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EXHIBIT 10.2
FLOWSERVE CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into this 15th day
of June , 1999, between Flowserve Corporation ("Company") and Xxxxxxx Xxxxx
Xxxxx ("Executive").
BACKGROUND
The Company wishes to employ the Executive as successor Chief
Executive Officer, first serving as President and Chief Operating Officer and
then transitioning to Chief Executive Officer on the terms and conditions
specified herein, and the Executive wishes to be employed by the Company on the
terms and conditions specified herein.
AGREEMENT
In consideration of the premises, and for other valuable
consideration, it is agreed as follows:
1. General Agreement. The Company agrees to employ the Executive, and
the Executive agrees to accept employment with the Company, as provided in this
Agreement for the period beginning on the Effective Date and ending on June 30,
2005.
2. Definitions. For purposes of this Agreement, the following terms,
when capitalized, shall have the meanings specified below:
(a) "Accrued Compensation" means the sum of (i) the Executive's
annual base salary through the date his employment terminates to the
extent not previously paid and (ii) the Executive's Historical Bonus
multiplied by a fraction, the numerator of which is the number of
complete months in the fiscal year of termination that precede the
Executive's termination and the denominator of which is twelve.
(b) "Board" means the Company's Board of Directors.
(c) "Board Chairman" means Chairman of the Company's Board of
Directors
(d) "Cause" means (i) the Executive's continuing substantial
failure to perform his duties for the Company (other than as a result
of incapacity due to mental or physical illness) after a written
demand is delivered to the Executive by the Board; (ii) the
Executive's wilful engaging in illegal conduct or gross misconduct
that is materially and demonstrably injurious to the Company; (iii)
the Executive's conviction of a felony or his plea of guilty or nolo
contendere to a felony, or (iv) the Executive's wilful and material
breach of the confidentiality portion of this Agreement. "Cause" shall
be determined as provided in Paragraph 6(e).
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(e) "Disability" and "Disabled" refer to the Executive's failure to
perform his duties with the Company on a full-time basis for 180
consecutive days, if an independent physician selected by the Company
or its insurers and acceptable to the Executive (or, in the case of
Executive's incapacity, his legal representative) finds that such
failure has resulted from the Executive's inability to perform such
duties because of his physical or mental incapacity.
(f) "Effective Date" means July 1,1999.
(g) "Employment Term" means the period beginning on the Effective
Date and ending on June 30, 2005.
(h) "Good Reason" means (i) the Executive's Removal from Office
without Cause, (ii) the Company's (A) assignment of duties to the
Executive that are materially inconsistent with his Office or (B)
actions resulting in a material diminution of the Executive's position
or duties, (iii) the Company's material failure to comply with any
provision of this Agreement, and (iv) the Company's termination of the
Executive's employment, other than as permitted by this Agreement.
"Good Reason" shall be determined as provided in Paragraph 6(c).
(i) "Historical Bonus" means, for the fiscal year in which the
Executive's employment terminates, the Executive's highest annual
bonus for the two fiscal years preceding termination, reduced by any
annual bonus previously paid to him for the fiscal year of
termination.
(j) "Office" means, for the period preceding the Executive's
appointment as Chief Executive Officer, the office of President and
Chief Operating Officer. Once the Executive has been appointed Chief
Executive Officer and/or Chairman, "Office" shall mean Chief Executive
Officer and/or Chairman.
(k) "Other Benefit" means any accrued compensation or benefit of
the Executive other than Accrued Compensation that is payable on or
after termination of employment under a plan, policy, or program of
the Company. In case of the Executive's death before the end of the
Employment Term, "Other Benefit" shall include a special death benefit
equal to 36 months of the Executive's base salary at the rate in
effect on the date of his death, which benefit shall be reduced by the
death benefit payable with respect to the Executive under any life
insurance program of the Company. In the case of the Executive's
termination of employment on account of Disability, "Other Benefit"
shall include a salary continuation payment equal to 70% of the
Executive's base salary at the time he terminated employment on
account of Disability, reduced by any disability payments made to the
Executive for such period from another disability plan or program of
the Company or Social Security. Such salary continuation payments
shall end on the later of (i) the first anniversary of their
commencement and (ii) June 30, 2005.
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(l) "Removal from Office" means the Company's involuntary removal
of the Executive from his Office; provided, however, the Executive's
transition from President and Chief Operating Officer to Chief
Executive Officer shall not constitute Removal from Office.
(m) "Wilful" means that the Executive has acted, or failed to act,
in bad faith or without reasonable belief that his act or omission was
in the Company's best interest. For purposes of the preceding
sentence, any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and
pursuant to his belief that it is in the best interests of the
Company.
(n) "Welfare Benefit Plan" has the meaning given to such term by 29
U.S.C. Section 1002(1).
3. Executive's Position and Duties. Until he becomes Chief Executive
Officer in accordance with the terms hereof, the Executive shall serve as the
Company's President and Chief Operating Officer. Not later than July, 2000, the
Executive shall become the Company's full time Chief Executive Officer with
general responsibility for and control of the Company's business and affairs,
all in accordance with the provisions of this paragraph. The Executive shall
have such authority, duties, and responsibilities as are commensurate with his
position and as may be assigned to him from time to time by the Board. The
Executive shall serve the Company diligently and faithfully, devoting
substantially all of his time and attention during normal business hours to the
business and affairs of the Company and to the faithful performance of his
duties. The Executive shall not perform any other services for remuneration,
unless the performance of such services is approved by the Executive Committee
of the Board as being in the best interests of the Company. The Executive shall
not engage in any activity that substantially interferes with the performance
of his responsibilities to the Company. The Company shall use its best efforts
to cause the Executive to be elected as a director of the Company at the first
Board meeting after the Effective Date, and to remain as such throughout the
term of this Agreement.
4. Executive's Compensation. During the term of this Agreement, the
Executive shall be entitled to the following compensation:
(a) BASE SALARY. The Executive's initial base salary shall be
$600,000 per year. The Executive's base salary may be increased, but
not decreased throughout the term of this Agreement and shall be
reviewed at least once every 12 months.
(b) BONUS. For each fiscal year, in accordance with the Company's
annual bonus plan, the Executive shall have an annual bonus
opportunity with a reference rate equal to 70% of his base salary
payable pursuant to Subparagraph (a) during that fiscal year. Upon the
Executive becoming Chief Executive Officer, the reference rate
referred to in the
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preceding sentence shall increase to 75%. The Executive shall receive
an annual bonus of at least $450,000 for fiscal year 1999.
(c) STOCK OPTIONS. Upon commencing employment with the Company, the
Executive shall be granted an option to purchase seven hundred
thousand (700,000) shares of the Company's common stock. The purchase
price for shares purchased pursuant to such option shall be the
stock's fair market value on the date of grant. The Executive's option
rights under the grant shall become exercisable with respect to
one-third of the shares on June 30, 2002; June 30, 2003; and June 30,
2004; provided, however, subject to the terms of any change of control
agreement between the Executive and the Company then in effect, the
Executive's option rights under the grant that have not previously
become exercisable shall be forfeited upon his termination of
employment. The Executive shall not be granted additional options
during the first three years of his employment.
(d) RESTRICTED STOCK. Upon the Executive's commencement of
employment with the Company, the Company shall grant the Executive one
hundred thousand (100,000) shares of restricted common stock of the
Company. Restrictions on these shares shall lapse with respect to
one-third of the shares on June 30, 2000; June 30, 2001; and June 30,
2002; provided, however, subject to the terms of any change of control
agreement between the Executive and the Company then in effect, the
Executive's interest in the restricted shares shall be forfeited to
the extent that his employment with the Company terminates before the
restrictions lapse.
(e) LONG-TERM INCENTIVE COMPENSATION PLAN. The Executive shall
participate in the Company's long-term incentive compensation plan,
beginning with the three-year cycle starting in 1999. Under the plan,
long-term incentive compensation is tied to economic value added over
three-year cycles, with a new three-year cycle beginning each year.
Unless deferred pursuant to the participating executive's election,
payment of compensation relating to a three-year cycle is made as soon
as possible after the end of the cycle. The Executive's annual
compensation under the plan shall be paid in accordance with the plan
and be equal to 50% of the reference rate of the Executive's annual
base salary payable pursuant to Subparagraph (a).
(f) INCENTIVE, SAVINGS, RETIREMENT, AND WELFARE BENEFIT PLANS. The
Executive shall be eligible to participate in all incentive
compensation, savings, retirement, and Welfare Benefit Plans available
to other senior executives of the Company.
(g) VACATION. The Executive shall be entitled to at least four
weeks of paid vacation per year.
(h) FRINGE BENEFITS. The Executive shall be entitled to
reimbursement of country club initiation fees and dues and automobile
expenses and other appropriate fringe benefits in accordance with the
Company's policies.
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(i) OFFICE AND SUPPORT STAFF. The Executive shall be entitled to an
office or offices with furnishings and other appointments appropriate
to his position.
(j) REIMBURSEMENT OF EXPENSES. The Executive shall be entitled to
reimbursement of reasonable business expenses in accordance with the
Company's policies.
(k) MOVING EXPENSES. The Executive shall be entitled to
reimbursement of any and all reasonable moving expenses of relocating
to Dallas, Texas, pursuant to the Company's relocation policies. At
the Executive's option, the Company will purchase the Executive's
current principal residence in Bloomfield Hills, Michigan for a
mutually agreeable price pursuant to the Company's relocation
policies, which purchase price shall not be less than the Executive's
cash investment in the residence.
(l) ESTATE PLANNING REIMBURSEMENT. The Executive shall be entitled
to a one-time reimbursement of up to $4,000 for set up fees for estate
planning advisors. For a description of the annual reimbursement for
tax planning, see Exhibit A.
5. Location of Services. The Executive's principal office shall be
located at the Company's headquarters, and he shall perform services under this
Agreement at that location and at such other locations as may be necessary or
appropriate to fulfill his obligations hereunder.
6. Termination of Employment.
(a) DEATH. The Executive's employment shall terminate automatically
upon his death during the Employment Term.
(b) DISABILITY. If the Executive becomes Disabled during the
Employment Term, the Company may notify the Executive of its intention
to terminate his employment pursuant to this Subparagraph (b). In such
event, the Executive's employment shall terminate on the 30th day
after the Executive receives such notice, unless he returns to
substantially full-time performance of his duties within such 30-day
period.
(c) EXECUTIVE'S TERMINATION FOR GOOD REASON. To terminate his
employment for Good Reason, the Executive must notify the Board of his
intent to terminate employment for Good Reason and describe all
circumstances that he believes in good faith to constitute Good
Reason. If the Company corrects all situations constituting Good
Reason and identified by the Executive within 30 days after receiving
his notice, the Executive shall not be entitled to terminate for Good
Reason. If the Company agrees to the Executive's termination for Good
Reason or fails to correct the conditions identified by the Executive
within 30 days after receipt of the Executive's notice, the
Executive's employment shall terminate on the 30th day after the
Company received his notice or such earlier date agreed to by the
Company.
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(d) EXECUTIVE'S TERMINATION WITHOUT GOOD REASON. If the Executive
terminates his employment without Good Reason, he shall provide the
Company at least 30 days' notice (which 30-day requirement may be
waived by the Company) of his intent to terminate, state that the
termination is without Good Reason, and identify his termination date.
The Executive's termination date shall be the date specified in the
notice provided pursuant to the preceding sentence or such earlier
date as the Company designates after receiving the notice.
(e) COMPANY'S TERMINATION FOR CAUSE. Before the Board terminates
the Executive's employment for Cause, it shall provide the Executive
an opportunity, after reasonable notice, to appear before the Board.
To terminate the Executive for Cause, the Board must adopt a
resolution terminating the Executive by affirmative vote of at least
75% of its members, after having given the Executive the opportunity
to present his case to the Board. The Board's resolution must state
that the Board finds in good faith that (i) the Executive is guilty of
conduct constituting Cause, specifying the details of such conduct,
and (ii) the Executive failed to cure such conduct within 30 days
after receiving written notice from the Company detailing such
conduct. The effective date of the Executive's termination for Cause
shall be the date on which the Executive receives a copy of the
resolution adopted by the Board or such later date specified in the
resolution.
(f) COMPANY'S TERMINATION WITHOUT CAUSE. If the Company terminates
the Executive's employment without Cause, it shall notify the
Executive of its decision and state that the termination is without
Cause. The effective date of the Executive's termination shall be the
date on which he receives the Company's notice or such later date as
specified in the notice.
7. Company's Obligations on Termination of Employment.
(a) DEATH. If the Executive's employment is terminated by reason of
his death during the Employment Term, this Agreement shall terminate
without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Compensation
and the timely payment or provision of Other Benefits. Accrued
Compensation shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days after the
Executive's death, and Other Benefits shall be paid pursuant to the
applicable plan, program, or policy of the Company.
(b) DISABILITY. If the Executive's employment is terminated by
reason of his Disability during the Employment Term, this Agreement
shall terminate without further obligations to the Executive, other
than for payment of Accrued Compensation and the timely payment or
provision of Other Benefits. Accrued Compensation shall be paid to the
Executive in a lump sum in cash within 30 days after his employment
terminates, and Other Benefits shall be paid pursuant to the
applicable plan, program, or policy of the Company. Notwithstanding
the preceding provisions, all stock-based awards that would have
become
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vested by the end of the fiscal year in which the Executive's
employment terminates on account of Disability shall become vested
upon the termination of his employment, and any stock options or other
exercisable awards shall remain exercisable as if the Executive's
employment had terminated on June 30, 2005.
(c) COMPANY'S TERMINATION FOR CAUSE. If the Executive's employment
is terminated for Cause, or the Executive terminates his employment
without Good Reason during the Employment Term, this Agreement shall
terminate without further obligations to the Executive, other than for
payment of Accrued Compensation, the payment of any compensation
previously deferred by the Executive pursuant to a non-qualified
deferred compensation plan and not previously paid, and the timely
payment of Other Benefits. Accrued Compensation shall be paid to the
Executive in a lump sum in cash within 30 days after his employment
terminates, and Other Benefits and deferred compensation referred to
in the preceding sentence shall be paid pursuant to the applicable
plan, program, or policy of the Company.
(d) COMPANY'S TERMINATION FOR REASON OTHER THAN CAUSE, DEATH, OR
DISABILITY OR EXECUTIVE'S TERMINATION FOR GOOD REASON. If the Company
terminates the Executive's employment for a reason other than Cause or
Disability, or if the Executive terminates his employment for Good
Reason, the Company shall continue to compensate the Executive
pursuant to this Subsection (d) until the earlier of (i) eighteen (18)
months after the termination of employment or (ii) June 30, 2005. For
purposes of this Subsection (d), (i) the Executive's base salary shall
continue at the rate in effect on his termination of employment, (ii)
his annual bonus and long-term incentive compensation shall continue
at the rate for the fiscal year immediately preceding his termination
of employment, (iii) he shall not receive further awards of
stock-based incentive compensation, such as stock options and
restricted stock, (iv) he shall participate in the Company's benefit
plans on the same terms and conditions as actively employed executives
of the Company, and (v) all benefits and protections to which he was
previously entitled under any change of control agreement or program
of the Company shall lapse. If the Executive is no longer eligible to
participate in a benefit plan of the Company because he is no longer
an employee, the Company shall provide a benefit equivalent to the
benefit to which Executive would have been entitled under such plan if
he had remained an employee; provided however, the Executive shall not
be reimbursed for the loss of his ability to make elective deferrals
under any qualified defined contribution plan of the Company.
(e) NON-EXCLUSIVITY OF RIGHTS. This Agreement shall not prevent the
Executive from participation in any plan, program, policy, or practice
of the Company according to its terms or, subject to Section 8, affect
the Executive's rights under any agreement with the Company. Benefits
that are vested or that the Executive is otherwise entitled to receive
under any plan, policy, practice, or program of, or any agreement
with, the Company at or after the termination of his employment shall
be payable in accordance with such plan, policy, practice, program, or
agreement, except as expressly modified by this Agreement.
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8. Termination Following Change of Control. If the Executive's
employment terminates during the Employment Term but following a change of
control (as defined in a signed change of control agreement between the Company
and the Executive) during the Employment Term, the Executive shall receive
compensation upon such termination pursuant to the change of control agreement
and not pursuant to this Agreement. Effective as of the date of this Agreement,
the Company and the Executive have entered into the Change of Control Agreement
attached hereto as Exhibit B.
9. Non-Competition Agreement. As part of this Agreement, the Executive
shall enter into the Non-Competition Agreement attached hereto as Exhibit C.
Notwithstanding any provision to the contrary hereunder, the Company's
obligations to the Executive hereunder shall be limited as provided in the
Non-Competition Agreement, which Agreement shall not terminate until the date
provided therein, regardless of the date on which this Agreement terminates.
10. Confidentiality.
(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 affiliated
companies, and their respective businesses, that has been acquired by
the Executive during his employment and that has not become public
knowledge (other than by acts by the Executive or his representatives
in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the
prior written consent of the Company's Board or as may otherwise be
required by law or legal process, or to enforce his rights under this
Agreement, or as necessary to defend himself against a claim asserted
directly or indirectly by the Company or its affiliates, communicate
or divulge any such information, knowledge, or data that is not
otherwise publicly available to anyone other than the Company and
those designated by it. An asserted violation of this Paragraph shall
not be a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
(b) In the event of a breach or threatened breach of this
Paragraph, the Executive agrees that the Company shall be entitled to
seek injunctive relief in a court of appropriate jurisdiction to
remedy such breach or threatened breach, and the Executive
acknowledges that damages would be inadequate and insufficient.
(c) The Executive's obligations under this Paragraph shall
continue forever.
11. Indemnification. The Company agrees that if the Executive is made
a party, or is threatened to be made a party, to any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, by
reason of the fact that he is or was a director, officer, or employee of the
Company, the Executive shall be indemnified and held harmless by the Company to
the fullest extent legally permitted or authorized by the Company's certificate
of incorporation or bylaws or
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resolutions of the Board or, if greater, by the laws of the State of New York,
against all cost, expense, liability, and loss (including, without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes, or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by the
Executive in connection therewith, all as provided in the Company's Directors
and Officers Indemnification Agreement, attached hereto as Exhibit D. The
Company agrees to continue and maintain a directors' and officers' liability
insurance policy covering the Executive to the extent the Company provides such
coverage for its other executive officers.
12. Notices. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Xxxxxxx Xxxxx Xxxxx
000 Xxxxxxxxxxxx Xxxx
Xxxxxxxxxx Xxxxx, XX 00000
If to the Company or Board:
Flowserve Corporation
000 X. Xxx Xxxxxxx Xxxx., Xxxxx 0000
Xxxxxx, XX 00000
Attention: Vice President, Secretary and General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
13. Severability. Each provision of this Agreement shall be considered
severable. If a court finds any provision to be invalid or unenforceable, the
validity, enforceability, operation, and effect of the remaining provisions
shall not be affected, and this Agreement shall be construed in all respects as
if the invalid or unenforceable provision had been omitted or limited in
accordance with the court's ruling.
14. Assignability. This Agreement may not be assigned by the
Executive, because it is personal in nature. The Company may assign, delegate,
or transfer this Agreement and all of its rights and obligations hereunder to
any successor in interest, any purchaser of substantially all of the Company's
assets, or any entity to which the Company transfers all or substantially all
of its assets before or after the term of this Agreement. The Company shall
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.
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15. Governing Law and Waiver. The laws of the State of New York shall
govern the construction, enforceability, and interpretation of this Agreement.
The parties intend this Agreement to supplement, but not displace, their
respective rights and responsibilities under the laws of the State of New York,
as amended from time to time. The failure of either party to insist upon
performance of any provision of this Agreement or to pursue his or its rights
hereunder shall not be construed as a waiver of any such provision or the
relinquishment of any such right.
16. No Party Deemed Drafter. Neither the Company nor the Executive
shall be deemed to be the drafter of this Agreement, and, if this Agreement or
any provision thereof is construed in any court or other proceeding, said court
or other adjudicator shall not construe this Agreement or any provision thereof
against either party as the drafter thereof.
17. No Oral Modifications. This Agreement may not be modified orally.
Any change of this Agreement must be made in writing and signed by the
Executive and an officer of Company.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
FLOWSERVE CORPORATION
By: /s/ Xxxx Xxxxx
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Chairman - Executive Committee
Title: Board of Directors
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ATTEST:
/s/ Xxxxxx X. Xxxxx /s/ Xxxxxxx Xxxxx Xxxxx
----------------------------------- ------------------------------------
Signature Xxxxxx X. Xxxxx Xxxxxxx Xxxxx Xxxxx
Vice President - Secretary
and General Counsel
-----------------------------------
Title
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[FLOWSERVE LOGO]
EXHIBIT A
Flowserve Corporation
CEO/COO Executive Officer Benefits
The following itemized list represents the benefits afforded to an incumbent
CEO/COO Executive Officer of Flowserve Corporation as of May 1, 1999. These
benefits, as described, should be considered to be inclusive in any offer of
employment on behalf of Flowserve for a position at this level.
TAX AND ESTATE PLANNING
o Up to $8,000 annual reimbursement for tax planning
o Up to $4,000 additional one-time reimbursement for first-year estate
planning
AUTOMOBILE ALLOWANCE
o $1,360/month
COUNTRY CLUB MEMBERSHIP
o Dues and membership fees
AIR TRAVEL
o First Class travel
o Reimbursement for one airline VIP club membership
PARKING
o Executive Officer reserved parking
MEDICAL BENEFITS AND RETIREMENT PLAN
o One complete physical examination per annum at the facility of
incumbent's choice
o Flexible benefits plan for health and welfare and qualified retirement
plan coverage. See attached brochure for plan details.
o Executive SERP. To be determined on or before December 31, 1999.
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[FLOWSERVE LETTERHEAD]
EXHIBIT B
June 7, 1999
Xxxxxxx Xxxxx Xxxxx
000 Xxxxxxxxxxxx Xxxx
Xxxxxxxxxx Xxxx, XX 00000
Dear Xx. Xxxxx:
Flowserve Corporation (the "Company") considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist; and that the
mere possibility of a change in control can raise distracting and disrupting
uncertainties and questions among management personnel, can interfere with their
whole-hearted attention and devotion to the performance of their duties, and can
even lead to their departure, all to the detriment of the best interests of the
Company and its shareholders. Accordingly, the Board of Directors of the Company
(the "Board") has determined that the best interests of the Company and its
shareholders would be served by assuring to certain executives of the Company,
including yourself, the protection provided by an agreement which defines the
respective rights and obligations of the Company and the executive in the event
of termination of employment subsequent to a change in control of the Company.
In order to induce you to remain in the employ of the Company, this
letter agreement sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in paragraph 2)
under the circumstances described below.
Except where the context otherwise indicates, the term "Company"
hereinafter includes the Company and any successor.
1. OPERATION AND TERM OF AGREEMENT. This agreement, although effective
immediately, shall not become operative unless and until there has been a change
in control of the Company. None of the provisions of this agreement shall be
applicable to any termination of your employment, however occurring, which is
effective prior to a change in control of the Company. This agreement shall
continue until June 30, 2005, subject to extension beyond that date by mutual
consent, or until your normal retirement date (your "Normal Retirement Date")
under the Company's defined benefit pension plan in which you participate or a
successor plan, whichever is sooner. If your Normal Retirement Date is after
June 30, 2005, the Company will review this agreement with you before June 30,
2005, for the purpose of determining whether or not an extension beyond June 30,
2005 is mutually agreeable and, if so, on what basis and for how long.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment with the Company shall thereafter have been terminated in
accordance with paragraph 3 below. For purposes
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June 7, 1999
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of this agreement, a "change in control of the Company" shall mean any change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); provided that, without limitation,
such a change in control shall be deemed to have occurred if (i) any "person"
(as such term is defined in Sections 13(d) and 14(d)(2) of the Exchange Act)
other than the Company or an entity then controlled by the Company is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new Director was
approved by a vote of at least two-thirds of the Directors then still in office
who were Directors at the beginning of the period; (iii) the Company merges or
consolidates with another corporation and the Company or an entity controlled by
the Company immediately prior to the merger or consolidation is not the
surviving entity; or (iv) a sale, lease, exchange, or other disposition of all
or substantially all of the assets of the Company takes place and an entity (or
entities) controlled by the Company is (are) not the transferee(s) of such
assets.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. (A) If any of the events
described in paragraph 2 constituting a change in control of the Company shall
occur during the term of this agreement, then upon any subsequent termination of
your employment at any time within two years following the occurrence of such
event, regardless of the stipulated expiration date of this agreement, you shall
be entitled to the compensation and benefits provided by this agreement, as set
forth in paragraph 5, unless such termination is because of your death.
(B) Notwithstanding anything in this Agreement to the contrary, if your
employment is terminated by the Company prior to a change in control, where a
change in control in fact occurs, and you reasonably demonstrate that such
termination was at the request of a third party who effectuates such change in
control, or that such termination was directly related to or in anticipation of
such change in control, then, for all purposes of this agreement, you shall be
entitled all payments and benefits provided under this agreement.
4. NOTICE AND DATE OF TERMINATION. (A) Any termination of your
employment subsequent to a change in control of the Company shall be consummated
by written Notice of Termination given to the other party. For purposes of this
agreement, "Notice of Termination" shall mean a notice which indicates the
specific termination provision or provisions in this agreement relied upon, if
any, and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment.
(B) "Date of Termination" shall mean (i) if your employment is
terminated by the Company, the effective date specified in the Notice of
Termination; or (ii) if your employment is
-2-
14
June 7, 1999
Page 3
terminated for any other reason, the date on which Notice of Termination is
given or the effective date specified in the Notice, whichever is later. For
purposes of this agreement, termination of your employment shall be deemed to
have occurred within two years following the occurrence of a change in control
of the Company if the Date of Termination is within such two year period.
5. COMPENSATION AND BENEFITS TO BE PROVIDED. (A) The compensation and
benefits to be provided to you pursuant to paragraph 3 of this agreement upon
termination of your employment with the Company under specified circumstances
within two years following a change in control of the Company include the
following:
(i) Subject to the provisions of paragraph 8 hereof, the Company
shall pay to you as severance pay in a lump sum in cash on the
fifteenth day following the Date of Termination, the following
amounts:
(a) Your full salary (whether deferred or not) through the Date
of Termination at your annual base salary rate in effect at the
time Notice of Termination is given; and also the amount of the
award or awards (whether deferred or not), if any, with respect to
any completed period or periods which has been earned by or awarded
to you pursuant to any incentive compensation plan or arrangement
but which has not yet been paid to you.
(b) In lieu of any further salary and incentive compensation
payments to you for periods subsequent to the Date of Termination,
an amount (the "Additional Compensation Payment") equal to 300% of
the sum of (x) your annual base salary at the rate in effect as of
the Date of Termination (or, if higher, at the rate in effect at
the time of the change in control) and (y);
(I) for periods beginning after July 1, 1999, and ending before
January 1, 2001, the greater of (1) the average annual amount
awarded to you under any incentive compensation plans or
arrangements for the two fiscal years immediately preceding the
fiscal year during which the Date of Termination occurs
(whether or not fully paid) or (2) the average of the target
incentives ("Target Incentives") under any such compensation
plans or arrangements in effect for the year of the Date of
Termination, and the following two calendar years, provided
that the Target Incentives for the following two calendar years
shall be, where not established prior to such change in
control, the greater of the applicable Target Incentives of
such compensation plans or arrangements for either the year of
the change in control or Date of Termination, where differing;
-3-
15
June 7, 1999
Page 4
(II) for periods beginning on or after January 1, 2001, the average
of such Target Incentives, as defined and calculated above.
(c) With respect to each option granted to you under a stock
option plan adopted or assumed by the Company (an "Option") which
is then outstanding, whether or not then fully exercisable, and the
exercise price of which is less than the Fair Market Value of a
share of Common Stock of the Company ("Company Shares") on the Date
of Termination, an amount in cash equal to the excess of such Fair
Market Value over the exercise price. As used in this subparagraph,
"Fair Market Value" shall mean (1) the mean between the
representative closing bid and asked quotations for Company Shares
in the over-the-counter market on the Date of Termination (or last
trading date prior thereto) as reported by the National Association
of Securities Dealers, Inc. through NASDAQ; or (2) in the event the
Company Shares are listed on any exchange or in the NASD National
Market System, the last sale price on such exchange or System on
the Date of Termination (or last trading date prior thereto) or, if
there are no sales on such date, the mean between the
representative bid and asked prices for Company Shares on such
exchange or System at the close of business on such date; or (3) in
the event that there is then no public market for the Company
Shares or that trading in the Company Shares is sporadic and the
mean between any bid and asked prices is not representative of fair
market value, the fair market value of the Company Shares
determined in accordance with Section 20.2031-2(f) of the Treasury
Regulations or any successor provision thereto. Any Option for
which payment is made as prescribed in this subparagraph (c) shall
be canceled effective upon the making of such payment.
Notwithstanding the foregoing, if you give to the Company, prior to
your receipt of payment pursuant to this subparagraph (c), written
instructions to the effect that you do not wish to receive payment
for your Option(s) (or any one or more of them) as provided herein
(because, for example, of the possible triggering of liability
under Section 16 of the Exchange Act), then, to the extent
specified by you, such payment for such Option(s) shall not be
made, and such Option(s) shall remain in effect in accordance with
its (their) terms.
(d) Anything in any incentive compensation plan or
arrangement, or any action taken by the Board or any committee of
the Board pursuant thereto to the contrary notwithstanding, any
awards, whether in cash or Company Shares, made under any such plan
or arrangement prior to the Date of Termination which have been
credited to your account but the payment of which has been
deferred.
(e) All legal fees and expenses reasonably incurred by you in
good faith as a result of such termination (including all such fees
and expenses, if any, incurred
-4-
16
June 7, 1999
Page 5
in contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this agreement).
(ii) The Company shall, at its expense, maintain in full force and
effect for your continued benefit all life insurance, medical, health
and accident plans, programs and arrangements in which you were
entitled to participate at the time of the change in control, provided
that your continued participation is possible under the terms of such
plans, programs and arrangements. In the event that the terms of any
such plan, program or arrangement do not permit your continued
participation or that any such plan, program or arrangement has been
or is discontinued or the benefits thereunder have been or are
materially reduced, the Company shall arrange to provide, at its
expense, benefits to you which are substantially similar to those
which you were entitled to receive under such plan, program or
arrangement at the time of the change in control. The Company's
obligation under this subparagraph (ii) shall terminate on the
earliest of the following dates: (a) the third anniversary date of the
Date of Termination; (b) your Normal Retirement Date; or (c) the date
an essentially equivalent and no less favorable benefit is made
available to you at no cost by a subsequent employer. At the end of
the applicable period of coverage set forth above, you shall have the
option to have assigned to you, at no cost and with no apportionment
of prepaid premiums, any assignable insurance owned by the Company and
relating specifically to you.
(iii) In the event that because of their relationship to you,
members of your family or other individuals are covered by any plan,
program, or arrangement described in subparagraph (ii) above
immediately prior to the Date of Termination, the provisions set forth
in subparagraph (ii) shall apply equally to require the continued
coverage of such persons; provided, however, that if under the terms
of any such plan, program or arrangement, any such person would have
ceased to be eligible for coverage during the period in which the
Company is obligated to continue coverage for you, nothing set forth
herein shall obligate the Company to continue to provide coverage for
such person beyond the date such coverage would have ceased even if
you had remained an employee of the Company.
(iv) The Company shall pay a supplemental monthly retirement
benefit ("Supplemental Pension Benefit") to you which is equal to the
excess, if any, of (a) the aggregate amount which would have been
payable to you monthly under all noncontributory pension and
retirement plans, agreements, and other arrangements of the Company
had you remained an employee of the Company (at an annual compensation
rate equal to one-third of the Adjusted Additional Compensation
Payment (computed as hereinafter provided) to which you would be
entitled under subparagraph 5(A)(i)(b)) until the earlier of your
Normal Retirement Date or the second anniversary date of the Date of
Termination, over (b) the aggregate amount actually payable to you
monthly under such plans, agreements or arrangements. Calculation of
the amounts described in (a) and (b) above shall be made
-5-
17
June 7, 1999
Page 6
assuming the same form of payment and that you have elected the
maximum preretirement death benefit payable under the defined benefit
pension plan of the Company or any of its subsidiaries in which you
participate (the "Qualified Plan"). Payment of any Supplemental
Pension Benefit shall be made to you in the same form and at the same
time as payment of benefits under the Qualified Plan. "Adjusted
Additional Compensation Payment" shall be computed in the same fashion
as Additional Compensation Payment except that there shall be
excluded, in such computation, any compensation payable under the Long
Term Incentive Plan. For purposes of clarification only, the Company's
obligation to pay the Supplemental Pension Benefit shall in no way be
affected if the Company elects to structure the Qualified Plan as a
"cash balance" plan, as such term may be defined by applicable federal
government regulations.
(v) The Company shall enable you to purchase the automobile, if
any, which the Company was providing for your use at the time Notice
of Termination was given at the wholesale value of such automobile at
such time. However, if the Company was providing you a monthly car
allowance, in lieu of actually providing a car, at the time of such
Notice of Termination, then the Company shall instead pay you a lump
sum, in addition to all other payments due to you hereunder, equal to
24 times the greater of the monthly car allowance payable to you at
the time of (i) the change of control of the Company or (ii) the Date
of Termination, where differing. Such lump sum shall be paid to you in
cash on the fifteenth day following the Date of Termination.
(B) You shall not be required to mitigate the amount of any payment
provided for in subparagraphs 5(A)(i) or 5(A)(iv) by seeking other employment or
otherwise, nor shall the amount of any payment provided for in such
subparagraphs be reduced by any compensation earned by you after the Date of
Termination as the result of employment by another employer or otherwise.
6. RIGHTS AS FORMER EMPLOYEE. Nothing contained in this agreement shall
be construed as preventing you, and shall not prevent you, following any
termination of your employment whether pursuant to this agreement or otherwise,
from thereafter participating in any benefit or insurance plans, programs or
arrangements (including without limitation, any retirement plans or programs) in
the same manner and to the same extent that you would have been entitled to
participate as a former employee of the Company had this agreement not been
executed.
7. SUCCESSORS. The Company shall 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, by agreement in
form and substance satisfactory to you, to expressly assume 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.
-6-
18
June 7, 1999
Page 7
This agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amounts
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid to such beneficiary or
beneficiaries as you shall have designated by written notice delivered to the
Company prior to your death or, failing such written notice, to such
beneficiary or beneficiaries as you shall have designated to receive benefits
to be distributed under the Qualified Plan.
8. GROSS-UP OF PAYMENTS DEEMED TO BE EXCESS PARACHUTE PAYMENTS. (A)
The Company and you acknowledge that, following a change in control of the
Company, one or more payments or distributions to be made by the Company to or
for your benefit (whether paid or payable or distributed or distributable
pursuant to the terms of this agreement, under some other plan, agreement,
arrangement or otherwise) (a "Payment") may be determined to be an "excess
parachute payment" that is not deductible by the Company for federal income tax
purposes and with respect to which you will be subject to an excise tax because
of Sections 28OG and 4999, respectively, of the Internal Revenue Code
(hereinafter referred to respectively as "Section 28OG" and "Section 4999"). It
is the Company's intention to fully protect you against and compensate you for
any application of such excise tax by making to you Gross-Up Payments as
provided in this paragraph 8. In furtherance and not in limitation of the
foregoing, the Gross-Up Payments will be sufficient to fully protect and
compensate you even if the amounts determined to constitute excess parachute
payments are increased due to your deferral from time to time of compensation
payable to you by the Company.
(B) If your employment is terminated after a change in control of the
Company occurs, the Company shall make an initial determination whether any
Payment would be an excess parachute payment and shall communicate its
determination, together with detailed supporting calculations, to you within 20
days after the Date of Termination. The Company's determination and
calculations will be final and binding upon you unless you notify the Company
within 21 days after you receive the Company's determination and calculations
that you dispute the same. If, within 10 days after you so notify the Company
(or within such longer period as you and the Company may agree), the Company
and you are unable to agree upon the determination and calculations, then the
Company and you shall, within 3 days thereafter, choose a nationally recognized
accounting firm (the "Accounting Firm") to deliver its determination (and
supporting calculations) concerning the matter(s) in dispute. The Accounting
Firm's determination shall be delivered to the Company and you within 20 days
after such Firm's appointment and shall be final and binding on all parties.
With respect to your costs incurred in contesting the Company's determination
and calculations, if the final determination by the Accounting Firm is more
than 2% different from the determination proposed by the Company, then the
Company shall pay or reimburse all costs incurred by you with respect to such
determination. In all other cases, you shall pay all such costs. All costs
incurred by the Company in connection with such determination and contest, and
the costs of the Accounting Firm's determination, shall be borne
-7-
19
June 7, 1999
Page 8
by the Company. The Company and you shall cooperate with each other and the
Accounting Firm, and shall provide necessary information so that the Company,
you and the Accounting Firm may make all appropriate determinations and
calculations.
(C) If it is determined (pursuant to subparagraph (B) or otherwise)
that any Payment gives rise, directly or indirectly, to liability on your part
for excise tax under Section 4999 (and/or any penalties and/or interest with
respect to any such excise tax), the Company shall make additional cash
payments (the "Gross-Up Payments") to you, from time to time and at the same
time as any Payment constituting an excess parachute payment is paid or
provided to you (or as promptly thereafter as is possible), in such amounts as
are necessary to put you in the same position, after payment of all federal,
state and local taxes (whether income taxes, excise taxes under Section 4999 or
otherwise, for other taxes, and taking into account all such taxes payable with
respect to the Gross-Up Payments) and any and all penalties and interest with
respect to any such excise tax, as you would have been in after payment of all
federal, state and local income taxes if the Payments had not given rise to an
excise tax under Section 4999 and no such penalties or interest had been
imposed. For purposes of determining the amount of any Gross-Up Payments, you
will be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year that the payment is to be made,
and state and local income taxes at the highest marginal rate of taxation in
the state and locality of your residence, net of the maximum reduction in
federal income taxes that could be obtained by deducting such state and local
taxes.
(D) Pending a final determination of the amount of any Gross-Up
Payment payable to you, you shall have the right to require the Company to pay
to you all or any portion of such amount as preliminarily determined and
calculated by the Company. Such payment shall be made by the Company within two
days after receipt of notice from you requiring the same.
(E) If the Internal Revenue Service determines that any payment gives
rise, directly or indirectly, to liability on your part for excise tax under
Section 4999 (and/or any penalties and/or interest with respect to any such
excise tax) in excess of the amount, if any, previously determined by the
Company or the Accounting Firm, as the case may be, the Company shall make
further additional cash payments to you not later than the due date of any
payment indicated by the Internal Revenue Service with respect to such matters,
in such amounts as are necessary to put you in the same position, after payment
of all federal, state and local taxes (whether income taxes, excise taxes under
Section 4999 or otherwise, or other taxes, and taking into account all such
taxes payable with respect to the Gross-Up Payments) and any and all penalties
and interest with respect to any such excise tax, as you would have been in
after payment of all federal, state and local income taxes if the Payments had
not given rise to an excise tax under Section 4999 and no such penalties or
interest had been imposed.
-8-
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June 7, 1999
Page 9
(F) If the Company desires to contest any determination by the
Internal Revenue Service with respect to the amount of excise tax under Section
4999, you shall, upon receipt from the Company of an unconditional written
undertaking to indemnify and hold you harmless (on an after-tax basis) from any
and all adverse consequences that might arise from the contesting of that
determination, cooperate with the Company in that contest at the Company's sole
expense. Nothing in this subparagraph (F) shall require you to incur any
expense other than expenses with respect to which the Company has paid you
sufficient sums so that after your payment of the expense and taking into
account the payment by the Company with respect to that expense and any and all
taxes that may be imposed upon you as a result of your receipt of that payment,
the net effect is no cost to you. Nothing in this subparagraph (F) shall
require you to extend the statute of limitations with respect to any item or
issue in your tax returns other than, exclusively, the excise tax under Section
4999. If, as a result of the contest of any assertion by the Internal Revenue
Service with respect to excise tax under Section 4999, you receive a refund of
a Section 4999 excise tax previously paid and/or any interest with respect
thereto, you shall promptly pay to the Company such amount as will leave you,
net of the repayment and all tax effects, in the same position, after all taxes
and interest, that you would have been in if the refunded excise tax had never
been paid.
9. NOTICES. All notices required or permitted to be given under this
agreement shall be in writing and shall be mailed (postage prepaid by either
registered or certified mail) or delivered, if to the Company, addressed to
Flowserve Corporation
000 Xxxx Xxx Xxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Vice President-Secretary & General Counsel
and if to you, addressed to
Xxxxxxx Xxxxx Xxxxx
000 Xxxxxxxxxxxx Xxxx
Xxxxxxxxxx Xxxxx, XX 00000
Either party may change the address to which notices to such party are to be
directed by giving written notice of such change to the other party in the
manner specified in this paragraph. All notices, including without limitation,
any Notice of Termination, shall be deemed to have been given upon the date of
actual receipt by the recipient party.
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June 7, 1999
Page 10
10. ARBITRATION. Any dispute or controversy arising out of or relating
to this agreement shall be settled by arbitration in Dallas, Texas, in
accordance with the rules then obtaining of the American Arbitration
Association, and judgment may be entered on the arbitrator's award in any court
having jurisdiction.
11. MISCELLANEOUS. No provision of this agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by you and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of compliance by such other
party with, any condition or provision of this agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this agreement.
12. GOVERNING LAW. The validity, interpretation, construction and
performance of this agreement shall be governed by the laws of the State of
Texas, without giving effect to the principles of conflicts of law thereof.
13. VALIDITY. The invalidity or unenforceability of any provision of
this agreement shall not affect the validity or enforceability of any other
provision, which shall remain in full force and effect.
If this letter correctly sets forth our agreement on the subject
matter hereof, please so confirm by signing and returning the enclosed copy.
Very truly yours,
FLOWSERVE CORPORATION
By: /s/ XXXX XXXXX
-------------------------------------
Xxxx Xxxxx, Chairman of Executive
Committee of the Board of Directors
Confirmed and agreed to:
/s/ XXXXXXX XXXXX XXXXX
-----------------------------------
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EXHIBIT C
NONCOMPETITION AGREEMENT
This Noncompetition Agreement is entered into by and between Flowserve
Corporation ("Company") and Xxxxxxx Xxxxx Xxxxx ("Executive"), effective as of
July 1, 1999.
BACKGROUND
The Company has employed the Executive as its successor Chief
Executive Officer, President, and Chief Operating Officer, effective July 1,
1999.
Because of the Executive's unique position with the Company and his
knowledge of the Company's business, he could cause the Company considerable
harm by providing his expertise to a competitor of the Company.
To protect the legitimate interests of the Company, the Company and
the Executive have agreed to enter into this Noncompetition Agreement in
connection with Company's employment of the Executive.
Therefore, the Executive agrees to be bound and restricted as provided
for in this Agreement:
AGREEMENT
1. The restrictions of this Agreement shall apply while the Executive
is employed by the Company and for a period of twenty-four months after the
termination of his employment. If the Executive breaches any provision of this
Agreement, the period during which the restrictions of this Agreement apply
shall be extended for an additional period equal to the period of the breach,
plus an additional three (3) months.
2. While the restrictions of this Agreement apply, the Executive is
prohibited from engaging in any direct or indirect competition with the
Company. The activities prohibited by this Agreement include but are not
limited to:
(a) Performing services as a management employee or consultant.
(b) Directly or indirectly accepting employment with, consulting with,
or assisting any business that is involved with the sale, design,
development, manufacture, or production of products competitive
with those sold (or anticipated to be sold) by the Company. This
prohibition shall apply to any employment with, involvement in, or
control of another business, whether as an employee, owner,
manager, sole proprietor, joint venturer, partner, shareholder,
independent contractor, or in any other capacity. This prohibition
shall not prevent the ownership of stock that is publicly traded,
provided that (i) the investment is passive, (ii) the Employee has
no
23
other involvement with the corporation, (iii) the Employee's
ownership interest is less than one percent, and (iv) the Employee
makes full disclosure to the Company of the stock ownership at the
time the Employee acquires it.
(c) Directly or indirectly diverting or influencing or attempting to
divert or influence any business of the Company to a competitor.
(d) Directly or indirectly seeking to influence, facilitate, or
encourage any Company employee to leave its employ.
3. The restrictions outlined above shall be applicable and enforceable
throughout the entire world.
4. The Executive acknowledges that his breach of this Agreement would
cause immediate and irreparable harm to the Company. The Company shall be
entitled to obtain immediate injunctive relief in the form of a temporary
restraining order without notice, preliminary injunction, or permanent
injunction against the Executive to enforce the terms of this Agreement. The
Company shall not be required to post any bond or other security and shall not
be required to demonstrate any actual injury or damage to obtain such
injunctive relief from the courts.
5. To the extent that any damages are calculable resulting from the
breach of this Agreement by the Executive, the Company shall be entitled to
recover those damages from the Executive, including prejudgment interest at ten
percent (10%) per annum from the date of the breach. Any recovery of damages by
the Company shall be in addition to and not in lieu of the injunctive relief to
which the Company is entitled. In no event shall a damage recovery be
considered a penalty or liquidated damages, but it shall be considered as
measurable compensatory damages for the Executive's breach of this Agreement.
6. If the Executive breaches this Agreement, his right to any future
payments pursuant to his employment agreement shall be forfeited as of the date
of the breach, except to the extent that such forfeiture applies to benefits
payable pursuant to a plan of the Company, if the forfeiture would violate the
terms of such plan.
7. If the Executive breaches this Agreement, the Company shall also be
entitled to recover all costs of enforcement, including reasonable attorneys'
fees, all expenses of litigation, and court costs.
8. This Agreement shall survive the termination of the Executive's
employment relationship with the Company and shall not be construed as limiting
the Company's right to terminate his employment at any time, subject to the
terms of any written employment agreement in effect at the time of termination.
-2-
24
9. No claim or cause of action that the Executive may have against the
Company, whether for breach of contract or otherwise, shall be a defense to the
enforcement of this Agreement against the Executive.
10. The Executive acknowledges that all of the restrictions contained
in this Agreement are reasonable and necessary to protect the Company's
legitimate interests. If a court determines that any provision of this
Agreement is too broad to be enforceable at law or in equity, the remaining
terms shall remain unimpaired, and the unenforceable provision shall be deemed
replaced by a provision that is valid and enforceable and that most clearly
approximates the intention of the parties with respect to the enforceable
provision, as evidenced by the remaining valid enforceable provisions.
11. This Agreement shall be enforceable by the Company or any
successor in interest.
12. This Agreement may not be modified orally. Any modification of
this Agreement must reflected in a written agreement approved by the Company's
Board and signed by the Executive and the members of the Board's Executive
Committee.
13. The Executive agrees to inform any prospective competing employer
about the existence of this Agreement before accepting new employment and shall
not agree, as a term of any new employment, that the new employer will defend
the Executive or pay his attorneys' fees in the event of a lawsuit brought by
the Company to enforce the terms of this Agreement.
14. This Agreement shall be construed to fulfill the purposes of the
Agreement and shall not be construed in favor of or against either party.
Subject to the preceding sentence, this Agreement shall be governed in all
respects by the laws of the State of New York.
15. This Agreement may be enforced in the applicable courts of Dallas
County, Texas or in any court where the Executive has breached or is alleged to
have breached this Agreement. The Executive agrees to submit to the exclusive
jurisdiction and venue of the applicable courts of Dallas County, Texas or in
any county elected by the Company. Any action filed by the Executive shall not
affect the enforceability of this provision, which shall govern.
-3-
25
FLOWSERVE CORPORATION
By: /s/ XXXX X. XXXXX /s/ XXXXXXX XXXXX XXXXX
------------------------------- ------------------------------------
(Signature) Xxxxxxx Xxxxx Xxxxx
Xxxx X. Xxxxx June 15, 1999
----------------------------------- ------------------------------------
(Printed) Date
Chairman - Executive Committee
Board of Directors
-----------------------------------
(Office)
June 15, 1999
-----------------------------------
(Date)
-4-
26
EXHIBIT D
4/01/98
FLOWSERVE CORPORATION
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of ________,
1999 by and between FLOWSERVE CORPORATION, a New York corporation (the
"Company"), and _____________________ ("Indemnitee") is being executed under
the following circumstances:
A. Indemnitee is a director or officer of the Company and in such
capacity is performing a valuable service for the Company.
B. The Company recognizes that it is essential to attract and retain
as directors and officers the most capable persons available.
C. The Company and the Indemnitee also recognize that there is an
increased risk of litigation and other claims being asserted
against directors and officers of public companies in today's
environment.
D. Basic protection against undue risk of personal liability of
directors or officers is achieved through a combination of
(i) inclusion in the Company's Certificate of Incorporation of
statutorily permitted limitations on liability,
(ii) directors and officers' liability insurance, and
(iii) indemnification by the Company, to the extent permitted by
law, against liabilities arising from service as a director
or officer.
E. Section 721 of the New York Business Corporation Law provides that
the indemnification rights granted therein shall not be exclusive.
As permitted by such Section, the Bylaws of the Company authorize
the Company to enter into individual indemnification agreements
with directors and officers.
F. In recognition of Indemnitee's need for substantial protection
against personal liability and in order to enhance Indemnitee's
continued service to the Company in an effective manner, the
Company and Indemnitee desire to enter into this Agreement to
provide for the indemnification of Indemnitee to the full extent
permitted by law.
1
27
NOW, THEREFORE, in consideration of Indemnitee continuing to serve the
Company directly, or, at its request, with another enterprise, the parties
hereto agree as follows:
1. Certain Definitions. For purposes of this Agreement the following
terms have the meaning given here.
(a) "Board" means the Board of Directors of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of
which indemnification is sought by Indemnitee.
(c) "Effective Date" means the date of this Agreement.
(d) "Expenses" include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees, and
all other disbursements or expenses of the types customarily
incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing
to be a witness in a Proceeding.
(e) "Good Faith" means Indemnitee having acted in good faith and
in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with
respect to any criminal Proceeding, having had no reasonable
cause to believe Indemnitee's conduct was unlawful.
(f) "Indemnifiable Event" means any event or occurrence related
to the fact that Indemnitee is or was a director or officer
of the Company, or is or was serving at the request of the
Company as a director, trustee, officer, employee, agent or
representative of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any
such capacity.
(g) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been,
retained to represent: (i) the Company or Indemnitee in any
matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under
the applicable
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standards of professional conduct then prevailing, would have
a conflict of interest in representing either the Company or
Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
(h) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation,
administrative hearing or any other actual, threatened or
completed proceeding whether civil, criminal, administrative
or investigative, other than one initiated by Indemnitee. For
purposes of the foregoing sentence, a "Proceeding" shall not
be deemed to have been initiated by Indemnitee where
Indemnitee seeks pursuant to this Agreement to enforce
Indemnitee's rights under this Agreement.
2. Term of Agreement. This Agreement shall continue until and
terminate upon the later of:
(i) ten years after the date that Indemnitee shall have
ceased to serve as a director, officer, employee,
agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which
Indemnitee served at the request of the Company, or
(ii) the final termination of all pending Proceedings in
respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder
and of any proceeding commenced by Indemnitee pursuant
to Section 9 of this Agreement relating thereto.
3. Services by Indemnitee; Notice of Proceedings.
(a) Services. Indemnitee agrees to serve as a director and/or
officer. Indemnitee may at any time and for any reason resign
from such position (subject to any other contractual
obligation or any obligation imposed by operation of law).
(b) Notice of Proceeding. If not otherwise known to the Company,
Indemnitee agrees promptly to notify the Company in writing
upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating
to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder.
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4. Scope of Indemnification.
(a) In General. In the event Indemnitee becomes a party to or
witness or other participant in, or is threatened to be made
a party to or witness or other participant in, a Proceeding
as a result of (or arising in part out of) an Indemnifiable
Event, the Company shall indemnify and advance Expenses to
Indemnitee as provided in this Agreement and to the fullest
extent permitted by law.
(b) Authorized Indemnification. If, as a result of an
Indemnifiable Event, Indemnitee is, or is threatened to be
made, a party to any Proceeding, including a Proceeding by or
in the right of the Company, upon determination of
entitlement to indemnification and authorization in the
manner provided for in Section 7 of this Agreement,
Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf
in connection with such Proceeding or any claim, issue or
matter therein; provided, however, that no indemnification
may be made to or on behalf of Indemnitee if such
indemnification is prohibited by law.
(c) Indemnification of a Party who is Wholly or Partly
Successful. Notwithstanding any other provision of this
Agreement and without the need for any determination of
entitlement to indemnification or authorization pursuant to
Section 7 of this Agreement, to the extent that Indemnitee
is, as a result of an Indemnifiable Event, a party to and is
successful, on the merits or otherwise, in any Proceeding,
Indemnitee shall be indemnified to the maximum extent
permitted by law against all Expenses, judgments, penalties,
fines, and amounts paid in settlement, actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf
in connection therewith. For purposes of this Agreement, and
without limitation, Indemnitee shall be deemed to have been
successful, on the merits or otherwise, if, (i) the final
adjudication or determination of the Proceeding fails to
assess liability for money damages against Indemnitee, or
(ii) the settlement, compromise, or other disposition of the
Proceeding does not result in the liability of Indemnitee for
any money damages.
If Indemnitee is not wholly successful in any Proceeding but
is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such
Proceeding, the Company shall indemnify Indemnitee to the
maximum extent permitted by law against all Expenses,
judgments, penalties,
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fines, and amounts paid in settlement, actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf
in connection with each claim, issue or matter as to which
Indemnitee was successful, on the merits or otherwise.
In the event that Indemnitee seeks indemnification pursuant
to this Section 4(c), such indemnification shall be made
within ten days after submission of a written request
therefor, provided that Indemnitee has verified that he was
successful, on the merits or otherwise, by providing to the
Company such information and documentation as may be
reasonably required under Section 6 of this Agreement.
5. Advancement of Expenses. The Company shall advance all reasonable
Expenses which, as a result of an Indemnifiable Event, were
incurred by or on behalf of Indemnitee in connection with any
Proceeding within ten days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or
advances, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence
the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of
Indemnitee to repay any Expenses upon a finding or final
adjudication in such Proceeding that Indemnitee's acts were
committed in bad faith or were the result of active and deliberate
dishonesty or that Indemnitee personally gained in fact a financial
profit or other advantage to which he was not legally entitled. Any
advance and undertakings to repay pursuant to this Section 5 shall
be unsecured and interest free.
6. Initial Request for Indemnification. To obtain indemnification
under this Agreement, Indemnitee shall submit to the Secretary of
the Company a written request, including therein or therewith such
documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine the extent to
which Indemnitee is entitled to indemnification. The Secretary of
the Company shall promptly notify the Board in writing that
Indemnitee has requested indemnification.
7. Procedures for Determination of Entitlement to Indemnification.
(a) Method of Determination. A determination (if required by
applicable law or by this Agreement) with respect to
Indemnitee's entitlement to indemnification shall be made as
follows:
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(i) The determination shall be made by the Board by a
majority vote of a quorum consisting of Disinterested
Directors.
(ii) In the event that a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if
obtainable, a quorum of Disinterested Directors so
directs, the determination shall be made by
Independent Counsel in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee.
(iii) If the Board or Independent Counsel fails to make such
determination within 120 days after submission by
Indemnitee of a request for indemnification (or, in
the event of objection to the selection of Independent
Counsel in accordance with clause 7(c)(ii), within 120
days after final selection or appointment of
Independent Counsel), such failure shall be deemed to
constitute a determination by the Board or by
Independent Counsel, as the case may be, that
Indemnitee is entitled to the indemnification so
requested.
(b) Standard for Determination. In the event that a determination
of entitlement to indemnification is required under this
Agreement or under applicable law, whether such determination
is made by the Board or by Independent Counsel, the
Indemnitee shall be deemed to be entitled to indemnification
if Indemnitee acted in Good Faith. For purposes of this
Agreement, Indemnitee shall be presumed to have acted in Good
Faith unless there is a specific finding, either pursuant to
this Section or by final adjudication in any Proceeding, that
Indemnitee's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material
to the cause of action so adjudicated, or that Indemnitee
personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
(c) Selection, Payment, and Discharge of Independent Counsel. In
the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 7(a)
of this Agreement, the Independent Counsel shall be selected,
paid, and discharged in the following manner:
(i) The Independent Counsel shall be selected by the
Board, and the Company shall give written notice to
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Indemnitee advising Indemnitee of the identity of the
Independent Counsel so selected.
(ii) Indemnitee may, within seven days after such written
notice of selection has been given, deliver to the
Company a written objection to such selection. Such
objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in
Section 1(g) of this Agreement, and the objection
shall set forth with particularity the factual basis
of such assertion. Absent a proper and timely
objection, the person so selected shall act as
Independent Counsel. If such written objection is
made, the Independent Counsel so selected may not
serve as Independent Counsel unless and until a court
has determined that such objection is without merit.
(iii) Either the Company or Indemnitee may petition a court
of competent jurisdiction if the parties have been
unable to agree on the selection of Independent
Counsel within 30 days after submission by Indemnitee
of a written request for indemnification pursuant to
Section 6 of this Agreement. Such petition may request
a determination whether an objection to the Company's
selection is with or without merit and/or seek the
appointment as Independent Counsel of a person
selected by the Court or by such other person as the
Court shall designate. A person so appointed shall act
as Independent Counsel under this Section 7.
(iv) The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such
Independent Counsel in connection with acting pursuant
to this Agreement, and the Company shall pay all
reasonable fees and expenses incident to the
procedures of this Section 7, regardless of the manner
in which such Independent Counsel was selected or
appointed.
(v) Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 9 of this
Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such
capacity (subject to the applicable standards of
professional conduct then prevailing).
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(d) Cooperation. Indemnitee shall cooperate with the person,
persons or entity making the determination with respect to
Indemnitee's entitlement to indemnification under this
Agreement, including providing to such person, persons or
entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected
from disclosure and which is reasonably available to
Indemnitee and reasonably necessary to such determination.
Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with
the person, persons or entity making such determination shall
be borne by the Company (irrespective of the determination as
to Indemnitee's entitlement to indemnification), and the
Company hereby indemnifies and agrees to hold Indemnitee
harmless therefrom.
(e) Payment. If it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within
ten (10) days after such determination.
(f) Non-Applicability; Indemnification under Section 4(c). No
determination of entitlement to indemnification or
authorization of indemnification shall be required, and this
Section 7 shall have no applicability whatsoever, in the
event that Indemnitee seeks indemnification, pursuant to
Section 4(c) hereof, as a result of an Indemnifiable Event in
connection with any Proceeding, or any claim, issue or matter
therein, as to which Indemnitee has been successful, on the
merits or otherwise. In such event, indemnification shall be
made, within ten days after request by Indemnitee, in
accordance with Section 4(c) hereof.
8. Presumptions and Effect of Certain Proceedings.
(a) Burden of Proof. If a determination with respect to
entitlement to indemnification is required under this
Agreement, the person or persons or entity making such
determination shall presume that Indemnitee acted in Good
Faith and is entitled to indemnification under this
Agreement, and the Company shall have the burden of proof to
overcome that presumption by clear and convincing evidence in
connection with the making by any person, persons or entity
of any determination contrary to that presumption.
(b) No Presumption. For purposes of this Agreement, the
termination of any Proceeding by judgment, order, settlement
(whether with or without court approval) or conviction, or
upon a
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plea of nolo contendere, or its equivalent, shall not create
a presumption that Indemnitee did not act in Good Faith or
meet any particular standard of conduct or have any
particular belief or that a court has determined that
indemnification is not permitted by applicable law.
(c) Actions of Others. The knowledge and/or actions, or failure
to act, of any director, officer, agent or employee of the
Company shall not be imputed to Indemnitee for purposes of
determining the right to indemnification under this
Agreement.
9. Remedies of Indemnitee.
(a) Application. This Section 9 shall apply in the event of a
Dispute. For purposes of this Agreement, "Dispute" means any
of the following:
(i) A determination is made pursuant to Section 7 of this
Agreement that Indemnitee is not entitled to
indemnification under this Agreement, and Indemnitee
gives to the Company written notice of objection to
such determination within 90 days after his receipt of
written notice of such determination.
(ii) Advancement of Expenses is not timely made pursuant to
Section 5 of this Agreement.
(iii) Payment of indemnification is not made pursuant to
Section 7(e) of this Agreement within ten days after a
determination has been made (or is deemed to have been
made) that Indemnitee is entitled to indemnification
pursuant to Section 7(a) of this Agreement.
(iv) Payment of indemnification is not made within ten days
after a written request for indemnification pursuant
to Section 4(c) of this Agreement.
(b) Adjudication. In the event of a Dispute, Indemnitee shall be
entitled to an adjudication in an appropriate court of the
State of New York or in any other court of competent
jurisdiction, of Indemnitee's entitlement to such
indemnification or advancement of Expenses. Alternatively,
Indemnitee, at Indemnitee's option, may seek an award in
arbitration to be conducted in Dallas, Texas (or, at
Indemnitee's option, if Dallas,
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Texas is not then the location of the Company's executive
offices, in the city in which the Company's executive offices
are then located) by a single arbitrator pursuant to the
rules of the American Arbitration Association. The Company
shall not oppose Indemnitee's right to seek any such
adjudication or award in arbitration.
(c) De Novo Review. In the event that a determination shall have
been made pursuant to Section 7 of this Agreement that
Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section
9 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be
prejudiced by reason of the prior adverse determination. In
any such proceeding or arbitration, the Company shall have
the burden of proving by clear and convincing evidence that
Indemnitee is not entitled to indemnification or advancement
of Expenses, as the case may be.
(d) Company Bound. If a determination shall have been made or be
deemed to have been made pursuant to Section 7 of this
Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial
proceeding or arbitration absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for
indemnification, or (ii) a prohibition of such
indemnification under applicable law.
(e) Procedures Valid. The Company shall be precluded from
asserting in any judicial proceeding or arbitration commenced
pursuant to this Section 9 that the procedures and
presumptions of this Agreement are not valid, binding and
enforceable.
(f) Expenses of Adjudication. In the event that Indemnitee seeks
a judicial adjudication or an award in arbitration to enforce
Indemnitee's rights under, or to recover damages for breach
of, this Agreement, Indemnitee shall be entitled to recover
from the Company, and shall be indemnified by the Company
against, any and all Expenses actually and reasonably
incurred by Indemnitee in such adjudication or arbitration,
but only if Indemnitee prevails therein. If it shall be
determined in such adjudication or arbitration that
Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the
Expenses incurred by Indemnitee in
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connection with such adjudication or arbitration shall be
appropriately prorated.
10. Non-Exclusivity; Subrogation.
(a) Non-exclusivity. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may now or
hereafter have to indemnification by the Company. The Company
hereby undertakes to use its best efforts to assist
Indemnitee, in all proper and legal ways, to obtain any and
all such indemnification benefits to which Indemnitee is
entitled.
(b) Subrogation. In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of Indemnitee,
who shall execute all papers required and take all action
necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring
suit to enforce such rights.
(c) No Duplicative Payment. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that Indemnitee
has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
11. General Provisions.
(a) Successors and Assigns. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to
the benefit of Indemnitee and Indemnitee's heirs, executors
and administrators.
(b) Interpretation of Agreement; Severability. It is the
intention of the parties to this Agreement to provide for
indemnification under all circumstances where to do so would
not violate applicable law and the terms and provisions of
this Agreement shall be construed and interpreted consistent
with that intention. Nonetheless, if any provision, or any
portion of a provision, of this Agreement or any
indemnification under this Agreement shall for any reason be
determined by any court of competent jurisdiction to be
invalid, unlawful or unenforceable under current or future
laws, such provision or portion thereof shall be fully
severable and the remaining provisions of this Agreement
shall not otherwise be affected thereby but will remain in
full force and effect and, to the fullest extent possible,
shall be construed so as
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to give effect to the intent manifested by the provision or
portion thereof held invalid, illegal or unenforceable.
(c) No Adequate Remedy. The parties declare that it is impossible
to measure in money the damages which will accrue to either
party by reason of a failure to perform any of the
obligations under this Agreement. Therefore, if either party
shall institute any action or proceeding to enforce the
provisions hereof, such party against whom such action or
proceeding is brought hereby waives the claim or defense that
such party has an adequate remedy at law, and such party
shall not urge in any such action or proceeding the claim or
defense that the other party has an adequate remedy at law.
(d) Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the
construction thereof.
(e) Waiver. Failure to enforce any term or condition of this
Agreement shall not be deemed a waiver of that term or
condition for the future, nor shall any specific waiver of a
term or condition at one time be deemed a waiver of such term
or condition for the future.
(f) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be
deemed to have been duly given if (i) delivered by hand to
the party to whom such notice or other communication shall
have been directed, or (ii) deposited in the United States
Mail, registered or certified, postage prepaid, addressed to
the party for whom it is intended, at the address of such
party as specified in this Agreement:
If to Indemnitee, to:
As shown with Indemnitee's Signature below.
If to the Company to:
Flowserve Corporation
000 Xxx Xxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Attention: Corporate Secretary
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or to such other address as may have been furnished to
Indemnitee by the Company or to the Company by Indemnitee, as
the case may be.
(g) Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with,
the laws of the State of New York as applicable to contracts
made and wholly performed therein.
(h) Entire Agreement; Amendments and Modifications. This
instrument embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior
discussions, negotiations and agreements are merged herein.
No modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
FLOWSERVE CORPORATION
By
--------------------------------------
Xxxxxxx X. Xxxxxxx
Chairman and Chief Executive Officer
INDEMNITEE
-----------------------------------------
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