DI INDUSTRIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") made as of
September 17, 1996 by and between DI INDUSTRIES, INC., a corporation organized
under the laws of the State of Texas (the "Corporation"), and XXXXXXX X. XXXXXX,
XX., an individual residing in the State of Texas (the "Optionee");
WITNESSETH:
WHEREAS, as an inducement to the Optionee to enter into a contract of
employment with the Corporation under the terms of an employment Agreement dated
of even date herewith by and between the Optionee and the Corporation (the
"Employment Agreement") and to provide Optionee with additional incentive to
further the business of the Corporation, the Corporation has agreed to grant the
Optionee options to purchase shares of common stock, $0.10 par value ("Common
Stock"), of the Corporation; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement the Corporation intends to carry
out the purposes set forth in the 1996 Employee stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective as of July 29, 1996 and the shareholders of
the Corporation effective as of August 27, 1996; and
WHEREAS, it is intended that the options granted to Optionee pursuant to
this Agreement constitute incentive stock options under Section 422 of the
Internal Revenue code of 1986, as amended (the "Code"); and
WHEREAS, the Corporation and the Optionee desire to set forth the terms and
conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee an option (the "Option") to
purchase all or any part of an aggregate number of 150,000 shares of Common
Stock (such shares, as increased or decreased in accordance with Section 8
hereof, being referred to hereinafter as the "Option Shares") at an exercise
price of $1.750 per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. The Option shall be exercisable by Optionee as to
twenty percent (20%) of the Option Shares on December 31, 1996, as to an
additional twenty percent (20%) of the Option Shares, one (1) year after the
date of this Agreement, as to an additional twenty percent (20%) of the Option
Shares, two (2) years after the date of this Agreement, as to an additional
twenty percent
(20%) of the Option Shares, three (3) years after the date of this Agreement,
until the fourth anniversary of the date of this Agreement, after which time the
Option shall be exercisable in full. The Option shall expire and terminate as to
any Option Shares not purchased by the Optionee on or before the tenth
anniversary of the date of this Agreement (the "Expiration Date"), subject to
earlier termination as set forth herein.
Except as provided in Section 10 hereof, the Option may not be exercised at
any time unless the Optionee shall have been in the continuous employ of the
Corporation, or a parent or a subsidiary corporation, from the date hereof to
the date of the exercise of the Option.
3. METHOD OF EXERCISING THE OPTION. The Option shall be exercised by the
Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee is exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to Annex I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the Optionee
is entitled to purchase, which Exercise Price must be in the form of (a) cash or
a cashier's or certified check payable to the order of the Corporation, or (b)
the tender to the Corporation of such number of shares of Common Stock owned by
the Optionee having an aggregate fair market value as of the date of exercise
that is not greater than the total Exercise Price for the shares of Common stock
with respect to which the Option is being exercised and by paying the remaining
amount of the Exercise Price.
4. TRANSFERABILITY OF OPTIOn. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 10
of this Agreement, the Option shall be exercisable (i) only by the Optionee
during his lifetime, or (ii) in the event of his death, by his heirs,
representatives, distributees, or legatees in accordance with his will or the
laws of descent and distribution (but only to the extent that the Option would
be exercisable by the Optionee under Section 2).
5. INVESTMENT REPRESENTATION. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with a view toward resale or distribution.
6. SECURITIES LAW REQUIREMENTS; LEGENDS. The Optionee agrees and
understands that the Option Shares may be restricted securities as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, as now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and
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agrees that, unless issued pursuant to an effective registration statement under
the Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
BLUE SKY LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED OR
TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY
THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE,
ASSIGNMENT OR TRANSFER."
In addition, the following legend shall be placed on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY
THE TERMS OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE
CORPORATION, DATED JULY 29, 1996, WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION AND A COPY OF WHICH WILL
BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
7. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any rights as a
shareholder with respect to any of the Option Shares until the date of issuance
by the Corporation to the Optionee of a stock certificate representing such
Option Shares. Except as otherwise provided in Section 8 hereof, the Optionee
shall not be entitled to any dividends, cash or otherwise, or any adjustment of
the Option Share for such dividends, if the record date therefor is prior to the
date of issuance of such stock certificate. Upon valid exercise of the Option by
the Optionee, the Corporation agrees to cause a valid stock certificate for the
number of Option Shares then purchased to be issued and delivered to the
Optionee within seven (7) business days thereafter.
8. CORPORATE PROCEEDINGS OF THE CORPORATION.
(a) The existence of the Option shall not affect in any way the right
of power of the corporation or its officers, directors and shareholders, as the
case may be, to (i) make or authorize any adjustments, recapitalization,
reorganization or other changes in the capital structure or business of the
Corporation, (ii) participate in any merger or consolidation of the corporation,
(iii) issue any Common stock, bonds, debentures, preferred or prior preference
stock or any other securities affecting the Common Stock or the rights of
holders thereof, (iv) dissolve or liquidate the Corporation, (v) sell or
transfer all or any part of the assets or business of the Corporation, or (vi)
perform any other corporate act or proceedings, whether of a similar character
or otherwise.
(b) If the Corporation merges into or with or consolidates with (such
events collectively referred herein as a "Merger") any corporation or
corporations and is not the
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surviving corporation, then the surviving corporation may assume the Option or
substitute a new option of the surviving corporation for the Option, provided,
however, that the excess of the aggregate fair market value of the securities
subject to the Option immediately after such assumption, or the new option
immediately after such substitution, over the aggregate Exercise Price of such
shares must be, based upon a good faith determination by the Board of Directors
of the Corporation, not less than the excess of the aggregate fair market value
of the Common Stock subject to the Option immediately before such substitution
or assumption over the aggregate Exercise price of such Common Stock.
(c) In the event that the surviving corporation does not utilize the
provisions of (b) above, or in event of a dissolution or liquidation of the
Corporation, the Corporation shall cause written notice of such Merger or
dissolution or liquidation (and the material terms and conditions thereof) to be
delivered to the Optionee at least ten (10) days prior to the proposed effective
date (the "Effective Date") of such event. The Optionee shall be entitled to
exercise the Option until the Effective Date, or until the Expiration Date if
earlier. To the extent that the merger or liquidation is consummated after the
Effective Date, the Option shall terminate and the Corporation shall have no
further obligations of any type hereunder. The provisions of this paragraph
shall not apply to any merger or reorganization, the principal purpose of which
is to change the jurisdiction of the domicile of the Corporation.
(d) If, while the Option is outstanding, the Corporation shall effect
a subdivision or consolidation of the share of Common stock or other capital
readjustment, the payment of a common stock dividend, or other increase or
reduction of the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, then (i) in the event of
an increase in the number of shares of Common Stock outstanding, the number of
Option Shares shall be proportionately increased, and the per share Exercise
Price shall be proportionately reduced, and (ii) in the event of a reduction in
the number of shares of Common Stock outstanding, the number of Option Shares
shall be proportionately reduced, and the per share Exercise Price shall be
proportionately increased. No fractional share of Common Stock shall be issued
upon any such exercise and the Exercise Price shall be appropriately reduced on
account of any fractional share not issued.
(e) The issuance by the Corporation of shares of stock of any class of
securities convertible into shares of stock of any class, including Common
Stock, for cash, property, labor or services rendered, either upon direct sale
or upon the exercise of rights, options, or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Corporation convertible into
such shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Option Shares or the
Exercise Price.
9. REGISTRATION RIGHTS. The Optionee shall have no registration rights with
respect to the Option Shares.
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10. TERMINATION.
(a) If the Optionee for any reason whatsoever, other than death or
permanent and total disability, as defined in (b) below, ceases to be employed
by the Corporation, or a parent or subsidiary corporation of the Corporation,
and prior to such cessation, the Optionee was employed at all times from the
date of the granting of the Option until the date of such cessation, the Option
must be exercised by the Optionee (to the extent that the Optionee is entitled
to do so at the date of cessation) within three (3) months following the date of
cessation of employment, subject to the Expiration Date; provided, however, that
if the Optionee is terminated for cause (as defined in the Employment
Agreement), the Option will immediately terminate.
(b) If the Optionee becomes permanently and totally disabled, as
hereinafter defined, while employed by the Corporation or a parent or subsidiary
corporation of the Corporation, and prior to such disability the Optionee was
employed at all times from the date of the granting of the Option until the date
of disability, the Option must be exercised by the Optionee (to the extent that
the Optionee is entitled to do so at the date of disability) at any time within
one (1) year after the date of disability or the Expiration Date, whichever is
earlier.
"Permanently and totally disabled" means being unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months. Such determination of permanent and total disability must be made in
accordance with the requirements of Section 22(e)(3), and applicable
regulations, of the Code, or any other applicable method necessary for the
continued qualification of this Plan under Section 422 of the Code, or any
equivalent successor provision, if applicable. In the absence of any specific
requirements for this determination, the decision of the Corporation, as aided
by any physicians designated by the Corporation shall be conclusive and the
Corporation shall send written notice to the Optionee of the determination that
the Optionee has become permanently and totally disabled.
(c) In the event that the Optionee dies while employed by the
Corporation or a parent or subsidiary corporation of the Corporation, and prior
to death the Optionee was employed at all times from the date of the granting of
the Option until the date of death, the Option must be exercised (to the extent
that the Optionee is entitled to do so at the date of death) by a legatee or
legatees of the Optionee under the Optionee's will, or by the Optionee's
personal representatives or distributes, at any time within one (1) year after
the date of death or the Expiration Date, whichever is earlier, and if no so
exercised, the Option shall thereupon terminate.
Nothing in (a), (b) or (c) shall extend the time for exercising the
Option granted pursuant to this Agreement beyond the Expiration Date.
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11. DISPOSITION OF STOCK AFTER EXERCISE OF OPTION. Notwithstanding any
other provision of this Agreement to the contrary, in consideration of the
granting of the Option, the Optionee agrees (i) not to dispose of any Option
Shares within two (2) years after the date of this Agreement nor within one (1)
year after the date of exercise of the Option and (ii) not to dispose of any
Option Shares thereafter without the prior approval of the Corporation unless
such shares have been registered under the Securities Act.
12. NOTICES. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received through U.S. Express Mail or any private
express service (as evidenced by a written receipt), or, if earlier, and
regardless of whether actually received (except where receipt is specified in
this Agreement), four (4) days following deposit in a regularly maintained
receptacle for the United States mail, registered or certified, return receipt
requested, postage fully prepaid, addressed to the addressee at its address set
forth below or at such other address as such party may have specified
theretofore by notice delivered in accordance with this Section:
If to the Corporation: DI Industries, Inc.
000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: President
If to Optionee: Xxxxxxx X. Xxxxxx, Xx.
0000 Xxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000
13. TRANSFERABILITY; BINDING EFFECT. The Option shall be transferable only
as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit or, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and the
understanding between the Corporation and the Optionee relating to the subject
matter hereof.
15. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean any present or future corporation which would be a
"parent corporation" or a "subsidiary corporation" of the Corporation, as such
term is defined in Section 425 of the Internal Revenue Code.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
17. CAPTIONS. The section and paragraph headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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18. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CORPORATION
DI INDUSTRIES, INC.
By: /s/ X.X. XXXXXXXX
Name: X.X. Xxxxxxxx
Title: President & CEO
OPTIONEE:
/s/ XXXXXXX X. XXXXXX, XX.
Xxxxxxx X. Xxxxxx, Xx.
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ACKNOWLEDGMENT OF SPOUSE TO
TERMS OF INCENTIVE STOCK OPTION AGREEMENT
I, Xxxxxx Xxxxxx, am the spouse of Xxxxxxx X. Xxxxxx, Xx. ("Optionee"), and
I am fully aware of, understand, and fully consent and agree to the provisions
of the Incentive stock Option Agreement, dated September 17, 1996 executed by
Optionee and DI Industries, Inc. (The "Corporation"). I understand the binding
effect of this Agreement and its binding effect upon any interest, community or
otherwise, I may now or hereafter own, and I agree that the termination for any
reason of my marital relationship with Optionee shall not have the effect of
removing any stock of the Corporation otherwise subject to the terms of this
Agreement from the coverage hereof.
Signed this day of September 17, 1996.
/s/ XXXXXX XXXXXX
Xxxxxx Xxxxxx
Spouse of Xxxxxxx X. Xxxxxx, Xx.
ANNEX I
DI INDUSTRIES, INC.
EXERCISE NOTICE
DI Industries, Inc.
000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Gentlemen:
I hereby acknowledge that I am acquiring shares ("Shares") of common stock,
$0.10 par value, of DI Industries, Inc. ("Corporation') pursuant to that certain
Incentive Stock Option Agreement dated September 17, 1996 (the "Agreement").
I understand that the Shares have not been registered under the Securities
Act of 1933 (the "Act") on the grounds that the transfer to me is exempt from
registration pursuant to Section 4(2) of the Act.
By executing this letter, I represent that I am acquiring the Shares for
investment for my own account and not as a nominee or agent or with a view to,
or for resale in connection with, any distribution of such Shares within the
meaning of the Act. I further represent that I do not have any contract,
undertaking, agreement, or arrangement with any person to sell, transfer or
grant participation in any of the Shares to any third persons.
By executing this letter, I also represent that, unless indicated
otherwise, as of the date of the Agreement I did not own, or was attributed as
owning under the Internal Revenue Code of 1986, stock of the Corporation
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Corporation or of its parent or any subsidiary
corporations.
I understand that I may experience adverse tax consequences if I dispose of
the Shares within two year after the date of the Agreement or dispose of the
Shares within one year from the date of receiving them.
I also understand that I may not dispose of the Shares within two years
after the date of receiving them and that, unless the Shares are then registered
under the Act, that I may only dispose of the Shares thereafter with the prior
written consent of the Corporation unless the Shares have been registered
pursuant to the Act.
I also understand that, unless the Shares are issued pursuant to an
effective registration statement under the Act, a legend substantially in the
form set below shall be placed on each certificate representing the Shares and
on any substitutes thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
BLUE SKY LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED OR
TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY
THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE,
ASSIGNMENT OR TRANSFER."
I also understand that the Corporation may issue stop transfer instructions
to the Corporation's transfer agent, if any, with respect to the Shares or, if
the Corporation transfers its own securities, it may make a notation in the
appropriate records that the Shares cannot be transferred without an opinion of
counsel in the form required by this paragraph.
I also understand that a legend as set forth below shall be placed on each
certificate representing the Shares or any substitutes thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY
THE TERMS OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE
CORPORATION, DATED JULY 29, 1996, WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION AND A COPY OF WHICH WILL
BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
I understand the nature of the Shares and the financial risks thereof. I do
not desire any further information or data concerning the Corporation.
Very truly yours,
Xxxxxxx X. Xxxxxx, Xx.
Date:
