EXHIBIT 10.2

 

EMPLOYMENT AGREEMENT

 

BETWEEN

 

STEPHEN LIGHT

 

AND

 

FLOW INTERNATIONAL CORPORATION

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EMPLOYMENT AGREEMENT

BETWEEN

STEPHEN LIGHT

AND

FLOW INTERNATIONAL CORPORATION

 

Table of Contents

 

        

Page

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1.

 

Employment

  

1

2.

 

Period of Employment

  

1

3.

 

Duties During the Period of Employment

  

1

   

3.1    Duties.

  

1

   

3.2    Scope.

  

1

4.

 

Compensation and Other Payments

  

2

   

4.1    Salary

  

2

   

4.2    Annual Bonuses

  

2

   

4.3    Initial Equity Awards.

  

2

   

4.4    Performance-Based Equity Awards

  

3

   

4.5    Inducement

  

4

   

4.6    Acceleration of Distribution of Shares

  

4

   

4.7    Payment of Professional Fees.

  

5

5.

 

Other Executive Benefits

  

5

   

5.1    Regular Reimbursed Business Expenses

  

5

   

5.2    Benefit Plans

  

5

   

5.3    Relocation

  

5

   

5.4    Perquisites

  

5

   

5.5    Vacation

  

5

6.

 

Termination

  

6

   

6.1    Death

  

6

   

6.2    Disability

  

6

   

6.3    By the Company for Cause

  

6

   

6.4    By Executive for Good Reason

  

7

   

6.5    Other than for Cause or Good Reason

  

7

   

6.6    Notice of Termination

  

7

   

6.7    Date of Termination

  

7

 

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Table of Contents

(continued)

 

         

Page

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7.

  

Obligations of the Company Upon Termination

  

7

    

7.1      Termination by Death, Disability, by the Company for Cause or by
Resignation without Good Reason

  

7

    

7.2      Resignation with Good Reason or Termination without Cause not related
to a Change in Control

  

8

    

7.3      Exclusive Rights

  

9

8.

  

Change in Control

  

9

    

8.1      Definition

  

9

    

8.2      Termination of Employment without Cause or for Good Reason after a
Change in Control

  

10

9.

  

Mitigation

  

11

10.

  

Indemnification

  

11

11.

  

Restrictive Covenants

  

12

    

11.1    Confidential Information

  

12

    

11.2    Non-Competition; Non-Solicitation

  

12

12.

  

Remedy for Violation of Section 11; Severability

  

13

    

12.1    Breach

  

13

    

12.2    Severability

  

13

13.

  

Withholding

  

13

14.

  

Arbitration

  

13

15.

  

Successors

  

14

16.

  

Representations

  

14

17.

  

Miscellaneous

  

15

 

 

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EMPLOYMENT AGREEMENT

 

THIS AGREEMENT (“Agreement”), by and between FLOW INTERNATIONAL CORPORATION, a
Washington corporation (the “Company”), and STEPHEN LIGHT (the “Executive”) is
made and is effective as of this 25th day of November, 2002 (the “Employment
Date”). In consideration of the mutual covenants set forth herein, the Company
and the Executive hereby agree as follows:

 

1. Employment. The Company hereby agrees to employ the Executive, and the
Executive agrees to serve the Company, in the capacities described herein during
the Period of Employment (as defined in Section 2 of this Agreement), in
accordance with the terms and conditions of this Agreement.

 

2. Period of Employment. The term “Period of Employment” shall mean the period
which commences on the Employment Date and, unless earlier terminated pursuant
to Section 6, ends on April 30, 2005; provided, however, that the Period of
Employment shall automatically be extended on a day-by-day basis effective on
and after May 1, 2003 (so that the remaining term shall always be two (2) years)
until such date as either the Company or the Executive shall have terminated
this automatic extension provision by giving written notice to the other.

 

3. Duties During the Period of Employment.

 

3.1 Duties. For the period beginning on the Employment Date and ending on
December 31, 2002, the Executive shall render such services to the Company as
the Company and the Executive mutually agree. Effective as of January 1, 2003
(the “Commencement Date”), and continuing through the Period of Employment, the
Executive shall be employed as the President and Chief Executive Officer of the
Company with overall charge and responsibility for the business and affairs of
the Company. The Executive shall report directly to the Company’s Board of
Directors (the “Board”) and to the Chairman of the Board and shall perform such
duties as the Executive shall reasonably be directed to perform by the Board.
The Company shall make all reasonable efforts to cause the Executive to be
elected to the Board not later than the 2003 annual meeting of the Company’s
stockholders. On or prior to the first anniversary of the Commencement Date, the
Board shall consider whether it is then appropriate to appoint the Executive as
the Chairman of the Board in light of the Company’s and the Executive’s
performance following the Commencement Date, then-current corporate governance
practices, and such other factors as the Board, in its discretion, shall deem
appropriate.

 

3.2 Scope. From and after the Commencement Date and continuing through the
Period of Employment, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive shall devote substantially all of
his business time and attention to the business and affairs of the Company. It
shall not be a violation of this Agreement for the Executive to (i) serve on
civic or charitable boards or committees, (ii) deliver lectures, fulfill
speaking engagements or teach occasional courses or seminars at educational
institutions, or (iii) manage personal investments, so long as such activities
under clauses (i), (ii) and (iii) do not interfere, in any significant respect,
with the Executive’s responsibilities hereunder.

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4. Compensation and Other Payments.

 

4.1 Salary. For the period beginning on the Employment Date and ending on
December 31, 2002, the Company shall pay the Executive a base salary (“Base
Salary”) at the rate of ten thousand dollars ($10,000) per month, payable in
accordance with the Company’s executive payroll practice. From and after the
Commencement Date and continuing through the Period of Employment, the
Executive’s Base Salary shall increase to an annualized rate of not less than
four hundred and fifty thousand dollars ($450,000) per year (the “Base Salary”).
The Executive’s Base Salary shall be paid in accordance with the Company’s
executive payroll practice. The Base Salary shall be reviewed by the
Compensation Committee of the Board of the Company (the “Committee”) as soon as
practicable after the end of each full fiscal year during the Period of
Employment, beginning with the fiscal year which commences on May 1, 2003. Based
upon such reviews, the Committee may increase, but shall not decrease, the Base
Salary. Any increase in Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement.

 

4.2 Annual Bonuses. Beginning with the Company’s fiscal year which commences on
May 1, 2003, as soon as practicable after the end of each fiscal year, the
Committee shall review the Executive’s performance under this Agreement as part
of the Executive’s participation under the appropriate bonus plan of the Company
as in effect from time to time. The performance measures applicable to the
Executive’s bonus opportunity for the fiscal year of the Company beginning on
May 1, 2003 shall be set by reasonable, good faith agreement of the Board and
the Executive within ninety (90) days of the Commencement Date. The performance
measures applicable to the Executive’s bonus opportunity for each subsequent
fiscal year of the Company during the Period of Employment shall be set by
reasonable, good faith agreement of the Board and the Executive prior to the
commencement of the applicable fiscal year. The Executive’s annual bonus shall
be at a target of no less than sixty percent (60%) of the Executive’s Base
Salary (the “Target Bonus”). One-half (1/2) of any bonus payable to the
Executive pursuant to this Section 4.2 shall be paid in deferred restricted
stock units corresponding to shares of Company stock, calculated using the fair
market value (as determined under the Plan (as defined in Section 4.3.1)) of
such stock on the date of grant. Anything in the foregoing to the contrary
notwithstanding, the Executive’s bonus for calendar year 2003 shall be not less
than thirty percent (30%) of the Executive’s Base Salary, but such minimum bonus
amount shall be paid entirely in deferred restricted stock units corresponding
to shares of Company stock calculated as set forth above. The Executive shall be
paid his annual bonus, if any, no later than other senior executives of the
Company are paid their annual bonuses.

 

4.3 Initial Equity Awards.

 

4.3.1 Stock Options. As of the Employment Date, the Company shall grant the
Executive a ten (10)-year stock option grant with respect to two hundred
thousand (200,000) shares of the Company’s stock under the Company’s 1995
Long-Term Incentive Compensation Plan (the “Plan”), which shall vest and become
exercisable in substantially equal monthly increments as to one-forty eighth
(1/48th) of such shares commencing on February 1, 2003 and continuing on the
first day of each of the forty-seven (47) calendar months thereafter; provided
that each monthly tranche shall vest only if the Executive is employed by the

 

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Company on that tranche’s vesting date, except as otherwise provided in this
Agreement. The exercise price for this option shall be the fair market value per
share of the Company’s stock (determined pursuant to the Plan) as of the
Employment Date. To the maximum extent permissible under the applicable federal
income tax provisions in light of the foregoing vesting schedule, this option
shall be an “incentive stock option” within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.

 

4.3.2 Deferred Restricted Stock Units. As of the Commencement Date, the Company
shall grant the Executive an award of deferred restricted stock units
corresponding to one hundred thousand (100,000) shares of Company stock. Such
award shall vest in substantially equal monthly increments as to one-sixtieth
(1/60th) of such units commencing on February 1, 2003 and continuing on the
first day of each of the fifty-nine (59) calendar months thereafter; provided
that each monthly tranche shall vest only if the Executive is employed by the
Company on that tranche’s vesting date, except as otherwise provided in this
Agreement. On the January 1 following the second anniversary of each vesting
date (as illustrated in the schedule on Appendix A hereto), one share of Company
stock for each vested unit shall be distributed to the Executive, unless such
distribution is further deferred by the Executive not later than the second
December 31 following the vesting date (as illustrated in the schedule on
Appendix A hereto). Unless otherwise agreed to by the Executive and the Company,
the Company shall, within ten (10) days after termination of the Executive’s
employment for any reason, deliver to the Executive one share of Company stock
for each vested deferred restricted stock unit for which stock has not yet been
distributed to the Executive.

 

4.4 Performance-Based Equity Awards.

 

4.4.1 Deferred Restricted Stock Units. Within ninety (90) days after the
Commencement Date, the Company shall grant the Executive an award of deferred
restricted stock units corresponding to forty-five thousand (45,000) shares of
Company stock. Such award shall vest only if and to the extent that the
performance targets for the fiscal year beginning May 1, 2003 (as agreed upon by
the Executive and the Company reasonably and in good faith within ninety (90)
days of the Commencement Date) are achieved. The measurement of such performance
shall occur no later than June 15, 2004 and vesting, if applicable, shall occur
effective as of April 30, 2004. Within ninety (90) days prior to each of the
fiscal years beginning in 2004, 2005 and 2006, the Company shall grant the
Executive an award of deferred restricted stock units corresponding to
forty-five thousand (45,000) shares of Company stock. Each of such awards shall
vest only if and to the extent that the performance targets for the applicable
fiscal year (as agreed upon by the Executive and the Company reasonably and in
good faith prior to the commencement of each such fiscal year) are achieved. The
measurement of such performance shall occur no later than forty-five (45) days
after the end of each such fiscal year and vesting, if applicable, shall occur
effective as of each such year end; provided that each grant made under this

 

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subsection 4.4.1 shall vest only if the Executive is employed by the Company on
that grant’s vesting date, except as otherwise provided in this Agreement. The
performance-based vesting arrangements established by the parties may include
provision for partial vesting based upon less than complete achievement of the
target levels of performance for one or more designated criteria. On the January
1 following the second anniversary of each vesting date one share of stock for
each vested unit shall be distributed to the Executive, unless such distribution
is further deferred by the Executive by the second December 31 following the
applicable vesting date. Unless otherwise agreed to by the Executive and the
Company, the Company shall, within ten (10) days after termination of the
Executive’s employment for any reason, deliver to the Executive one share of
Company stock for each vested deferred restricted stock unit for which stock has
not yet been distributed to the Executive.

 

4.4.2 Stock Options. Within ninety (90) days after the Commencement Date, and
within ninety (90) days prior to each of the fiscal years beginning in 2004,
2005 and 2006, the Company shall grant the Executive a ten (10)-year stock
option grant with respect to twenty-one thousand two hundred fifty (21,250)
shares of the Company’s stock under the Plan), which shall fully vest on the
date that is nine (9) years and eleven (11) months after the respective date of
grant but shall vest earlier if, and only if, and to the extent that the
performance targets for the particular grant (as agreed upon by the Executive
and the Company reasonably and in good faith prior to the respective date of
grant) are achieved; provided that each grant shall vest only if the Executive
is employed by the Company on that grant’s vesting date, except as otherwise
provided in this Agreement. The exercise price for each such option shall be the
fair market value per share of the Company’s stock (determined pursuant to the
Plan) as of the date of such grant.

 

4.5 Inducement. In order to induce the Executive to enter into this Agreement,
on the Commencement Date the Company shall grant the Executive an award of
deferred restricted stock units corresponding to fifty thousand (50,000) shares
of Company stock. Such grant shall be fully vested as of the Commencement Date;
provided that such award shall be forfeited if, prior to July 1, 2003, the
Executive’s employment with the Company is terminated by the Company for Cause
or by the Executive’s resignation without Good Reason. Unless such a forfeiture
occurs, the Company shall, on January 1, 2006 distribute to the Executive one
(1) share of Company stock for each such vested unit, unless such distribution
is further deferred by the Executive not later than December 31, 2004. Unless
otherwise agreed to by the Executive and the Company, the Company shall, within
ten (10) days after termination of the Executive’s employment for any reason,
deliver to the Executive one (1) share of Company stock for each vested and
unforfeited deferred restricted stock unit for which stock has not yet been
distributed to the Executive.

 

4.6 Acceleration of Distribution of Shares. Any other provision of this
Agreement to the contrary notwithstanding, in connection with a Business
Combination (as defined in subsection 8.1.3, below), the Company may, in its
discretion, distribute to the Executive one share of Company stock for each of
the Executive’s vested deferred restricted

 

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stock units, so that the Executive’s equity interest represented by such units
participates in the Business Combination.

 

4.7 Payment of Professional Fees. The Company shall pay all statements rendered
to the Company by the Executive’s attorneys, accountants and other advisors for
reasonable fees and expenses in connection with the negotiation and preparation
of this Agreement, subject to a limit of fifteen thousand dollars ($15,000) for
such expenses.

 

5. Other Executive Benefits.

 

5.1 Regular Reimbursed Business Expenses. Subject to the Executive’s compliance
with the policies and procedures approved by the Board and applicable to all
senior executives of the Company, the Company shall promptly reimburse the
Executive for all expenses and disbursements reasonably incurred by the
Executive in the performance of his duties hereunder during the Period of
Employment.

 

5.2 Benefit Plans. The Executive and his eligible family members shall be
entitled, subject to any normally applicable waiting periods and eligibility
criteria, to participate, on terms no less favorable to the Executive than the
terms offered to other senior executives of the Company, in any group and/or
executive life, hospitalization or disability insurance plan, health program,
pension, profit sharing, ESOP, 401(k) and similar benefit plans (qualified,
non-qualified and supplemental) or other fringe benefits (it being understood
that items such as stock options and other equity awards are not fringe
benefits) of the Company (collectively referred to as the “Benefits”). In the
event that any health programs or insurance policies applicable to the Benefits
provided hereunder contain a preexisting conditions clause, the Company shall
reimburse the Executive for any COBRA premiums on a tax grossed-up basis.
Anything contained herein to the contrary notwithstanding, the Benefits
described herein shall not duplicate benefits made available to the Executive
pursuant to any other provision of this Agreement.

 

5.3 Relocation. The Company shall reimburse the Executive for reasonable costs
of relocation of the Executive and his family to the Seattle metropolitan area
up to a maximum total outlay by the Company of one hundred and twenty thousand
($120,000) dollars. The identification of the specific types of relocation
expenses qualifying for reimbursement will be determined jointly by the Board
and the Executive reasonably and in good faith. The Company shall also reimburse
the Executive, with a gross-up payment for taxes, for reasonable temporary
living expenses, as determined jointly by the Board and the Executive in good
faith, (including reasonable travel expenses between the Executive’s primary
residence as of the Employment Date and the Seattle metropolitan area) for the
Executive and his family in the Seattle metropolitan area for a period not to
extend beyond June 30, 2003.

 

5.4 Perquisites. In lieu of the provision of other perquisites and benefits not
specifically provided for the Executive hereunder, the Company shall pay the
Executive the amount of two thousand five hundred dollars ($2,500) per month.

 

5.5 Vacation. The Executive shall be entitled to four (4) weeks of vacation in
each calendar year during the Period of Employment, prorated for any partial
calendar year.

 

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6. Termination.

 

6.1 Death. This Agreement and the Period of Employment shall terminate
automatically upon the Executive’s death.

 

6.2 Disability. If the Company determines in good faith that the Disability of
the Executive has occurred (pursuant to the definition of “Disability” set forth
below), it may give to the Executive written notice of its intention to
terminate the Executive’s employment. In such event, the Executive’s employment
with the Company shall terminate effective on the thirtieth day after receipt by
the Executive of such notice given at any time after a period of one hundred
twenty (120) consecutive days of Disability or a period of one hundred eighty
(180) days of Disability within any twelve (12) consecutive months, and, in
either case, while such Disability is continuing (“Disability Effective Date”);
provided that, within the thirty (30) days after such receipt, the Executive
shall not have returned to full-time performance of the Executive’s duties. For
purposes of this Agreement, “Disability” means the Executive’s inability to
substantially perform his duties hereunder, with reasonable accommodation, as
evidenced by a certificate signed either by a physician mutually acceptable to
the Company and the Executive or, if the Company and the Executive cannot agree
upon a physician, by a physician selected by agreement of a physician designated
by the Company and a physician designated by the Executive; provided, however,
that if such physicians cannot agree upon a third physician within thirty (30)
days, such third physician shall be designated by the American Arbitration
Association. Until the Disability Effective Date, the Executive shall be
entitled to all compensation provided for under Section 4 hereof. It is
understood that nothing in this Section 6.2 shall serve to limit the Company’s
obligations under Section 7.1.

 

6.3 By the Company for Cause. During the Period of Employment, the Company may
terminate the Executive’s employment immediately for “Cause.” For purposes of
this Agreement, “Cause” means (i) the willful failure by the Executive to
perform his duties hereunder, as reasonably requested by the Board as documented
in writing to the Executive, (after the provision to the Executive of a
reasonable opportunity to cure after written notice is provided by the Company)
where the failure to so perform can reasonably be expected to adversely affect
the Company in a manner that is not insignificant (provided, however, that
failure by the Company to achieve any targeted or anticipated level of
performance shall not, by itself, constitute failure by the Executive to perform
his duties), (ii) the willful failure by the Executive to observe material
Company policies and/or material policies of affiliates of the Company generally
applicable to executives of the Company and/or its affiliates (after the
provision to the Executive of a reasonable opportunity to cure after written
notice is provided by the Company), (iii) gross negligence or willful misconduct
by the Executive in the performance of his duties, (iv) the commission by the
Executive of any intentional act of fraud, theft or financial dishonesty with
respect to the Company or any of its affiliates, or any felony or criminal act
involving moral turpitude, and (v) the material breach by the Executive of this
Agreement, including but not limited to any material breach by the Executive of
the provisions of Section 11 hereof (after the provision to the Executive of a
reasonable opportunity to cure (if cure is possible) after written notice is
provided by the Company). For purposes of this definition, no act or failure to
act on the part of the Executive shall be considered “willful” unless it is
done, or omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive’s action or omission was in the best interest of the
Company. Any act, or failure to

 

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act, based upon direction given in 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 in the
best interest of the Company.

 

6.4 By Executive for Good Reason. During the Period of Employment, the
Executive’s employment hereunder may be terminated by the Executive for Good
Reason upon thirty (30) days’ written notice. For purposes of this Agreement,
“Good Reason” means, without the Executive’s written consent, (i) any material
breach of this Agreement by the Company (after the provision to the Company of a
reasonable opportunity to cure (if cure is possible) after written notice is
provided by the Executive), (ii) the assignment to the Executive of duties that
are inconsistent with those of the Chief Executive Officer of the Company or
that materially impair his ability to perform his duties (after the provision to
the Company of a reasonable opportunity to cure (if cure is possible) after
written notice is provided by the Executive), or (iii) any relocation of the
Executive’s office as assigned to him by the Company to a location more than
fifty (50) miles from Kent, Washington.

 

6.5 Other than for Cause or Good Reason. The Executive or the Company may
terminate this Agreement for any reason other than for Good Reason or Cause,
respectively, upon thirty (30) days’ written notice to the Company or the
Executive, as the case may be.

 

6.6 Notice of Termination. Any termination by the Company or by the Executive
shall be communicated by a Notice of Termination to the other party hereto given
in accordance with Section 17.2 of this Agreement. For purposes of this
Agreement, a “Notice of Termination” means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail, if applicable, the facts and circumstances claimed
to provide a basis for termination of the Executive’s employment under the
provision so indicated, and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination
date. The failure by the Executive or Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of the basis
for termination shall not waive any right of such party hereunder or preclude
such party from asserting such fact or circumstance in enforcing his or its
rights hereunder.

 

6.7 Date of Termination. “Date of Termination” means the date specified in the
Notice of Termination; provided, however, that if the Executive’s employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.

 

7. Obligations of the Company Upon Termination. The following provisions and the
provisions of subsection 8.2 describe the entire obligations of the Company to
the Executive upon termination of his employment under this Agreement.

 

7.1 Termination by Death, Disability, by the Company for Cause or by Resignation
without Good Reason. In the event this Agreement terminates by reason of death
or Disability, by reason of the termination of the Executive’s employment by the
Company for Cause, or by reason of the resignation of the Executive other than
for Good Reason, the Company shall pay to the Executive all Accrued Obligations
(as defined below). “Accrued

 

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Obligations” shall mean, as of the Date of Termination, the sum of (i) the
Executive’s Base Salary through the Date of Termination to the extent not
theretofore paid, (ii) the amount of any bonus, incentive compensation, deferred
compensation and other cash compensation earned by the Executive as of the Date
of Termination to the extent not theretofore paid and (iii) any vacation pay,
expense reimbursements and other cash entitlements accrued by the Executive as
of the Date of Termination to the extent not theretofore paid.

 

7.2 Resignation with Good Reason or Termination without Cause not related to a
Change in Control. If prior to, or more than one (1) year after, a Change in
Control of the Company (as defined in Section 8.1) (i) the Company shall
terminate the Executive’s employment other than for Cause (and other than due to
the Executive’s death or Disability) or (ii) the Executive shall terminate his
employment for Good Reason, the Executive shall receive, in addition to the
Accrued Obligations, the following:

 

7.2.1 For a period of two (2) years following the Date of Termination,
continuation of (a) the Executive’s then-current Base Salary, (b) the average of
the two most recent annual bonuses received by the Executive, and (c) perquisite
payments under Section 5.4, all paid in accordance with the Company’s executive
payroll schedule; provided, however, that if such termination of employment
occurs prior to April 30, 2003, the Executive shall be entitled to receive such
payments through and until April 30, 2005;

 

7.2.2 Immediate vesting in (i.e., exercisability for) fifty percent (50%) of any
options granted under subsection 4.3.1 but not yet vested as of the Date of
Termination;

 

7.2.3 Continued exercisability, for a period equal to the lesser of two (2)
years or the maximum period permitted under the Plan based upon the Executive’s
circumstances, for all vested options, whether previously vested or vesting
under subsection 7.2.2;

 

7.2.4 Delivery to the Executive of one (1) share of Company stock for each
deferred restricted stock unit that has vested under subsection 4.3.2 or
subsection 4.4.1 but for which stock has not yet been distributed to the
Executive under subsection 4.3.2 or subsection 4.4.1;

 

7.2.5 Immediate vesting of fifty percent (50%) of any deferred restricted stock
units described in subsection 4.3.2 that have not yet vested, and delivery of
one (1) share of Company stock for each deferred stock unit subject to such
accelerated vesting pursuant to this subsection 7.2.5;

 

7.2.6 Receipt of any other compensation and Benefits accrued or earned and
vested (if applicable) by the Executive as of the Date of Termination (but not
duplicative of the Accrued Obligations); and

 

7.2.7 For a period of two (2) years (or if such termination of employment occurs
prior to April 30, 2003, for a period through and until April 30, 2005), the
Company shall continue health, prescription drug, dental,

 

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disability and life insurance benefits to the Executive and/or the Executive’s
eligible family members at least equal to those which would have been provided
to them in accordance with Section 5.2 of this Agreement if the Executive’s
employment had not been terminated (provided that any benefits provided under
this subsection 7.2.7 are subject to immediate early termination if the
Executive becomes eligible to receive similar types of benefits through
subsequent employment).

 

7.2.8 Any other provision of this Section 7.2 notwithstanding, termination of
the Executive’s employment due to involuntary retirement on or after the
Executive reaches age seventy (70) will not be a termination of employment
covered by this Section 7.2.

 

7.3 Exclusive Rights. It is understood that the Executive’s rights under this
Section 7 or under Section 8 are in lieu of all other rights which the Executive
may otherwise have had upon termination of employment under this Agreement.

 

8. Change in Control.

 

8.1 Definition. For purposes of this Agreement, a “Change in Control” shall be
deemed to have occurred if:

 

8.1.1 Any “person” (as defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), excluding for this
purpose, (i) the Company or any subsidiary of the Company, or (ii) any employee
benefit plan of the Company or any subsidiary of the Company, or any person or
entity organized, appointed or established by the Company for or pursuant to the
terms of any such plan which acquires beneficial ownership of voting securities
of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly of securities of the Company
representing more than thirty-five percent (35%) of the combined voting power of
the Company’s then outstanding securities; provided, however, that no Change in
Control will be deemed to have occurred as a result of a change in ownership
percentage resulting solely from an acquisition of securities by the Company; or

 

8.1.2 During any two (2) consecutive years (not including any period beginning
prior to November 1, 2002), individuals who at the beginning of such two
(2)-year period constitute the Board of Directors of the Company and any new
directors (except for any director designated by a person who has entered into
an agreement with the Company to effect a transaction described elsewhere in
this definition of Change in Control) whose election by the Board or nomination
for election by the Company’s stockholders was approved by a vote of at least a
majority of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved (such individuals and any such new directors being

 

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referred to as the “Incumbent Board”) cease for any reason to constitute at
least a majority of the Board; or

 

8.1.3 Consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
“Business Combination”) (but not including a sale of either one of the two
primary divisions of the Company that are operating on the Commencement Date),
in each case, unless, following such Business Combination, all or substantially
all of the individuals and entities who were the beneficial owners of
outstanding voting securities of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than fifty percent
(50%) of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the entity resulting from such Business Combination (including, without
limitation, an entity which, as a result of such transaction, owns the Company
or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the outstanding
voting securities of the Company.

 

8.2 Termination of Employment without Cause or for Good Reason after a Change in
Control. If in connection with, or within one (1) year after, a Change in
Control, (i) the Company shall terminate the Executive’s employment other than
for Cause (and other than due to the Executive’s death or Disability) or (ii)
the Executive shall terminate his employment for Good Reason, the Executive
shall receive, in addition to the Accrued Obligations, the following:

 

8.2.1 For a period of two (2) years following the Date of Termination,
continuation of (a) the Executive’s then-current Base Salary, (b) his
then-current Target Bonus, and (c) perquisite payments under Section 5.4, all
paid in accordance with the Company’s executive payroll schedule; provided,
however, that if such termination of employment occurs prior to July 31, 2003,
the Executive shall be entitled to receive such payments through and until July
31, 2005;

 

8.2.2 Immediate vesting of (i.e., exercisability for) fifty percent (50%) of any
options granted under subsection 4.3.1 but not yet vested as of the Date of
Termination;

 

8.2.3 Continued exercisability, for a period of two (2) years, for all vested
options, whether previously vested or vesting under subsection 8.2.2;

 

8.2.4 Delivery to the Executive of one (1) share of Company stock for each
deferred restricted stock unit that has then vested under subsection 4.3.2 or
subsection 4.4.1 but for which stock has not yet been distributed to the
Executive under subsection 4.3.2 or subsection 4.4.1;

 

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8.2.5 Immediate vesting of fifty percent (50%) of any deferred restricted stock
units described in subsection 4.3.2 that have not yet vested, and delivery of
one (1) share of Company stock for each deferred stock unit subject to such
accelerated vesting pursuant to this subsection 8.2.5;

 

8.2.6 Immediate vesting of fifty percent (50%) of any options and deferred
restricted stock units previously granted or to be granted under Section 4.4 but
not vested as of the Date of Termination because the performance period(s) on
the basis of which their vesting was to be determined had not substantially
elapsed as of the Date of Termination; provided, however, that such accelerated
vesting shall occur if and only if (i) the termination of employment is in
connection with or within one (1) year after a Business Combination (as defined
in subsection 8.1.3, above) and (ii) the consideration received per share by the
Company’s stockholders in that Business Combination is at least equal to the
product of: V x (1.20^E), where “V” equals the fair market value (as determined
under the Plan) per share of the Company’s stock on the Commencement Date, and
“E” equals the number of full and partial years the Executive was employed by
the Company;

 

8.2.7 Receipt of any other compensation and Benefits accrued or earned and
vested (if applicable) by the Executive as of the Date of Termination (but not
duplicative of the Accrued Obligations); and

 

8.2.8 For a period of two (2) years (or if such termination of employment occurs
prior to April 30, 2003, for a period through and until April 30, 2005), the
Company shall continue health, prescription drug, dental, disability and life
insurance benefits to the Executive and/or the Executive’s eligible family
members at least equal to those which would have been provided to them in
accordance with Section 5.2 of this Agreement if the Executive’s employment had
not been terminated (provided that any benefits provided under this subsection
8.2.8 are subject to immediate early termination if the Executive becomes
eligible to receive similar types of benefits through subsequent employment).

 

9. Mitigation. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Except as
otherwise set forth herein with respect to health, prescription drug, dental,
disability and life insurance benefits, any severance benefits payable to the
Executive shall not be subject to reduction for any compensation received from
other employment.

 

10. Indemnification. The Executive shall be indemnified by the Company against
liability as an officer and director of the Company and any subsidiary or
affiliate of the Company to the maximum extent permitted by applicable law. To
the full extent permitted under the corporate governing documents of the
Company, and subject to the terms of any policies and procedures applicable to
all directors and senior officers of the Company, the Company shall advance to
the Executive payment of reasonable costs of defending against any claims
covered

 

11

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by the foregoing indemnification commitment. The Executive’s rights under this
Section 10 shall continue so long as he may be subject to such liability,
whether or not this Agreement may have terminated prior thereto.

 

11. Restrictive Covenants.

 

11.1 Confidential Information. The Executive agrees that, both during and after
his employment by the Company, he will maintain in confidence, and not disclose
to any person or entity or otherwise use, any Confidential Information, except
in the good faith performance of his duties or as authorized by the Company.
Further, the Executive agrees that he will not use any Confidential Information
received by the Company from a third party in any manner inconsistent with any
agreement between the Company and such third party of which he is made aware.
The Executive acknowledges that all memoranda, notes, documents, drawings,
specifications, software, media and other materials containing any Confidential
Information are the exclusive property of the Company and, in the event of the
termination of his employment, agrees to immediately deliver to the Company all
such material in his possession or control. “Confidential Information” means any
(i) information received by the Company from third parties which the Company is
obligated to keep confidential and (ii) any confidential or proprietary
information of the Company whether or not marked or otherwise designated as
confidential including, but not limited to, information that is not generally
known or readily ascertainable outside the Company regarding the Company’s
finances, employees, plans, marketing, customers, vendors, products, technology,
designs, techniques, research, development, testing, know-how and other
activities.

 

11.2 Non-Competition; Non-Solicitation. The Executive acknowledges that the
nature of his employment with the Company will give him access to trade secrets,
confidential information of a technological nature, and specialized training and
expertise in the specific businesses in which the Company competes. The
Executive further acknowledges that he will have access to Confidential
Information concerning customers of the Company and their specialized
requirements, and concerning employees of the Company and their specialized
abilities. The Executive acknowledges that the use of any of this information or
expertise on behalf of a competitor of the Company and/or the solicitation of
customers or employees of the Company would constitute unfair competition.
Therefore, the Executive agrees that, during the Term, he will not:

 

11.2.1 Work directly or indirectly (as an employee, consultant, advisor, owner
or otherwise) for any business or activity which competes anywhere in the
Company’s worldwide marketplace with any product or service of the Company,
including any product or service that the Company was actively researching,
developing, manufacturing, marketing, distributing, or otherwise commercially
exploiting or preparing to exploit as of the Date of Termination;

 

11.2.2 Encourage, solicit, or attempt to induce (or assist others to encourage,
solicit, or attempt to induce) any customer of the Company to reduce, restrict,
or terminate its business relationship with the Company or to shift its business
from the Company to any other supplier of competing goods or services; or

 

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11.2.3 Encourage, solicit, or attempt to induce (or assist others to encourage,
solicit, or attempt to induce) any employee of the Company to terminate his/her
employment relationship with the Company or to work elsewhere with the Executive
or any other business, person or activity.

 

For purposes of this subsection 11.2, “Term” means the period of the Executive’s
employment with the Company as well as a period of two (2) years after
termination of such employment for any reason.

 

12. Remedy for Violation of Section 11; Severability.

 

12.1 Breach. The Executive acknowledges that the Company has no adequate remedy
at law and will be irreparably harmed if the Executive breaches or threatens to
breach the provisions of Section 11 of this Agreement and, therefore, agrees
that the Company shall be entitled to injunctive relief to prevent any breach or
threatened breach of such section and that the Company shall be entitled to
specific performance of the terms of such section in addition to any other legal
or equitable remedy it may have. In the event of a material breach of this
Section 11 after the termination of the Executive’s employment, the Company
shall be relieved of the obligation to continue to provide any compensation or
benefits otherwise payable under Section 7.2 or Section 8.2, above. Nothing in
this Agreement shall be construed as prohibiting the Company from pursuing any
other remedies at law or in equity that it may have or any other rights that it
may have under any other agreement.

 

12.2 Severability. The Executive acknowledges that he has carefully read all of
the terms of Section 11 of this Agreement, that he has been advised by the
Company to seek legal advice to assist him in this and agrees that all of such
terms are necessary for the reasonable and proper protection of the Company’s
business, that the Company has been induced to enter into its relationship with
him and provide the consideration described herein upon his representations that
he will abide by and be bound by each of such terms, and that each term is
reasonable in its scope and duration. If for any reason any portion of Section
11 of this Agreement shall be held by a court of competent jurisdiction to be
invalid or unenforceable, the parties agree that the remaining portions of
Section 11 of this Agreement shall remain in full force and effect and that such
court, upon the request of the Company, may construe and/or modify such invalid
or unenforceable portion in a valid and enforceable manner that most closely
reflects the effect and intent of the original language.

 

13. Withholding. Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive shall be
subject to withholding, at the time payments are actually made to the Executive
and received by him, of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided that it is satisfied that all requirements of law
as to its responsibilities to withhold such taxes have been satisfied.

 

14. Arbitration. Except as set forth in Section 12, any dispute or controversy
between the Company and the Executive, whether arising out of or relating to
this Agreement,

 

13

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the breach of this Agreement, or otherwise, shall be settled by arbitration
conducted under the rules of (but not necessarily administered by) the American
Arbitration Association (“AAA”) in accordance with its Commercial Arbitration
Rules then in effect, and judgment on any award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Any arbitration shall be
held before a single arbitrator who shall be selected by the agreement of the
Company and the Executive, unless the parties are unable to agree to an
arbitrator, in which case, the arbitrator will be selected under the procedures
of the AAA. The arbitrator shall have the authority to award any remedy or
relief that a court of competent jurisdiction could order or grant, including,
without limitation, the issuance of an injunction. However, either party may,
without inconsistency with this arbitration provision, apply to any court having
jurisdiction over the parties and seek interim provisional, injunctive or other
interim equitable relief until the arbitration award is rendered or the
controversy is otherwise resolved. Except as necessary in court proceedings to
enforce this arbitration provision or an award rendered hereunder, or to obtain
interim relief, neither a party nor an arbitrator may disclose the existence,
content or results of any arbitration hereunder without the prior written
consent of the Company and the Executive. The Company and the Executive
acknowledge that this Agreement evidences a transaction involving interstate
commerce. Notwithstanding any choice of law provision included in this
Agreement, the United States Federal Arbitration Act shall govern the
interpretation and enforcement of this arbitration provision. The arbitration
proceeding shall be conducted in Seattle, Washington or such other location to
which the parties may agree. The Company shall pay the costs of any arbitrator
appointed hereunder.

 

15. Successors.

 

15.1 This Agreement is personal to the Executive and without the prior written
consent of the Company shall not be assignable by the Executive otherwise than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive’s heirs and legal
representatives.

 

15.2 This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.

 

15.3 As used in this Agreement, the term “Company” shall include any successor
to the Company’s business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.

 

16. Representations.

 

16.1 The Company represents and warrants that (i) the execution of this
Agreement has been duly authorized by the Company, including action of the
Board, (ii) the execution, delivery and performance of this Agreement by the
Company does not and will not violate any law, regulation, order, judgment or
decree or any agreement, plan or corporate governance document of the Company
and (iii) upon the execution and delivery of this Agreement by the Executive,
this Agreement shall be the valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of

 

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creditors’ rights generally and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).

 

16.2 The Executive represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by the Executive does not
and will not, and the public announcement of this Agreement by the Company on or
about November 22, 2002 will not, violate any law, regulation, order, judgment
or decree or any agreement to which the Executive is a party or by which he is
bound, (ii) the Executive is not a party to or bound by any employment
agreement, noncompetition agreement or confidentiality agreement with any person
or entity that would interfere with this Agreement or his performance of
services hereunder, and (iii) upon the execution and delivery of this Agreement
by the Company, this Agreement shall be the valid and binding obligation of the
Executive, enforceable in accordance with its terms, except to the extent
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors’ rights generally and by the effect
of general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).

 

17. Miscellaneous.

 

17.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of Washington, without reference to principles of choice of
law. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors or legal representatives.

 

17.2 All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party, by nationally recognized
overnight courier, or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

 

If to the Executive:

 

Stephen Light

President and Chief Executive Officer

Flow International Corporation

23500 64th Avenue South

Kent, Washington 98032

 

with a copy to:

 

Henry J. Loos, Esq.

Quarles & Brady, LLP

411 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

 

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If to the Company:

 

Flow International Corporation

23500 64th Avenue South

Kent, Washington 98032

Attn: General Counsel

 

with a copy to:

 

William J. Bettman, Esq.

Vedder, Price, Kaufman & Kammholz

222 N. LaSalle Street

26th Floor

Chicago, Illinois 60601

 

or to such other address as either of the parties shall have furnished to the
other in writing in accordance herewith. Notices and other communications shall
be effective upon delivery, which may be established by a signed receipt or
other customary evidence.

 

17.3 None of the provisions of this Agreement shall be deemed to impose a
penalty.

 

17.4 The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.

 

17.5 Any party’s failure to insist upon strict compliance with any provision
hereof shall not be deemed to be a waiver of such provision or any other
provision hereof.

 

17.6 This Agreement supersedes any and all prior communications or
understandings, written or oral, between the Company and the Executive and
contains the entire understanding of the Company and the Executive with respect
to the subject matter hereof.

 

17.7 This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

FLOW INTERNATIONAL CORPORATION

By:

 

 

--------------------------------------------------------------------------------

Its:

 

 

--------------------------------------------------------------------------------

STEPHEN LIGHT

--------------------------------------------------------------------------------

 

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APPENDIX A

 

SCHEDULE FOR INITIAL DEFERRED RESTRICTED STOCK UNITS

 

    

Vesting Date

  

Deferral Election Date

  

Distribution Date

1.

  

The first day of each of
February - December,
2003

  

December 31, 2004

  

January 1, 2006

2.

  

The first day of each of
January - December,
2004

  

December 31, 2005

  

January 1, 2007

3.

  

The first day of each of
January - December,
2005

  

December 31, 2006

  

January 1, 2008

4.

  

The first day of each
of January - December,
2006

  

December 31, 2007

  

January 1, 2009

5.

  

The first day of each
of January - December,
2007

  

December 31, 2008

  

January 1, 2010

 

18