Document:

exv10w1

 

Exhibit 10.1

FLOWSERVE CORPORATION

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is entered into this 28th day of July,
2005, between Flowserve Corporation (“Company”) and Lewis Kling (“Executive”).

BACKGROUND

     The Executive is currently employed by the Company as its Chief Operating Officer. The
Company wishes to employ the Executive as President and Chief Executive Officer on the terms and
conditions specified herein, and the Executive wishes to be employed by the Company on the terms
and conditions specified herein.

AGREEMENT

     In consideration of the premises, and for other valuable consideration, it is agreed as
follows:

     1. General Agreement. The Company agrees to employ the Executive, and the Executive
agrees to accept employment with the Company, as provided in this Agreement for the period
beginning on the Effective Date and ending on July 31, 2008, provided that, subject to Section 6,
the term of this Agreement shall automatically be extended for consecutive additional one-year
terms unless, not later than 90 days prior to each date the Employment Term would otherwise expire,
the Company or the Executive shall have given notice not to extend the Employment Term.

     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, (ii) any payments that have
become vested or that are otherwise due in accordance with the terms of any employee benefit,
incentive, or compensation plan or arrangement maintained by the Company that the Executive
participated in at the time of his termination of employment, and (iii) any expenses incurred by
Executive that have not yet been reimbursed in accordance with Section 4(i) at the time of his
termination of employment.

     (b) “Board” means the Company’s Board of Directors.

     (c) “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 willful 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 willful and material breach of the confidentiality portion of this
Agreement. “Cause” shall be determined as provided in Section 6(e).

 

 

     (d) “Common Stock” means the common stock of the Company, par value $1.25 per share.

     (e) “Compensation Committee” means the Compensation Committee of the Board.

     (f) “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.

     (g) “Effective Date” means August 1, 2005.

     (h) “Employment Term” means the period beginning on the Effective Date and ending upon the
expiration of the employment period as provided in Section 1.

     (i) “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 Section 6(c).

     (j) “Office” means the office of President and Chief Executive Officer.

     (k) “Removal from Office” means the Company’s involuntary removal of the Executive from his
Office.

     (l) “Stock Plan” means the Company’s 2004 Stock Compensation Plan.

     (m) “Target Bonus” means, for the fiscal year in which the Executive’s employment terminates,
the annual bonus that would have been payable to Executive had his employment not terminated and
had all applicable performance targets been satisfied at the target level.

     (n) “Willful” means that the Executive has acted, or failed to act, in bad faith or without
reasonable belief that his act or omission was in the Company’s best interest. For purposes of the
preceding sentence, any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and pursuant to his
belief that it is in the best interests of the Company.

     (o) “Welfare Benefit Plan” has the meaning given to such term by 29 U.S.C. Section 1002(1).

 

 

     3. Executive’s Position and Duties. The Executive shall serve as the Company’s

President and Chief Executive Officer with general responsibility for and control of the
Company’s business and affairs, all in accordance with the provisions of this Agreement. 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, and Executive shall report
directly and exclusively to 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 Corporate Governance and Nominating 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
Executive may serve with nonprofit, civic and educational organizations to the extent that such
service does not interfere with the performance of his responsibilities to the Company.

     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 $850,000 per year and shall be
paid in accordance with the Company’s normal payroll practices. The Executive’s base salary may be
increased but not decreased throughout the Employment Term and, at least once annually, shall be
reviewed by the Compensation Committee with a recommendation on amount made to the full Board.

     (b) Bonus. For each fiscal year after 2005, the Executive shall have an annual bonus
opportunity in accordance with the Company’s annual bonus plan based on the attainment of
individual and Company performance targets established in the discretion of the Compensation
Committee, with a target bonus equal to 100% of the Executive’s base salary for such year and a
bonus range from 0% of base salary for such year (where performance threshholds are not attained)
to 200% of base salary for such year (where maximum performance goals are attained). For 2005, the
Executive’s bonus opportunity shall be 7/12th of the bonus opportunity previously
established for the Executive for 2005 in accordance with the Company’s annual bonus plan, and the
remainder of the Executive’s bonus opportunity for 2005 shall be determined in accordance with the
foregoing provisions of this Section 4(b) based on individual performance goals established by the
Compensation Committee but based on the same Company performance goals previously established for
Executive for 2005 and based on 5/12th of Executive’s base salary for the period
beginning on the Effective Date.

     (c) Stock Options. On and effective as of the date first set forth above, the Company shall
grant the Executive an option to purchase 69,748 shares of Common Stock vesting ratably (subject to
continuous employment with the Company) on each of the first three anniversaries of the date of
grant with an exercise price per share equal to the fair market value of a share of Common Stock on
the date of grant (as determined in accordance with the Stock Plan and otherwise in accordance with
the terms and conditions of the Stock Plan).

     (d) Restricted Stock. On and effective as of the date first set forth above, the Company shall
grant the Executive 40,800 shares of restricted Common Stock in accordance

 

 

with the terms and conditions of the Stock Plan. Restrictions on the shares shall lapse on
the third anniversary of the date of grant (subject to continuous employment with the Company).
The grant shall otherwise be made in accordance with the terms and conditions of the Stock Plan.

     (e) Long-Term Incentive Compensation. The Executive shall participate in any Company long-term
incentive compensation plan on a basis determined by the Compensation Committee from time to time
but on terms no less favorable than those applicable to other senior executives of the Company.
The Company acknowledges that it is presently expected that the annual value of grants to the
Executive under the Company’s long-term incentive plan will equal approximately three (3) times the
Executive’s annual base salary (allocated substantially equally among grants of stock options,
restricted stock and dollar denominated performance awards), but in any event such annual value
shall not be less than $2,550,000 (as reasonably determined by the Company to the extent not
denominated in cash).

     (f) Transition Security Plan. The Executive’s participation in the Company’s Transition
Security Plan shall be terminated as of the date hereof and no payment shall be due to him
thereunder. In lieu thereof, effective as of the Effective Date, the Company shall make a special
one-time lump-sum payment to the Executive of $520,000.

     (g) Certain Other Benefits. The Executive shall participate in the Company’s other incentive
compensation, savings, retirement, fringe benefit and perquisite programs and Welfare Benefit Plans
on a basis no less favorable than that applicable to other senior executives of the Company.
Following three (3) years of continuous active employment with the Company (taking service prior to
the Effective Date into account), the Executive (or his current spouse, as the case may be) shall
be entitled, upon a termination of the Executive’s employment for any reason other than Cause, to
purchase health benefit coverage for the Executive and his current spouse substantially similar to
that available under the Company’s health benefit programs in effect from time to time at the cost
to the Company of providing such coverage to its actively employed senior executives from time to
time through, respectively, the period of the Executive’s and his current spouse’s eligibility for
coverage under Medicare. If the Executive remains employed by the Company through July 31, 2008,
20% of any nonqualified pension benefit that is not yet then vested shall become vested.

     (h) Vacation. The Executive shall be entitled to at least four weeks of paid vacation per year
in accordance with the Company’s vacation policies as in effect from time to time.

     (i) Reimbursement of Expenses. The Executive shall be entitled to reimbursement of reasonable
and customary business expenses in accordance with the Company’s policies. The Company shall
reimburse the Executive for his costs previously incurred in packing for relocation to and
relocating to Dallas, Texas, in an amount not exceeding $10,000.

     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 Section 6(b). In
such event, the Executive’s employment shall terminate on the 30th day after the Executive receives
such notice, unless he returns to substantially full-time performance of his duties within such
30-day period.

     (c) Executive’s Termination For Good Reason. To terminate his employment for Good Reason, the
Executive must notify the Board of his intent to terminate employment for Good Reason and describe
all circumstances that he believes in good faith to constitute Good Reason. If the Company corrects
all situations constituting Good Reason and identified by the Executive within 30 days after
receiving his notice, the Executive shall not be entitled to terminate for Good Reason. If the
Company agrees to the Executive’s termination for Good Reason or fails to correct the conditions
identified by the Executive within 30 days after receipt of the Executive’s notice, the Executive’s
employment shall terminate on the 30th day after the Company received his notice or such earlier
date agreed to by the Company.

     (d) Executive’s Termination Without Good Reason. If the Executive terminates his employment
without Good Reason, he shall provide the Company at least 60 days’ notice (which 60-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 has engaged in conduct constituting Cause, specifying
the details of such conduct, and (ii) the Executive failed to cure such conduct within 30 days
after receiving written notice from the Company detailing such conduct. The effective date of the
Executive’s termination for Cause shall be the date on which the Executive receives a copy of the
resolution adopted by the Board or such later date specified in the resolution.

     (f) Company’s Termination Without Cause. Any termination of the Executive’s employment by the
Company not in compliance with Section 6(b) or 6(e) shall constitute 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 or Disability. If the Executive’s employment is terminated by reason of his death or
Disability during the Employment Term, this Agreement shall terminate without further obligations
to the Executive or his legal representatives under this Agreement, except that, subject to
Sections 4(g) and 11, (i) payment of Accrued Compensation shall be paid to the Executive (or his
estate or beneficiary, as applicable) in cash within 30 days after, as the case may be, the
Executive’s death or Disability (or, if later, in accordance with any applicable plan, program, or
policy of the Company), (ii) all stock-based awards that have not yet vested or otherwise become
unrestricted shall immediately become vested or otherwise unrestricted in full, (iii) the target
payment under all dollar-denominated, performance-based long-term incentive compensation programs
shall be paid to the Executive (or his estate or beneficiary, as applicable) in a lump sum in cash
within 30 days after the Executive’s death or Disability, and (iv) the Executive shall become fully
vested in any nonqualified pension benefit that is not yet then vested.

     (b) Termination For Cause, Without Good Reason or After Employment Term.. If the Executive’s
employment is terminated for Cause during the Employment Term, or the Executive terminates his
employment without Good Reason during the Employment Term, or the Executive’s employment terminates
upon or following the expiration of the Employment Term, this Agreement shall terminate without
further obligations to the Executive, other than for the Executive’s rights under Section 11 or for
payment of Accrued Compensation within 30 days after his employment terminates (or, if later, in
accordance with any applicable plan, program, or policy of the Company).

     (c) 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 during the
Employment Term for a reason other than Cause or Disability, or if during Employment Term the
Executive terminates his employment for Good Reason, the Company shall pay all Accrued Compensation
to the Executive within 30 days after his employment terminates (or, if later, in accordance with
any applicable plan, program, or policy of the Company), and, provided the Executive has executed
and not revoked a release of claims against the Company substantially in the form attached hereto
as Exhibit A and provided further that the Executive has materially complied with all obligations
imposed under Sections 9, 10 and 19, (i) the Company shall pay to the Executive within 30 days
after his employment terminates a lump-sum cash amount equal to the sum of (A) (I) the sum of his
annual base salary at the time of termination and (II) the annual bonus earned by him for the bonus
year preceding the year in which his employment terminates and (B) a pro-rata portion of the Target
Bonus based on the number of days of service during the bonus year occurring prior to termination
of employment, (ii) all stock-based awards held by the Executive that have not yet vested or
otherwise become unrestricted shall immediately become vested or otherwise unrestricted in full,
(iii) the target payment under all dollar-denominated, performance-based long-term incentive
compensation programs shall be paid to the Executive in a lump sum in cash within 30 days, and (iv)
the Executive shall become fully vested in any nonqualified pension benefit that is not yet then
vested. For the avoidance of doubt, no such severance payments shall be payable if the Executive’s
employment terminates at or after the end of the Employment Term or merely by

 

 

reason of the Company or the Executive exercising its or his right not to extend the
Employment Term pursuant to Section 1.

     (d) 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
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. Notwithstanding the foregoing provisions of this Section 7(d), if the
Executive’s employment terminates during the Employment Term but following a change of control (as
defined in the Company’s Executive Officers Change In Control Severance Plan (if in effect and as
it may be amended from time to time)) during the Employment Term, the Executive shall receive
compensation upon such termination pursuant to the Company’s Executive Officers Change In Control
Severance Plan (if in effect and as it may be amended from time to time) and not pursuant to this
Agreement.

     (e) No Mitigation. The Company agrees that, if the Executive’s employment with the Company
terminates during the Employment Term, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this
Agreement, and no payment or benefit provided for in this Agreement shall be reduced by any
compensation earned by the Executive as the result of employment by another employer.

     8. Certain Existing Arrangements. Effective as of the Effective Date, the letter
agreement between the Company and the Executive dated June 25, 2004, shall cease to be of any
further force or effect. Executive shall remain eligible for participation in the Company’s
Executive Officers Change In Control Severance Plan (if in effect and as it may be amended from
time to time) on a basis no less favorable than that applicable to other senior executives of the
Company.

     9. Non-Competition Agreement. As part of this Agreement, the Executive shall enter
into the Non-Competition Agreement attached hereto as Exhibit B. Notwithstanding any provision to
the contrary hereunder, the Company’s obligations to the Executive hereunder shall be limited as
provided in the Non-Competition Agreement, which Agreement shall not terminate until the date
provided therein, regardless of the date on which this Agreement terminates.

     10. Confidentiality. The Executive acknowledges that the Confidential Information (as
defined below) obtained by him during the course of his employment with the Company, concerning the
business or affairs of the Company and its affiliates (the “Business Entities”) are the property of
the Company. Therefore, the Executive will hold in strictest confidence, and not at any time
(whether during or after his employment with the Company) disclose or use for his own benefit or
purposes or the benefit or purposes of any other person, entity or enterprise, other than a
Business Entity, any trade secrets, non-public information, knowledge or data, or other proprietary
or confidential information, including without limitation, any such information relating to
customers, development programs, costs, marketing, trading, investment, sales

 

 

activities, promotion, credit and financial data, inventions, manufacturing or other
processes, technology, designs, financing methods, plans or the business and affairs of any
Business Entity (collectively, “Confidential Information”); provided that Confidential Information
shall not include information which has become publicly known other than as a result of the
Executive’s breach of this covenant. The Executive agrees that upon termination of his employment
with the Company for any reason, he will return to the Company immediately all property of the
Company including any documents, memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business of the Business
Entities. In the event of a breach or threatened breach of this Section 10, 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.

     11. Indemnification. The Executive shall remain a party to his existing
Indemnification Agreement with the Company dated July 5, 2004, as it may be amended from time to
time, and the Company further 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 or any other Business Entity, 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. The Company
agrees to continue and maintain a directors’ and officers’ liability insurance policy covering the
Executive on a basis no less favorable than that applicable to other senior executives of the
Company. The Company’s obligations under this Section 11 shall survive the termination of this
Agreement.

     12. Notices. All notices or other communications hereunder shall be in writing and
shall be deemed to have been duly given (a) when delivered personally, (b) upon confirmation of
receipt when such notice or other communication is sent by facsimile, or (c) one day after timely
delivery to an overnight delivery courier. The addresses for such notices shall be as follows:

     If to the Executive:

	 	 	 
	 

	 	At the most recent address on file in the Company’s records
	 
	 	 
	 

	 	with a copy to:
	 
	 	 
	 

	 	Stuart Blaugrund
	 

	 	Gardere Wynne Sewell, LLP
	 

	 	3000 Thanksgiving Tower
	 

	 	Dallas, Texas 75201-4761
	 

	 	Fax: (214) 999-3787

 

 

     If to the Company or Board:

	 	 	 
	 

	 	Flowserve Corporation
	 

	 	5215 N. O’Connor Blvd.
	 

	 	Suite 2300
	 

	 	Irving, TX 75039
	 

	 	Attention: Vice President, Secretary and General Counsel
	 

	 	Fax: (972) 443-6843

or to such other address as either party shall have furnished to the other in writing in accordance
herewith.

     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. This Agreement shall be interpreted, construed and governed
according to the laws of the State of Texas, without reference to conflicts of law principles
thereof.

     16. Certain Interpretive Rules. 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. The captions of this
Agreement are not part of the provisions hereof and shall have no force or effect.

     17. No Oral Modifications. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms hereof may be waived, only by a written instrument
executed by the Executive and an officer of the Company duly authorized by the Board or, in the
case of a waiver, by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect the right at a later
time to enforce the same. No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such

 

 

breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

     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.

     19. Nondisparagement. The Executive agrees that he will not make or publish, or cause
to be made or published, any statement which is, or may reasonably be considered to be, disparaging
of the Company or its affiliates, or directors, officers or employees of the businesses of the
Company or its affiliates. Nothing contained in this Section 19 shall preclude the Executive from
providing truthful testimony in response to a valid subpoena, court order, regulatory request or as
may be required by law.

     20. Section 409A of the Internal Revenue Code. It is the intention of the Company and
the Executive that this Agreement not result in unfavorable tax consequences to the Executive under
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The Company and the
Executive acknowledge that Section 409A of the Code was enacted pursuant to the American Jobs
Creation Act of 2004, generally effective with respect to amounts deferred after January 1, 2005,
and only limited guidance has been issued by the Internal Revenue Service with respect to the
application of Code Section 409A to certain arrangements, such as this Agreement. The Internal
Revenue Service has indicated that it will provide further guidance regarding interpretation and
application of Section 409A of the Code during 2005. The Company and the Executive acknowledge
further that the full effect of Section 409A of the Code on potential payments pursuant to this
Agreement cannot be determined at the time that the Company and Executive are entering into this
Agreement. The Company and the Executive agree to work together in good faith in an effort to
comply with Section 409A of the Code including, if necessary, amending the Agreement based on
further guidance issued by the Internal Revenue Service from time to time, provided that the
Company shall not be required to assume any increased economic burden.

     21. Entire Agreement. This Agreement constitutes the entire understanding of the
Company and the Executive with respect to the subject matter hereof and supersedes all prior
negotiations, discussions, writings and agreements between them (exclusive of the Indemnification
Agreement between the Company and the Executive dated July 5, 2004, as it may be amended from time
to time, and the terms of the Company’s Executive Officers Change In Control Severance Plan, as it
may be amended from time to time).

     22. Dispute Resolution. Any dispute or controversy arising between the Company and
the Executive including, but not limited to, any claim of discrimination under state or federal
law, shall be resolved by arbitration proceedings conducted in Dallas, Texas in accordance with the
National Rules for Resolution of Employment Disputes of the American Arbitration Association then
in effect by a panel of three arbitrators, one chosen by each of Executive and the Company, with
the third arbitrator to be chosen by the other two arbitrators or if the two arbitrators cannot
agree upon a third arbitrator, then by the President of the American Arbitration Association;
provided that the Company shall be entitled to seek preliminary injunctive relief in a court of
appropriate jurisdiction, including, but not limited to, a preliminary injunction to

 

 

enforce the obligations imposed on the Executive under Sections 9, 10, and 19. Judgment may
be entered on the arbitrator’s award in any court having jurisdiction and attorney fees will be
awarded to the prevailing party. Any dispute or controversy arising out of Executive’s employment
or the termination thereof, including, but not limited to, any claim of discrimination under state
or federal law, that is not subject to arbitration in accordance with the foregoing provisions of
this Section 22 shall be brought exclusively in federal or state court with venue in Dallas, Texas
and the Executive hereby irrevocably submits to the jurisdiction of such courts. Any reasonable
fees or expenses incurred by the Executive in connection with any proceeding described in this
Section 22 shall be promptly reimbursed by the Company upon receipt of supporting documentation
reasonably satisfactory to the Company if the Executive finally prevails in such proceeding.

     23. Certain Fees. The Company shall promptly reimburse the Executive for reasonable
and customary attorney’s fees incurred by the Executive in the negotiation and documentation of
this Agreement upon receipt of supporting documentation reasonably satisfactory to the Company.

     24. Withholding. Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local, and foreign taxes
that are required to be withheld by applicable laws or regulations.

[The Remainder of this Page is Intentionally Left Blank]

 

 

     IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above
written.

	 	 	 	 	 
	 

	 	FLOWSERVE CORPORATION	 	 
	 
	 	 	 	 
	 

	 	/s/ Charles M. Rampacek	 	 
	 

	 	 

By: Charles M. Rampacek
	 	 
	 

	 	Title:Chairman of Corporate Governance &	 	 
	 

	 	     Nominating Committee	 	 
	 
	 	 	 	 
	 

	 	EXECUTIVE	 	 
	 
	 	 	 	 
	 

	 	/s/ Lewis M. Kling	 	 
	 

	 	 
 	 	 

 

 

EXHIBIT A

RELEASE OF CLAIMS

GENERAL RELEASE

     In consideration of the severance package described in Section 7 of the Employment Agreement,
dated July 28, 2005 (the “Employment Agreement”), between you and Flowserve Corporation (the
“Company”), you voluntarily, knowingly and willingly release and forever discharge the Company, its
parents, subsidiaries and their affiliates, together with their respective present or former
officers, directors, partners, shareholders, employees, agents, and each of their predecessors,
successors and assigns, and family members of the aforementioned (collectively, the “Releasees”)
from any and all rights, claims, causes of action, charges, demands, damages and any and all
employee pension or welfare benefit plans of the Company, including current and former trustees and
administrators of these plans, and liabilities of every kind whatsoever, known or unknown,
suspected or unsuspected, which against them you or your executors, administrators,
successors or assigns ever had, now have or hereafter can, shall or may have by reason of any
matter, cause or thing whatsoever arising from the beginning of time to the time you sign this
general release (the “Release”) or relating to your Employment Agreement, specifically excluding
(i) your right to receive the severance package described in Section 7 of the Employment Agreement
subject to your execution of this Release and all obligations of the Company under Section 11 of
the Employment Agreement, and (ii) any vested right you have under any employee benefit plan or
program in which you participated in as an employee of the Company.

     This Release includes, but is not limited to, any rights or claims relating in any way to your
employment relationship with the Company or any of the Releasees, or the termination of your
employment, any rights or claims arising under any statute or regulation, including the Age
Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act
of 1993, the Employee Retirement Income Security Act of 1974, New York State and City Human Rights
laws, each as amended, or any other federal, state or local law, regulation, ordinance or common
law, or under any policy, agreement, understanding or promise, written or oral, formal or informal,
between the Company or any of the Releasees and you; provided, however, that this Release
does not release any vested pension plan benefits you may have as of your last day of employment
with the Company. By signing this Release, you represent that you will not seek or be entitled to
any personal recovery in any action or proceeding that may be commenced on your behalf arising out
of the matters released hereby. You further agree that you will indemnify the Company for any and
all costs and expenses, including, without limitation, any and all attorneys’ fees that it incurs
in defending any action you bring based upon claims which you have released under this instrument.

     The Company advises you to consult with an attorney of your choice prior to signing this
Release. You understand and agree that you have the right and have been given the opportunity to
review this Release with an attorney of your choice should you so desire. You also understand and
agree that the Company is under no obligation to offer you the payments set forth in the

 

 

Employment Agreement, that you are under no obligation to consent to the Release and that you have
entered into the Release freely and voluntarily.

     You have at least twenty-one (21) days to consider the terms of this Release, although you may
sign it sooner if you wish. Furthermore, once you have signed this Release, you have seven (7)
additional days from the date you sign it to revoke your consent by delivering (by hand or
overnight courier) written notice of revocation to the Company. The Release will not become
effective until the eighth (8th) day after you have signed it and returned it to the Company
(Attention: [COMPANY REP]), assuming that you have not revoked your consent to it during such
time. Please read this release carefully; it includes a release of all known and unknown claims.

Understood and Agreed:

	 	 	 	 	 
	 

	 	Subscribed and sworn to before me	 	 
	 

Lewis Kling

	 	 this
                    day of                     200_	 	 
	 
	 	 	 	 
	 
 
Date

	 	 

Notary Public
	 	 

 

 

EXHIBIT B

NONCOMPETITION AGREEMENT

     This Noncompetition Agreement (“Agreement”) is entered into by and between Flowserve
Corporation (“Company”) and Lewis Kling (“Executive”), effective as of July 28, 2005.

BACKGROUND

     The Company presently employs the Executive as its Chief Operating Officer and pursuant to an
employment agreement dated July 28, 2005 (“Employment Agreement”), will employ the Executive as its
President and Chief Executive Officer, effective August 1, 2005.

     Because of the Executive’s unique position with the Company, his knowledge of the Company’s
business and goodwill he has developed with the Company’s clients, he could cause the Company
considerable harm by providing his expertise to a competitor of the Company.

     To protect the legitimate interests of the Company, the Company and the Executive have agreed
to enter into this Agreement in connection with Company’s employment of the Executive.

     Therefore, the Executive agrees to be bound and restricted as provided for in this Agreement:

AGREEMENT

     1. The restrictions of this Agreement shall apply while the Executive is employed by the
Company and for a period of twelve months after the termination of his employment for any reason.
If the Executive breaches any provision of this Agreement, the period during which the restrictions
of this Agreement apply shall be extended for an additional period equal to the period of the
breach, plus an additional three (3) months.

     2. While the restrictions of this Agreement apply, the Executive is prohibited from engaging
in any direct or indirect competition with the Company. The activities prohibited by this Agreement
include but are not limited to:

     (a) Directly or indirectly accepting employment with, consulting with, or assisting any
business that is involved with the sale, design, development, manufacture, production, repair or
servicing of precision-engineered flow control equipment and the business of any other entity
subsequently acquired by the Company (“Competitive Business”). This prohibition shall apply to any
employment with, involvement in, or control of a Competitive Business, whether as an employee,
owner, manager, sole proprietor, joint venturer, partner, shareholder, independent contractor, or
in any other capacity. This prohibition shall not prevent the ownership of stock in a Competitive
Business that is publicly traded, provided that (i) the investment is passive, (ii) the Employee
has no other involvement with the corporation, (iii) the Employee’s ownership interest is less than
one percent, and (iv) the Employee makes full disclosure to the Company of the stock

 

 

ownership at the time the Employee acquires it.

     (b) Directly or indirectly diverting or influencing or attempting to divert or influence any
business of the Company to a competitor.

     (c) Directly or indirectly seeking to influence, facilitate, or encourage any Company employee
to leave its employ.

     3. The Executive acknowledges and agrees that the Company conducts business throughout the
world. Accordingly, the restrictions outlined above shall be applicable and enforceable throughout
the entire world where the Company conducts, has conducted or will conduct business in the future
during his employment with the Company.

     4. The Executive acknowledges that his breach of this Agreement would cause immediate and
irreparable harm to the Company. The Company shall be entitled to obtain immediate injunctive
relief in the form of a temporary restraining order without notice, preliminary injunction, or
permanent injunction against the Executive to enforce the terms of this Agreement. The Company
shall not be required to post any bond or other security to obtain such injunctive relief from the
courts.

     5. To the extent that any damages are calculable resulting from the breach of this Agreement
by the Executive, the Company shall be entitled to recover those damages from the Executive,
including prejudgment interest at ten percent (10%) per annum from the date of the breach. Any
recovery of damages by the Company shall be in addition to and not in lieu of the injunctive relief
to which the Company is entitled. In no event shall a damage recovery be considered a penalty or
liquidated damages, but it shall be considered as measurable compensatory damages for the
Executive’s breach of this Agreement.

     6. If the Executive breaches this Agreement, his right to any future payments pursuant to his
employment agreement shall be forfeited as of the date of the breach, except to the extent that
such forfeiture applies to benefits payable pursuant to a plan of the Company, if the forfeiture
would violate the terms of such plan.

     7. If the Executive breaches this Agreement, the Company shall also be entitled to recover all
costs of enforcement, including reasonable attorneys’ fees, all expenses of litigation, and court
costs.

     8. This Agreement shall survive the termination of the Executive’s employment relationship
with the Company and shall not be construed as limiting the Company’s right to terminate his
employment at any time, subject to the terms of any written employment agreement in effect at the
time of termination.

     9. No claim or cause of action that the Executive may have against the Company, whether for
breach of contract or otherwise, shall be a defense to the enforcement of this Agreement against
the Executive.

 

 

     10. The Executive acknowledges that all of the restrictions contained in this Agreement are
reasonable and necessary to protect the Company’s legitimate interests. If a court determines that
any provision of this Agreement is too broad to be enforceable at law or in equity, the remaining
terms shall remain unimpaired, and the unenforceable provision shall be deemed replaced by a
provision that is valid and enforceable and that most clearly approximates the intention of the
parties with respect to the enforceable provision, as evidenced by the remaining valid enforceable
provisions.

     11. This Agreement shall be enforceable by the Company or any successor in interest.

     12. This Agreement may not be modified orally. Any modification of this Agreement must
reflected in a written agreement approved by the Company’s Board and signed by the Executive and
the members of the Board’s Corporate Governance and Nominating Committee.

     13. The Executive agrees to inform any prospective competing employer about the existence of
this Agreement before accepting new employment and shall not agree, as a term of any new
employment, that the new employer will defend the Executive or pay his attorneys’ fees in the event
of a lawsuit brought by the Company to enforce the terms of this Agreement.

     14. This Agreement shall be construed to fulfill the purposes of the Agreement and shall not
be construed in favor of or against either party. Subject to the preceding sentence, this Agreement
shall be governed in all respects by the laws of the State of Texas.

     15. The Executive acknowledges that, contemporaneously with entering into his employment as
President and Chief Executive Officer of the Company and executing this Agreement, he is receiving
and will continue to receive from the Company highly confidential information relating to the
business of the Company.

     16. To effectuate the provisions of Section 22 of the Employment Agreement, this Agreement may
be enforced in the applicable courts of Dallas County, Texas or in any court where the Executive
has breached or is alleged to have breached this Agreement. The Executive agrees to submit to the
exclusive jurisdiction and venue of the applicable courts of Dallas County, Texas or in any county
elected by the Company. Any action filed by the Executive shall not affect the enforceability of
this provision, which shall govern.

	 	 	 	 	 
	 

	 	FLOWSERVE CORPORATION	 	 
	 
	 	 	 	 
	 

	 	/s/ Charles M. Rampacek	 	 
	 

	 	 

By: Charles M. Rampacek
	 	 
	 

	 	Title:Chairman of Corporate Governance &	 	 
	 

	 	     Nominating Committee	 	 
	 
	 	 	 	 
	 

	 	EXECUTIVE	 	 
	 
	 	 	 	 
	 

	 	/s/ Lewis M. Kling<PAGE>

                                                                    EXHIBIT 10.4

                          IDENIX PHARMACEUTICALS, INC.

                            2005 STOCK INCENTIVE PLAN

1. Purpose

      The purpose of this 2005 Stock Incentive Plan (the "Plan") of Idenix
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who are expected to make important
contributions to the Company and by providing such persons with equity ownership
opportunities and performance-based incentives that are intended to align their
interests with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any of the Company's
present or future parent or subsidiary corporations as defined in Sections
424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code") and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a controlling interest, as determined by the Board of
Directors of the Company (the "Board").

2. Eligibility

      All of the Company's employees, officers, directors, consultants and
advisors are eligible to receive options, stock appreciation rights, restricted
stock, restricted stock units and other stock-based awards (each, an "Award")
under the Plan. Each person who receives an Award under the Plan is deemed a
"Participant".

3. Administration and Delegation

      (a) Administration by Board of Directors. The Plan will be administered by
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.

      (b) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
officers referred to in Section 3(c) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or officers.

      (c) Delegation to Officers. To the extent permitted by applicable law, the
Board may delegate to one or more officers of the Company the power to grant
Awards to non-officer employees or officers of the Company or any of its present
or future subsidiary corporations and to exercise such other powers under the
Plan as the Board may determine, provided that the Board shall fix the terms of
the Awards to

<PAGE>

be granted by such officers (including the exercise price of such Awards, which
may include a formula by which the exercise price will be determined) and the
maximum number of shares subject to Awards that the officers may grant; provided
further, however, that no officer shall be authorized to grant Awards to any
"executive officer" of the Company (as defined by Rule 3b-7 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or to any "officer" of
the Company (as defined by Rule 16a-1 under the Exchange Act).

4. Stock Available for Awards

      (a) Number of Shares. Subject to adjustment under Section 9, Awards may be
made under the Plan for up to 2,200,000 shares of common stock, $.001 par value
per share, of the Company (the "Common Stock") plus the number of shares
previously authorized for issuance under the Company's 2004 Stock Incentive
Plan: (i) which are not subject to outstanding options on June 7, 2005; or (ii)
which become available for future Award grants as a result of the subsequent
forfeiture, lapse or expiration of options granted pursuant to the 2004 Stock
Incentive Plan and outstanding as of June 7, 2005. If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part (including as the result of shares of Common Stock
subject to such Award being repurchased by the Company at the original issuance
price pursuant to a contractual repurchase right) or results in any Common Stock
not being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan. Further, shares of Common
Stock tendered to the Company by a Participant to exercise an Award shall be
added to the number of shares of Common Stock available for the grant of Awards
under the Plan. However, in the case of Incentive Stock Options (as hereinafter
defined), the foregoing provisions shall be subject to any limitations under the
Code. Shares issued under the Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.

      (b) Section 162(m) Per-Participant Limit. The maximum number of shares of
Common Stock with respect to which Awards may be granted to any Participant
under the Plan shall be 500,000 per calendar year. For purposes of the foregoing
limit, the combination of an Option in tandem with an SAR (as each is hereafter
defined) shall be treated as a single Award. The per-Participant limit described
in this Section 4(b) shall be construed and applied consistently with Section
162(m) of the Code or any successor provision thereto, and the regulations
thereunder ("Section 162(m)").

5. Stock Options

      (a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".

      (b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the of Company, any of the
of Company's present or future parent or subsidiary corporations as defined in
Sections 424(e) or (f) of the Code, and any other entities the employees of
which are eligible to receive Incentive Stock Options under the Code, and shall
be subject to and shall be construed consistently with the requirements of
Section 422 of the Code. The Company shall have no liability to a Participant,
or any

                                       2

<PAGE>

other party, if an Option (or any part thereof) that is intended to be an
Incentive Stock Option is not an Incentive Stock Option or for any action taken
by the Board pursuant to Section 10(f), including without limitation the
conversion of an Incentive Stock Option to a Nonstatutory Stock Option.

      (c) Exercise Price. The Board shall establish the exercise price of each
Option provided however that the exercise price shall not be less than 100% of
the Fair Market Value (as hereinafter defined) per share of Common Stock on the
date of grant. The exercise price shall be specified in the applicable option
agreement.

      (d) Limitation on Repricing. Unless such action is approved by the
Company's stockholders: (1) no outstanding Option granted under the Plan may be
amended to provide an exercise price per share that is lower than the
then-current exercise price per share of such outstanding Option (other than
adjustments pursuant to Section 9) and (2) the Board may not cancel any
outstanding Option and grant in substitution therefore new Awards under the Plan
covering the same or a different number of shares of Common Stock and having an
exercise price per share lower than the then-current exercise price per share of
the cancelled Option.

      (e) No Reload Rights. No Option granted under the Plan shall contain any
provision entitling the optionee to the automatic grant of additional Options in
connection with any exercise of the original Option.

      (f) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided however that no Option will be granted for
a term in excess of 10 years.

      (g) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(h) for the number of
shares for which the Option is exercised. Shares of Common Stock subject to the
Option will be delivered by the Company following exercise either as soon as
practicable or, subject to such conditions as the Board shall specify, on a
deferred basis (with the Company's obligation to be evidenced by an instrument
providing for future delivery of the deferred shares at the time or times
specified by the Board).

      (h) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:

            (1) in cash or by check, payable to the order of the Company;

            (2) except as the Board may otherwise provide in an option
agreement, by (i) delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price and any required tax withholding or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price and any required tax withholding;

            (3) when the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), by delivery of shares of Common Stock
owned by the Participant valued at their fair market value as determined by (or
in a manner approved by) the Board ("Fair Market Value"),

                                       3

<PAGE>

provided (i) such method of payment is then permitted under applicable law, (ii)
such Common Stock, if acquired directly from the Company, was owned by the
Participant for at least six months (or such other period as the Board may deem
appropriate for purposes of satisfaction of applicable accounting rules), if
any, as may be established by the Board in its discretion, and (iii) such Common
Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements;

            (4) by payment of such other lawful consideration as the Board may
determine; or

            (5) by any combination of the above permitted forms of payment.

      (i) Substitute Options. In connection with a merger or consolidation of an
entity with the Company or the acquisition by the Company of property or stock
of an entity, the Board may grant Options in substitution for any options or
other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in Section 2. Substitute
Options shall not count against the overall share limit set forth in Section
4(a), except as may be required by reason of Section 422 and related provisions
of the Code.

6. Stock Appreciation Rights.

      (a) General. A Stock Appreciation Right, or SAR, is an Award entitling the
holder, upon exercise, to receive an amount in Common Stock determined by
reference to appreciation, from and after the date of grant, in the fair market
value of a share of Common Stock. The date as of which such appreciation or
other measure is determined shall be the exercise date.

      (b) Grants. Stock Appreciation Rights may be granted in tandem with, or
independent of, Options granted under the Plan.

      (c) Exercise. Stock Appreciation Rights may be exercised by delivery to
the Company of a written notice of exercise signed by the proper person or by
any other form of notice (including electronic notice) approved by the Board,
together with any other documents required by the Board.

7. Restricted Stock; Restricted Stock Units.

      (a) General. The Board may grant Awards entitling recipients to acquire
shares of Common Stock ("Restricted Stock"), subject to the right of the Company
to repurchase all or part of such shares at their issue price or other stated or
formula price from the recipient in the event that conditions specified by the
Board in the applicable Award are not satisfied prior to the end of the
applicable restriction period or periods established by the Board for such
Award. Instead of granting Awards for Restricted Stock, the Board may grant
Awards entitling the recipient to receive shares of Common Stock to be delivered
at the time such shares of Common Stock vest ("Restricted Stock Units")
(Restricted Stock and Restricted Stock Units are each referred to herein as a
"Restricted Stock Award").

      (b) Terms and Conditions. The Board shall determine the terms and
conditions of a Restricted Stock Award, including the conditions for repurchase
(or forfeiture) and the issue price.

      (c) Stock Certificates. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At

                                       4

<PAGE>

the expiration of the applicable restriction periods, the Company (or such
designee) shall deliver the certificates no longer subject to such restrictions
to the Participant or if the Participant has died, to the beneficiary
designated, in a manner determined by the Board, by a Participant to receive
amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, "Designated Beneficiary" shall mean the
Participant's estate.

8. Other Stock-Based Awards.

      Other Awards of shares of Common Stock, and other Awards that are valued
in whole or in part by reference to, or are otherwise based on, shares of Common
Stock or other property, may be granted hereunder to Participants ("Other Stock
Unit Awards"), including without limitation Awards entitling recipients to
receive shares of Common Stock to be delivered in the future. Such Other Stock
Unit Awards shall also be available as a form of payment in the settlement of
other Awards granted under the Plan or as payment in lieu of compensation to
which a Participant is otherwise entitled. Other Stock Unit Awards may be paid
in shares of Common Stock or cash, as the Board shall determine. Subject to the
provisions of the Plan, the Board shall determine the conditions of each Other
Stock Unit Awards, including any purchase price applicable thereto.

9. Adjustments for Changes in Common Stock and Certain Other Events.

      (a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than an ordinary
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the sub-limit set forth in Section 4(b), (iii) the number and class of
securities and exercise price per share of each outstanding Option, (iv) the
share- and per-share provisions of each Stock Appreciation Right, (v) the
repurchase price per share subject to each outstanding Restricted Stock Award
and (vi) the share- and per-share-related provisions of each outstanding Other
Stock Unit Award, shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent determined by the Board. If
this Section 9(a) applies and Section 9(b) also applies to any event, Section
9(b) shall be applicable to such event, and this Section 9(a) shall not be
applicable.

      (b) Reorganization Events.

            (1) Definition. A "Reorganization Event" shall mean: (a) any merger
or consolidation of the Company with or into another entity as a result of which
all of the Common Stock of the Company is converted into or exchanged for the
right to receive cash, securities or other property or is cancelled, (b) any
exchange of all of the Common Stock of the Company for cash, securities or other
property pursuant to a share exchange transaction or (c) any liquidation or
dissolution of the Company.

            (2) Consequences of a Reorganization Event on Awards Generally. Upon
the occurrence of a Reorganization Event, or the execution by the Company of any
agreement with respect to a Reorganization Event, the Board shall provide that
all outstanding Awards shall be assumed, or substantially equivalent awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof). Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Awards, then the Board may (i) upon written notice to a
Participant, provide that the Participant's unexercised Options or other
unexercised

                                       5

<PAGE>

Awards shall become exercisable in full and will terminate immediately prior to
the consummation of such Reorganization Event unless exercised by the
Participant within a specified period following the date of such notice, (ii)
provide that outstanding Awards shall become realizable or deliverable, or
restrictions applicable to an Award shall lapse, in whole or in part prior to or
upon such Reorganization Event, (iii) in the event of a Reorganization Event
under the terms of which holders of Common Stock will receive upon consummation
thereof a cash payment for each share surrendered in the Reorganization Event
(the "Acquisition Price"), make or provide for a cash payment to a Participant
equal to (A) the Acquisition Price times the number of shares of Common Stock
subject to the Participant's Options or other Awards (to the extent the exercise
price does not exceed the Acquisition Price) minus (B) the aggregate exercise
price of all such outstanding Options or other Awards, in exchange for the
termination of such Options or other Awards, (iv) provide that, in connection
with a liquidation or dissolution of the Company, Awards shall convert into the
right to receive liquidation proceeds (if applicable, net of the exercise price
thereof) and (v) any combination of the foregoing.

            (3) Consequences of a Reorganization Event on Awards Other than
Restricted Stock Awards. For purposes of Section (2) above, an Option, SAR or
Other Stock Unit Award shall be considered assumed if, following consummation of
the Reorganization Event, the Option, SAR or Other Stock Unit Award confers the
right to receive, for each share of Common Stock subject to the Option, SAR or
Other Stock Unit Award immediately prior to the consummation of the
Reorganization Event, the consideration (whether cash, securities or other
property) received as a result of the Reorganization Event by holders of Common
Stock for each share of Common Stock held immediately prior to the consummation
of the Reorganization Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Reorganization Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise or
other payment of Options, SARs or Other Stock Unit Awards to consist solely of
common stock of the acquiring or succeeding corporation (or an affiliate
thereof) equivalent in value (as determined by the Board) to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Reorganization Event. To the extent all or any portion of an
Option becomes exercisable solely as a result of clause (2)(i) above, the Board
may provide that upon exercise of such Option the Participant shall receive
shares subject to a right of repurchase by the Company or its successor at the
Option exercise price; such repurchase right (x) shall lapse at the same rate as
the Option would have become exercisable under its terms and (y) shall not apply
to any shares subject to the Option that were exercisable under its terms
without regard to clause (2)(i) above.

            (4) Consequences of a Reorganization Event on Restricted Stock
Awards. Upon the occurrence of a Reorganization Event other than a liquidation
or dissolution of the Company, the repurchase and other rights of the Company
under each outstanding Restricted Stock Award shall inure to the benefit of the
Company's successor and shall apply to the cash, securities or other property
which the Common Stock was converted into or exchanged for pursuant to such
Reorganization Event in the same manner and to the same extent as they applied
to the Common Stock subject to such Restricted Stock Award. Upon the occurrence
of a Reorganization Event involving the liquidation or dissolution of the
Company, except to the extent specifically provided to the contrary in the
instrument evidencing any Restricted Stock Award or any other agreement between
a Participant and the Company, all restrictions and conditions on all Restricted
Stock Awards then outstanding shall automatically be deemed terminated or
satisfied.

                                       6

<PAGE>

10. General Provisions Applicable to Awards

      (a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution or, other than in the case of an Incentive Stock Option, pursuant
to a qualified domestic relations order, and, during the life of the
Participant, shall be exercisable only by the Participant. References to a
Participant, to the extent relevant in the context, shall include references to
authorized transferees.

      (b) Documentation. Each Award shall be evidenced in such form (written,
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.

      (c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.

      (d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, or the Participant's legal
representative, conservator, guardian or Designated Beneficiary, may exercise
rights under the Award.

      (e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld in connection with an Award to such Participant. If provided for
in an Award or otherwise approved by the Company, for so long as the Common
Stock is registered under the Exchange Act, Participants may satisfy such tax
obligations in whole or in part by delivery of shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value; provided, however, except as otherwise provided by the Board, that
the total tax withholding where stock is being used to satisfy such tax
obligations cannot exceed the Company's minimum statutory withholding
obligations (based on minimum statutory withholding rates for federal and state
tax purposes, including payroll taxes, that are applicable to such supplemental
taxable income). Shares surrendered to satisfy tax withholding requirements
cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.

      (f) Amendment of Award. Except as otherwise provided in Section 5(d), the
Board may amend, modify or terminate any outstanding Award, including but not
limited to, substituting therefor another Award of the same or a different type,
changing the date of exercise or realization, and converting an Incentive Stock
Option to a Nonstatutory Stock Option, provided that the Participant's consent
to such action shall be required unless the Board determines that the action,
taking into account any related action, would not materially and adversely
affect the Participant.

      (g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and

                                       7

<PAGE>

delivery of such shares have been satisfied, including any applicable securities
laws and any applicable stock exchange or stock market rules and regulations,
and (iii) the Participant has executed and delivered to the Company such
representations or agreements as the Company may consider appropriate to satisfy
the requirements of any applicable laws, rules or regulations.

      (h) Acceleration. The Board may at any time provide that any Award shall
become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.

      (i) Performance Conditions.

            (1) This Section 10(i) shall be administered by a Committee approved
by the Board, all of the members of which are "outside directors" as defined by
Section 162(m) or in the absence of a committee so constituted, the Board as a
whole (the "Section 162(m) Committee").

            (2) Notwithstanding any other provision of the Plan, if the Section
162(m) Committee determines, at the time a Restricted Stock Award or Other Stock
Unit Award is granted to a Participant, that such Participant is, or may be as
of the end of the tax year in which the Company would claim a tax deduction in
connection with such Award, a Covered Employee (as defined in Section 162(m)),
then the Section 162(m) Committee may provide that this Section 10(i) is
applicable to such Award.

            (3) If a Restricted Stock Award or Other Stock Unit Award is subject
to this Section 10(i), then the lapsing of restrictions thereon and the
distribution of cash or Shares pursuant thereto, as applicable, shall be subject
to the achievement of one or more objective performance goals established by the
Section 162(m) Committee, which shall be based on the relative or absolute
attainment of specified levels of one or any combination of the following: (a)
stock price, (b) market share, (c) regulatory compliance, (d) total shareholder
return, (e) cash flow, (f) filing of regulatory applications with respect to new
product candidates and drug products, (g) commercial launch of new drug
products, (h) successful completion of clinical trials, and (i) successful
discovery of new drug candidates and may be absolute in their terms or measured
against or in relationship to other companies comparably, similarly or otherwise
situated. Such performance goals: (i) may vary by Participant and may be
different for different Awards; (ii) may be particular to a Participant or the
department, branch, line of business, subsidiary or other unit in which the
Participant works and may cover such period as may be specified by the Section
162(m) Committee; and (iii) shall be set by the Section 162(m) Committee within
the time period prescribed by, and shall otherwise comply with the requirements
of, Section 162(m).

            (4) Notwithstanding any provision of the Plan, with respect to any
Restricted Stock Award or Other Stock Unit Award that is subject to this Section
10(i), the Section 162(m) Committee may adjust downwards, but not upwards, the
cash or number of Shares payable pursuant to such Award, and the Section 162(m)
Committee may not waive the achievement of the applicable performance goals
except in the case of the death or disability of the Participant.

            (5) The Section 162(m) Committee shall have the power to impose such
other restrictions on Awards subject to this Section 10(i) as it may deem
necessary or appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code, or any successor provision thereto.

                                       8

<PAGE>

11. Miscellaneous

      (a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.

      (b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.

      (c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award may be granted unless
and until the Plan has been approved by the Company's stockholders. No Awards
shall be granted under the Plan after the completion of 10 years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.

      (d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time; provided that, to the extent determined by
the Board, no amendment requiring stockholder approval under any applicable
legal, regulatory or listing requirement shall become effective until such
stockholder approval is obtained. No Award shall be made that is conditioned
upon stockholder approval of any amendment to the Plan.

      (e) Provisions for Foreign Participants. The Board may modify Awards or
Options granted to Participants who are foreign nationals or employed outside
the United States or establish subplans or procedures under the Plan to
recognize differences in laws, rules, regulations or customs of such foreign
jurisdictions with respect to tax, securities, currency, employee benefit or
other matters.

      (f) Compliance With Code Section 409A. No Award shall provide for deferral
of compensation that does not comply with Section 409A of the Code, unless the
Board, at the time of grant, specifically provides that the Award is not
intended to comply with Section 409A of the Code.

      (g) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, excluding choice-of-law principles of the law of such
state that would require the application of the laws of a jurisdiction other
than such state.

      (h) Authorization of Sub-Plans. The Board may from time to time establish
one or more sub-plans under the Plan for purposes of satisfying applicable blue
sky, securities or tax laws of various jurisdictions. The Board shall establish
such sub-plans by adopting supplements to this Plan containing (i)

                                       9

<PAGE>

such limitations on the Board's discretion under the Plan as the Board deems
necessary or desirable or (ii) such additional terms and conditions not
otherwise inconsistent with the Plan as the Board shall deem necessary or
desirable. All supplements adopted by the Board shall be deemed to be part of
the Plan, but each supplement shall apply only to Participants within the
affected jurisdiction and the Company shall not be required to provide copies of
any supplement to Participants in any jurisdiction which is not the subject of
such supplement.

                                       10

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