This Employment Agreement ("Agreement") is entered into this 15th day
of June , 1999, between Flowserve Corporation ("Company") and Charles Scott
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.
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,
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
(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).
(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
(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.
(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
(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
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
(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
(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
(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
(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
(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
(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
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.
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.
(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
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
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:
Charles Scott Greer
160 Chesterfield Road
Bloomfield Hills, MI 48304
If to the Company or Board:
222 W. Las Colinas Blvd., Suite 1500
Irving, TX 75039
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.
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.
By: /s/ Hugh Coble
Chairman - Executive Committee
Title: Board of Directors
/s/ Ronald F. Shuff /s/ Charles Scott Greer
Signature Ronald F. Shuff Charles Scott Greer
Vice President - Secretary
and General Counsel