
the full extent permitted by law.
6.2 Expenses
(including attorneys’ fees) incurred by the Executive in appearing at,
participating in, or defending any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, shall
be paid by the Company at reasonable intervals in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
the Executive to repay such amounts if it shall ultimately be determined that he
is not entitled to be indemnified.
6.3 All
claims for indemnification under this Agreement shall be asserted and resolved
as follows:
(i) The
Executive (a) shall promptly notify the Company of any third-party claim or
claims asserted against him (“Third Party Claim”) that could give rise to a
right of indemnification under this Agreement and (ii) shall transmit to the
Company a written notice (“Claim Notice”) describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), and the basis of his request for indemnification under this
Agreement.
(ii) Within
thirty (30) days after receipt of any Claim Notice (“Election Period”), the
Company shall notify the Executive (a) whether the Company disputes its
potential liability to the Executive under this Section 6 with respect to such
Third Party Claim and (b) whether the Company desires, at its sole cost and
expense, to defend the Executive against such Third Party Claim by any
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Company to a final conclusion or settled at the discretion of the Company in
accordance with this Subsection 6.3(ii). The Company shall have full control of
such defense and proceedings, including any compromise or settlement
thereof. The Executive is hereby authorized, at the Company’s sole
cost and expense (but only if he is actually entitled to indemnification
hereunder or if the Company assumes the defense with respect to the Third Party
claim), to file, during the Election Period, any motion, answer or other
pleadings which he shall deem necessary or appropriate to protect his interests
or those of the Company and not prejudicial to the Company. If
requested by the Company, the Executive agrees, at the Company’s sole cost and
expense, to cooperate with the Company and its counsel in contesting any Third
Party Claim that the Company elects to contest, including without limitation,
through the making of any related counterclaim against the person asserting the
Third Party Claim or any cross-complaint against any person. The
Executive may participate in, but not control, any defense or settlement of any
Third Party Claim controlled by the Company pursuant to this Section 6.3 and the
Company shall bear his costs and expenses with respect to such
participation.
(iii) If the
Company fails to notify the Executive within the Election Period that the
Company elects to defend the Executive pursuant to Subsection 6.3(ii), or if the
Company elects to defend the Executive pursuant to Subsection 6.3(ii) but fails
to diligently and promptly prosecute or settle the Third Party Claim, then the
Executive shall have the right to defend, at the sole cost and expense of the
Company, the Third Party Claim. The Executive shall have full control
of such defense and proceedings; provided, however, that the Executive may not
enter into, without the Company’s consent, which shall not be unreasonably
withheld, any compromise or settlement of such Third Party Claim.
Notwithstanding the foregoing, if the Company has delivered a written notice to
the Executive to the effect that the Company disputes its potential liability to
the Executive under this Section 6, and if such dispute is resolved in favor of
the Company by final, nonappealable order of a court of competent jurisdiction,
the Company shall not be required to bear the costs and expenses of the
Executive’s defense pursuant to this Section 6 or of the Company’s participation
therein at the Executive’s request, and the Executive shall reimburse the
Company promptly in full for all costs and expenses of such
litigation. The Company may participate in, but not control, any
defense or settlement controlled by the Executive pursuant to this Section 6.3
(iii), and the Company shall bear its own costs and expenses with respect to
such participation. (iv) The indemnification provided by this Section 6 shall
apply whether or not the negligence of a party is alleged or
proved.
7. Non-exclusivity of
Rights.
Nothing
in this Agreement shall prevent or limit the Executive’s continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company or any of its subsidiaries and
for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock option or
other agreements with the Company or any of its subsidiaries. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of the Company or any of its
subsidiaries at or subsequent to the Termination Date shall be payable in
accordance with such plan, policy, practice or program.
8. Full
Settlement.
The
Company’s obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement. The Company agrees to
pay, 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 or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof, plus in each case interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code of 1986, as
amended (the “Code”).
9. Certain Additional Payments
by the Company.
(a) Anything
in this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a “Payment”), would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
“Excise Tax”) , then the Executive shall be entitled to receive an additional
payment (a “Gross-Up Payment”) in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject
to the provisions of Section 9(c), all determinations required to be made under
this Section 9, including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall be made by Xxxxxx Xxxxxxxx & Co. (the
“Accounting Firm”) which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the Termination Date,
if applicable, or such earlier time as is requested by the
Company. The initial Gross Up Payment, if any, as determined pursuant
to this Section 9(b), shall be paid to the Executive within five (5) days of the
receipt of the Accounting Firm’s determination. If the Accounting
Firm determines that no Excise Tax is payable to the Executive, it shall furnish
the Executive with an opinion that he has substantial authority not to report
any Excise Tax on his federal income tax return. Any determination by
the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (“Underpayment”) ,
consistent with the calculations required to be made hereunder. In
the event that the Company exhausts its remedies pursuant to Section 9 (c) and
the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The
Executive shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive knows of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty-day period following
the date on which the Executive gives such notice to the Company (or shorter
such period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the
Company any information reasonably requested by the Company relating to such
claim;
(ii) take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company;
(iii) cooperate
with the Company in good faith in order effectively to contest such
claim;
(iv) permit
the Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and expenses
(including attorneys fees and any additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limitation
on the foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and xxx for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and xxx for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other authority.
(d) If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), the Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 9(c)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claims and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Successors.
(a) 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 legal
representatives.
(b) This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) 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.
11. Withholding.
Anything
to the contrary notwithstanding, all payments required to be made by the Company
hereunder to the Executive, his spouse, his estate or beneficiaries, shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts in whole or in part,
the Company may, in its sole discretion, accept other provisions for payment of
taxes as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been
satisfied.
12. Effect of Severance
Agreement.
This
Agreement contains the entire agreement between the Parties concerning the
rights and obligations of the Executive upon a Change in Control and supersedes
all prior agreements, understandings, discussions, negotiations, and
undertakings, whether written or oral, between the Parties with respect
thereto.
13. Amendments and
Waivers.
This
Agreement may not be modified or amended except by a writing signed by both
Parties. A Party may waive compliance by the other Party with any
term or provision of this Agreement, or any part thereof, provided that the term
or provision, or part thereof, is for the benefit of the waiving
Party. Any waiver shall be limited to the facts or circumstances
giving rise to the noncompliance and shall not be deemed either a general waiver
or modification with respect to the term or provision, or part thereof, being
waived, or as to any other term or provision of this Agreement, nor shall it be
deemed a waiver of compliance with respect to any other facts or circumstances
then or thereafter occurring.
14. Mediation and Legal
Actions.
If a
dispute arises out of or related to this Agreement or its breach and if the
dispute cannot be settled through direct discussions, then the Company and the
Executive agree first to endeavor to settle the dispute in an amicable manner by
mediation, under the applicable provisions of Sec. 154.001 et
seq. Texas Civil Practices & Remedies Code, as supplemented by
the mediation rules of the American Arbitration Association, before having
recourse to any other proceeding or forum. If any party to this
Agreement brings legal action to enforce the terms of this Agreement against
another party to this Agreement and prevails in such legal action, the other
party, in addition to the remedy or relief obtained in such legal action, shall
be liable for the expenses incurred by the successful party in such legal action
including costs of court and the fees and expenses of counsel.
15. Notices.
Any
notice given hereunder shall be in writing and shall be deemed given when
delivered personally or by courier, or five days after being mailed, certified
or registered mail, duly addressed to the Party concerned at the address
indicated below or at such other address as such Party may subsequently
provide:
|
To
the Company:
|
Lufkin
Industries, Inc.
|
|
|
000
Xxxxx Xxxxxx
|
||
|
Xxxxxx,
Xxxxx 00000
|
||
|
Attn:
Secretary
|
||
|
To
the Executive:
|
Xxxx
X. Xxxxx
|
|
|
00
Xxxxxxxx Xx
|
||
|
Xxxxxx,
XX 00000
|
16. Severability.
In the
event that any provision or portion of this Agreement shall be determined to be
invalid or unenforceable for any reason, the remaining provisions or portions of
this Agreement shall be unaffected thereby and shall remain in full force and
effect to the fullest extent permitted by law.
17. Survivorship.
The
respective rights and obligations of the Parties hereunder shall survive any
termination of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.
18. References.
References
in this Agreement to the Executive shall be deemed to refer to his legal
representative or, where appropriate, to his beneficiary or beneficiaries in the
event of the Executive’s death or a judicial determination of his
incompetence.
19. Governing
Law.
This
Agreement shall be governed by and construed and interpreted in accordance with
the laws of the State of Texas without reference to the principles of conflicts
of law.
20. Headings.
The
headings of paragraphs contained in this Agreement are for convenience only and
shall not be deemed to control or affect the meaning or construction of any
provision of this Agreement.
21. Counterparts.
This
Agreement may be executed in one or more counterparts.
IN
WITNESS WHEREOF, the undersigned have executed this Agreement on the date first
written above.
|
LUFKIN
INDUSTRIES, INC.
|
||
|
By:
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/s/ Xxxx X. Xxxxx | |
|
/s/
Xxxx X. Xxxxx
|
||
|
Xxxx
X. Xxxxx
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