EX-10.8 12 ex-10_8.txt EXHIBIT 10.8 Exhibit 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of November 1, 1997 (the "Effective Date"), by and between CHILES OFFSHORE LLC, a Delaware limited liability company (the "Company"), and WILLIAM E. CHILES (the "Executive"). The Company desires to employ the Executive and the Executive desires to accept employment with the Company, on the terms and conditions of this Agreement. Accordingly, the parties agree as follows: 1. Employment, Duties and Acceptance. 1.1 Employment by the Company and Duties. The Company hereby agrees to employ the Executive for a term commencing on the Effective Date and expiring at the end of the day on the third anniversary of the Effective Date (such date, or later date to which this Agreement is extended in accordance with the terms hereof, the "Termination Date"), unless earlier terminated as provided in Section 4 or unless extended as provided herein (the "Term"). The Term shall be automatically extended commencing on the Termination Date and on each Termination Date thereafter (each such date being a "Renewal Date"), so as to terminate one (1) year from such Renewal Date, unless and until (i) at least ninety (90) days prior to a Renewal Date either party hereto gives written notice to the other that the Term should not be further extended, in which event the Termination Date shall be the Renewal Date following such notice, or (ii) less than ninety (90) days prior to a Renewal Date but before the Renewal Date either party hereto gives written notice to the other that the Term should not be further extended, in which event the Termination Date shall be the date ninety (90) days after such written notice is given. If no such written notice is given by either party prior to the Renewal Date, the Term shall be automatically extended for another year from such Renewal Date, as provided in the foregoing sentence. During the Term, the Executive shall serve in the capacity of President and Chief Executive Officer of the Company, and shall also serve in those offices and directorships of subsidiaries of the Company. or their subsidiaries, to which he may from time to time be appointed or elected. During the Term, the Executive shall devote all reasonable efforts and substantially all of his business time and services to the Company, subject to the direction of the Management Committee of the Company (the "Committee"). The Executive shall not engage in any other business activities except for passive investments in corporations or partnerships not engaged in the Company Business (as hereinafter defined) to the extent permitted by Section 3 1.1. 1.2 Acceptance of Employment by the Executive. The Executive hereby accepts such employment and shall render the services and perform the duties described above. 2. Compensation and Other Benefits. 2.1 Annual Salary. The Company shall pay to the Executive an annual salary at a rate of not less than two hundred thousand dollars ($200,000) per year (the "Annual Salary"), subject to review and adjustment by the Committee annually in accordance with industry standards, taking into account the Executive's performance, the Company's scope of operations, industry conditions and the overall performance of the Company within the industry. In no event shall the Executive's Annual Salary be reduced to less than $200,000 per year without his prior written consent. The Executive hereby expressly acknowledges that the preceding two sentences shall not be construed as requiring the Company or the Committee to make any annual increases in the Annual Salary. The Annual Salary shall be payable in accordance with the payroll policies of the Company as from time to time in effect, but in no event less frequently than once each month, less such deductions as shall be required to be withheld by applicable law and regulations. 2.2 Bonuses. The Executive shall receive an incentive bonus, if earned, with respect to fiscal years ending during the Term hereof (the "Incentive Bonus"). The amount of the Incentive Bonus for the fiscal year ending December 31, 1997 shall be determined by the Committee, in its sole discretion. The criteria for determining the amount of the Incentive Bonus for each fiscal year thereafter shall be set forth in a formalized plan which is prepared by the Committee and approved by the Compensation Committee of the Committee, if any. The Committee shall use reasonable guidelines for establishing such criteria based upon the performance of the Executive, including, without limitation, the extent to which the Company achieves its business plan. 2.3 Vacation Policy. The Executive shall be entitled to a paid vacation of four weeks during each year of the Term. 2.4 Participation in Employee Benefit Plans. The Company agrees to permit the Executive during the Term, if and to the extent eligible, to participate in the group life, hospitalization and disability insurance plans, health program, pension plan, any similar benefit plan or other so called "fringe benefits" of the Company (collectively, "Benefits") which may be available to other executives and employees of the Company on terms no less favorable to the Executive than the terms offered to such other executives and employees, to the extent such Benefits are offered by the Company. Provided the Executive is insurable at standard rates (i) the Company agrees to use its best efforts to obtain immediate coverage for the Executive upon 2 the commencement of the Term under its existing or newly adopted medical expense and hospitalization plan (to the extent offered by the Company) for employees without premium surcharge and without exclusions for disclosed preexisting conditions, and (ii) the Company shall increase the coverage under the Executive's existing ten year level term life insurance policy, insuring the life of the Executive and with beneficiaries designated pursuant to the Executive's instructions, to the amount of one million two hundred thousand dollars (or the Company shall obtain an additional ten year level term life insurance policy in the amount of two hundred thousand dollars, such that the total of the existing and new life insurance policies shall be one million two hundred thousand dollars), and shall pay all premiums under such policy (or policies) during the Term. During the Term, the Company also shall provide disability insurance for the Executive, which shall provide for payments based on 60% of the Annual Salary paid to the Executive for the prior fiscal year upon his disability; provided, however, that maximum amount the Company shall pay for such disability insurance shall be five thousand dollars per year. If such disability insurance premium exceeds five thousand dollars per year, the Executive may elect to pay the amount in excess of five thousand dollars per year in order to obtain such disability insurance. If the Executive does not elect to pay any such excess, the Company's obligation shall be limited to providing the maximum amount of disability insurance that may be obtained for five thousand dollars per year in payments. The Executive shall cooperate with the Company in applying for such coverage, including submitting to a physical exam and providing all relevant health and personal data. 2.5 General Business Expenses. The Company shall pay or reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive during the Term in the performance of the Executive's services under this Agreement. Such payment shall be made upon presentation of such documentation as the Company customarily requires of its senior executive employees prior to making such payments or reimbursements. 2.6 Club Dues. During the Term, the Company shall pay the Executive an allowance of eight hundred dollars ($800.00) per month, which the Executive shall apply to the cost associated with country club dues and expenses at the Houston Country Club and the Houstonian, or any comparable clubs or organizations, so long as the Executive is a member of such club or clubs. 3. Non-Competition Confidentiality and Company Property. 3.1 Covenant Against Competition. The Executive acknowledges that (i) the Company is currently engaged in the business of constructing, owning, managing and operating offshore drilling rigs and hiring and managing crews to operate such rigs, which equipment and crews are contracted or hired by third parties for the purpose of drilling oil and gas wells 3 offshore (the "Company Business") and (ii) the agreements and covenants contained in this Section 3 are essential to protect the business and goodwill of the Company. The Executive further acknowledges that the agreements and covenants contained in this Section 3 are being given to induce SEACOR Offshore Rigs Inc. to invest $35,000,000 in the Company. Accordingly, the Executive covenants and agrees as follows: 3.1.1 Non-Compete. As an independent covenant, and in order to enforce the provision of Section 3.1.2 hereof and the other provisions of this Agreement, the Executive agrees that he shall not during the Restricted Period (as hereinafter defined), directly or indirectly (except in the Executive's capacity as an officer of the Company or any of its subsidiaries), (i) engage or participate in the Company Business; (ii) divert, take or solicit any offshore drilling business of any customer of the Company or its subsidiaries; (iii) enter the employ of, or render any other services to, any person engaged in the Company Business except as permitted hereunder; or (iii) become interested in any such person in any capacity, including, without limitation, as an individual, partner, shareholder, lender, officer, member, manager, director, principal, agent or trustee except as permitted hereunder; provided. however, that the Executive may own, directly or indirectly, solely as an investment, securities of any person traded on any national securities exchange or listed on the National Association of Securities Dealers Automated Quotation System if the Executive is not a controlling person of, or a member of a group which controls, such person and the Executive does not, directly or indirectly, own 5% or more of any class of equity securities, or securities convertible into or exercisable or exchangeable for 5% or more of any class of equity securities, of such person. As used in this Agreement, the "Restricted Period" shall mean a period commencing on the date hereof and continuing until the end of the Term and for such additional period thereafter, if any, during which the Company is obligated to pay the Severance Payments (as hereinafter defined), and is making such payments, to the Executive as provided in Section 4.3 hereof. 3.1.2 Property of the Company. All memoranda, notes, lists, records, engineering drawings, technical specifications and related documents and other documents or papers (and all copies thereof) relating to the Company or its subsidiaries, including such items stored in computer memories, computer disks, microfiche or by any other means, made or compiled by or on behalf of the Executive during the Restricted Period, or made available to the Executive during the Restricted Period relating to the Company, its affiliates or its subsidiaries or any entity which may hereafter become an affiliate or subsidiary thereof, shall be the property of the Company, and shall be delivered, along with any copies thereof, to the Company promptly upon the termination of the Executive's employment with the Company for any reason whatsoever or at any other time upon request; provided, however, that the Executive's address books, diaries, chronological correspondence files, rolodex files and 4 information regarding the Executive's ownership interest in the Company shall be deemed to be property of the Executive. 3.1.3 Employees of the Company. During the Restricted Period, the Executive shall not induce or attempt to influence any employee of the Company or any of its affiliates or subsidiaries to terminate such employee's employment. 3.1.4 Confidential Information. The Executive acknowledges that the Company and its subsidiaries have a legitimate and continuing proprietary interest in the protection of their confidential information. In exchange for the Company and its subsidiaries providing the Executive access to such confidential information, the Executive agrees not to make any unauthorized use, publication, or disclosure, during or subsequent to his employment by the Company, of any confidential information, generated or acquired by the Executive during the course of his employment by the Company, except to the extent that the disclosure of such confidential information is necessary to fulfill his responsibilities as an employee of the Company. As used herein, "confidential information" shall mean information that was not known by the Executive prior to his employment by the Company and that is not generally known by or available to persons engaged in the Company Business or to the public, which information consists of financial information, financial figures, trade secrets, details of client or consulting contracts, pricing policies, operational methods, marketing plans or strategies, business acquisition plans, technical processes, designs and design projects, inventions and research projects, ideas, discoveries, inventions, improvements, trade secrets and other proprietary information of the Company or its subsidiaries. This Section 3.1.4 shall survive indefinitely the termination of this Agreement. 3.1.5 Company's Interest. The Executive agrees that these covenants are made to protect the legitimate business interests of the Company, including interests in the Company's property described in and pursuant to Section 3.1.2, and not to restrict his mobility or to prevent him from utilizing his general technical skills. The Executive understands as a part of these covenants that the Company intends to exercise whatever legal recourse against him for any breach of this Agreement and, in particular, for any breach of these covenants. 3.2 Rights and Remedies Upon Breach. If the Executive breaches any of the provisions contained in Section 3.1 of this Agreement (the "Restrictive Covenants"), the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity: 5 3.2.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. 3.2.2 Accounting. The right and remedy to require the Executive to account for and pay over to the Company, all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the result of any action constituting a breach of the Restrictive Covenants. 3.3 Severability of Covenants. The Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in duration and geographical scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. 3.4 Court Review. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of, or scope of activities restrained by, such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 3.5 Enforceability in Jurisdictions. The Company and the Executive intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Restrictive Covenants, as to breaches of such Restrictive Covenants in such other respective jurisdictions, such Restrictive Covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 4. Termination. 4.1 Termination Upon Death. If the Executive dies during the Term, this Agreement shall terminate; provided, however, that in any such event, the Company shall pay to the Executive's estate (i) any portion of the Annual Salary and any accrued Incentive Bonuses that shall have been earned by the Executive prior to the termination but not yet paid, 6 (ii) any Benefits that have vested in the Executive at the time of such termination as a result of his participation in any of the Company's benefit plans (which shall be paid in accordance with the provisions of such plan), and (iii) reimbursement for any expenses with respect to which the Executive is entitled to reimbursement pursuant to Section 2.5 of this Agreement, within thirty (30) days after such termination. The Executive's right to indemnification, payment or reimbursement pursuant to Section 6 of this Agreement shall not be affected by such termination and shall continue in full force and effect, both with respect to proceedings that are threatened, pending or completed at the date of such termination and with respect to proceedings that are threatened, pending or completed after that date. 4.2 Termination With Cause. The Company has the right, at any time during the Term, subject to all of the provisions hereof, exercisable by serving notice, effective on or after the date of service of such notice as specified therein, to terminate the Executive's employment under this Agreement and discharge the Executive with Cause. If such right is exercised, the Company's obligation to the Executive shall be limited solely to the payment of unpaid Annual Salary accrued, together with accrued but unpaid Incentive Bonuses, if any, and Benefits vested up to the effective date specified in the Company's notice of termination. As used in this Agreement, the term "Cause" shall mean and include (i) chronic alcoholism or controlled substance abuse as determined by a doctor of medicine selected by the Company that is authorized to practice medicine by the State of Texas and whose practice is located in Houston, Texas, (ii) an act of proven fraud or dishonesty on the part of the Executive, (iii) knowing and material failure by the Executive to comply with material applicable laws and regulations relating to the business of the Company or its subsidiaries; (iv) the Executive's material and continuing failure to perform (as opposed to unsatisfactory performance) his duties hereunder or a material breach by the Executive of this Agreement except) in each case, where such failure or breach is caused by the illness or other similar incapacity or disability of the Executive; or (v) conviction of a crime involving moral turpitude or a felony. Prior to the effectiveness of termination for Cause under subclause (i), (ii), (iii) or (iv) above, the Executive shall be given 30 days' prior written notice from the Committee specifically identifying the reasons which are alleged to constitute Cause for any termination hereunder and an opportunity to be heard by the Committee in the event the Executive disputes such allegations. This Agreement shall not be terminated for Cause under subclause (i), (iii) or (iv) above if the reasons which are alleged to constitute Cause under such subclauses shall no longer exist and shall not be continuing within thirty (30) days of the receipt of such notice by the Executive; provided, however, that the Executive shall not have such right to cure pursuant to the foregoing sentence and prevent termination for Cause if (i) substantially the same reasons constituting Cause previously occurred and were the basis for a previous termination notice to the Executive from the Committee, and (ii) this Agreement was not terminated based on such previous occurrence because the reasons which were alleged to constitute Cause no 7 longer existed and were not continuing within thirty (30) days of the Executive's receipt of such notice. 4.3 Termination Without Cause. The Company has the right, at any time during the Term, subject to all of the provisions hereof, exercisable by serving notice, effective on or after the date of service of such notice as specified therein, to terminate the Executive's employment under this Agreement and discharge the Executive without Cause. If the Executive is terminated during the Term without Cause (including any termination which is deemed to be a constructive termination without Cause under Section 4.6 hereof), the Company's obligation to the Executive shall be limited solely to the payment, at the times and upon the terms provided for herein, of (i) two times the Average Compensation (as hereinafter defined) and (ii) any unpaid Incentive Bonuses and Benefits awarded or accrued up to the date of termination. In the event of a termination by the Company without Cause within nine months before or after a Change of Control of the Company (as hereinafter defined), including a constructive termination without Cause pursuant to Section 4.6, the amount due to the Executive pursuant to clause (i) of the preceding sentence (the "Severance Payments") shall be increased to three times the Average Compensation. Any amounts due to the Executive pursuant to clause (ii) of the second sentence of this Section 4.3 shall be due and payable within thirty (30) days after the date of termination. The Severance Payments shall be due and payable in twenty-four (24) equal monthly payments, or in thirty-six (36) equal monthly payments in the event of a termination by the Company without Cause in connection with a Change of Control of the Company pursuant to the preceding sentence, beginning thirty (30) days after the date of termination. Notwithstanding anything herein to the contrary, the Restricted Period, and the Company's obligations to pay additional Severance Payments to the Executive, shall be subject to early termination, and shall terminate immediately, at any time after the Executive is terminated without Cause upon the earlier to occur of (a) the Executive giving written notice to the Company that he is terminating the Restricted Period effective upon receipt of such notice by the Company, or effective at any designated time thereafter (not to exceed thirty (30) days after the Company's receipt of such notice), (b) the Executive's violation of any of the provisions of Section 3, or (c) the end of the twenty-four or thirty-six month period, as applicable, for payment of the Severance Payments pursuant to the terms hereof. Upon any termination pursuant to the preceding clauses(a) or (b) (in either case an "Early Termination"), no further Severance Payments shall be payable for periods after the effective date of such Early Termination, except for amounts payable by the Company to the Executive for periods prior to the effective date of such Early Termination. The Executive and the Company agree that the foregoing right of the Company to terminate the Severance Payments shall be enforceable by the Company notwithstanding any ruling by any court or any arbitrator that one or more of the provisions of Section 3 are unenforceable for any reason whatsoever. For purposes hereof, "Average Compensation" shall mean (x) the average of the 8 Annual Salary earned by the Executive during the two years preceding the date of termination, or (y) if this Agreement has been in effect for less than two years on the date of such early termination, (A) the total Annual Salary earned by the Executive during the period from the Effective Date to the date of such termination, divided by (B) the total number of days in such period, multiplied by (C) 365. 4.4 Termination by the Executive. Any termination of this Agreement by the Executive during the Term, except such termination as is deemed to be a constrictive termination without Cause by the Company under Section 4.6 of this Agreement, shall entitle the Company to discontinue payment of all Annual Salary, Incentive Bonuses and Benefits not earned and payable prior to the date of such termination. 4.5 Termination Upon Disability. If during the Term the Executive becomes physically or mentally disabled, whether totally or partially, as evidenced by the written statement of a competent physician licensed to practice medicine in the United States who is mutually acceptable to the Company and the Executive or his closest relative if he is not then able to make such a choice, so that the Executive is unable substantially to perform his services hereunder for (i) a period of four consecutive months, or (ii) for shorter periods aggregating 120 days during any twelve-month period, the Company may at any time after the last day of the four consecutive months of disability or the day on which the shorter periods of disability equal an aggregate of 120 days, by written notice to the Executive, terminate the Executive's employment hereunder and discontinue payments of the Annual Salary, Incentive Bonuses and Benefits accruing from and after the date of such termination. The Executive shall be entitled to the full compensation payable to him hereunder for periods of disability shorter than the periods specified in clauses (i) and (ii) of the previous sentence. 4.6 Constructive Termination Without Cause. Notwithstanding any other provision of this Agreement, the Executive's employment under this Agreement may be terminated during the Term by the Executive, which shall be deemed to be constructive termination by the Company without Cause, if one of the following events shall occur without the consent of the Executive: (i) a failure to elect or reelect or to appoint or reappoint the Executive to the office of President and Chief Executive Officer of the Company or other material change by the Company of the Executive's functions, duties or responsibilities which change would reduce the ranking or level, dignity, responsibility, importance or scope of the Executive's position with the Company from the position and attributes thereof described in Section 1 above; (ii) the assignment or reassignment by the Company of the Executive to a location not within 20 miles of the Company's current location; (iii) the liquidation, dissolution consolidation or merger of the Company, or transfer of all or substantially all of its assets, other than (a) a consolidation or merger in which the Company is the sole surviving entity or 9 (b) a transaction in which a successor corporation with a net worth substantially the same as or greater than that of the Company assumes this Agreement and all obligations and undertakings of the Company hereunder; (iv) a reduction in the Executive's fixed salary below $200,000 per year or change by the Company without the consent of the Executive in the method of determining the Executive's annual bonus that results in a reduction of such annual bonus; (v) the failure of the Company to continue to provide the Executive with office space, related facilities, staff and secretarial assistance that are commensurate with the Executive's responsibilities to and position with the Company; (vi) the notification by the Company of the Company's intention not to observe or perform one or more of the material obligations of the Company under this Agreement; (vii) the failure by the Company to indemnify, pay or reimburse the Executive at the time and under the circumstances required by Section 6 of this Agreement; (viii) failure of the Company to pay the Annual Salary, the Incentive Bonus or any other compensation or amounts payable hereunder when due; or (ix) the occurrence of any other material breach of this Agreement by the Company or any of its subsidiaries. Any such termination shall be made by written notice to the Committee, specifying the event relied upon for such termination and given within 90 days after such event. Any constructive termination shall be effective 30 days after the date the Committee has been given such written notice setting forth the grounds for such termination with specificity; provided, however, that the Executive shall not be entitled to terminate this Agreement in respect of any of the grounds set forth above if within 30 days after such notice the action constituting such ground for termination has been cured and is no longer continuing. 4.7 Change of Control. For the purposes hereof, a "Change of Control of the Company" shall be deemed to have occurred if any person or group of persons that are directly or indirectly actively engaged, in whole or in part, in the Drilling Business (as hereinafter defined) acquire, directly or indirectly, (i) the power to direct or cause the direction of the management or policies of the Company. whether through the ownership of voting securities or other equity interests, by contract or otherwise, including without limitation, the acquisition of membership interests or other securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (ii) all or substantially all of the assets of the Company, including, without limitation, in the case of either of the preceding subsections (i) and (ii), pursuant to a sale, transfer, assignment or other conveyance of membership interests or other securities, merger, consolidation, exchange of securities, sale, transfer, assignment or other conveyance of assets or plan of liquidation or other reorganization, and whether by operation of law or otherwise. As used herein, the term "Drilling Business" shall mean the business of owning, leasing, managing or operating drilling rigs, which drilling rigs and associated crews are contracted or hired by third parties for the purpose of drilling oil and gas wells. For purposes of determining if a Change of Control of the Company has occurred, any person owning less than 10% of the voting securities or other 10 equity interests in the Company shall be excluded from the analysis under the preceding subclause (i) of this Section 4.7. 4.8 Limitation on Severe payments. Notwithstanding the provisions of Section 4.3, if any portion of the amounts payable to the Executive pursuant to Section 4.3 (the "Total Compensation") constitutes an excess parachute payment subject to tax pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or any successor statute, the Total Compensation shall be reduced to the minimum extent necessary to insure that no portion of the Total Compensation is a taxable excess parachute payment. Any such reduction shall be made by reducing the last payment payable to the Executive as part of the Severance Payments, and, if necessary, reducing such additional payments in the reverse order that they are due until the reduction required by the preceding sentence is accomplished. 5. Insurance. The Company may, from time to time, apply for and take out, in its own name and at its own expense, naming itself or one or more of its affiliates as the designated beneficiary (which it may change from time to time), policies for life, health, accident, disability or other insurance upon the Executive in any amount or amounts that it may deem necessary or appropriate to protect its interest. The Executive agrees to aid the Company in procuring such insurance by submitting to medical examinations and by filling out, executing and delivering such applications and other instruments in writing as may reasonably be required by an insurance company or companies to which any application or applications for insurance may be made by or for the Company. 6. Indemnification. 6.1 The Company shall indemnify and hold harmless the Executive from and against any and all losses, claims, demand, costs, damages, liabilities, expenses of any nature (including, without limitation, reasonable attorneys' fees and disbursements), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which the Executive may be involved, or threatened to be involved, as a party or otherwise, arising out of or incidental to the business of the Company or its affiliates or subsidiaries, including, without limitation, liabilities under the federal and state securities laws, regardless of whether the Executive continues to be employed by the Company or such affiliate or subsidiary at the time any such liability or expense is paid or incurred, if (i) the Executive acted in good faith and in a manner he reasonable believed to be in, or not opposed to, the interests of the Company and, with respect to any criminal proceeding, had no reason to believe his conduct was unlawful, and (ii) the Executive's conduct did not constitute actual fraud, gross negligence or willful or wanton misconduct. The termination of any action, suit or proceeding by judgment, order, 11 settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, in and of itself, create a presumption or otherwise constitute evidence that the Executive acted in a manner contrary to that specified in (i) or (ii) above. 6.2 Expenses (including, without limitation, reasonable legal fees and expenses) incurred in defending any proceeding subject to Section 6.1 shall be paid by the Company in advance of the final disposition of such proceeding upon receipt of a written affirmation by the Executive of his good fifth belief that he has met the standard of conduct necessary for indemnification under this Section 6 and a written undertaking (which need not be secured) by or on behalf of the Executive to repay such amount if it shall be ultimately determined, by a court of competent jurisdiction or otherwise, that the Executive is not entitled to be indemnified by the Company as authorized hereunder. 6.3 The indemnification provided by this Section 6 shall be in addition to any other rights to which the Executive may be entitled under any agreement or vote of the Committee by the vote of Managers that are disinterested and unaffiliated with the Executive, as a matter of law or otherwise, both as to action in the Executive's capacity as an officer and employee of the Company or as a person serving at the request of the Company and shall continue after the Executive has ceased to serve in such capacity and shall inure to the benefit of the heirs, administrators and personal representatives of the Executive. 6.4 The Company may purchase and maintain directors and officers insurance or similar coverage for its Managers and officers, including the Executive, in such amounts and with such deductibles or self-insured retentions as are customary for persons engaged in businesses similar in size and type to those ended in by the Company. 6.5 The Executive shall not be denied indemnification in whole or in part under this Section 6 because the Executive had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement and all material facts relating to the executive's interest were adequately disclosed to the Committee at the time the transaction was consummated. 6.6 The provisions of this Section 6 are for the benefit of the Executive and his heirs, administrators and personal representatives and shall not be deemed to create any rights for the benefit of any other persons. The provisions of this Section 6 shall survive termination of this Agreement for any reason or cause. 7. Other Provisions. 12 7.1 Certain Definitions. As used in this Agreement, the following terms have the following meanings unless the context otherwise requires: (i) "affiliate" with respect to the Company means any other person controlled by or under common control with the Company but shall not include any stockholder or director of the Company, as such. (ii) "person" means any individual, corporation, limited liability company, partnership, firm, joint Company, association, joint-stock company, trust, unincorporated organization, governmental or regulatory body or other entity. (iii) "subsidiary" means any corporation or other entity 50% or more of the voting securities of which are owned directly or indirectly by the Company. 7.2 Notice. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, on the date of actual receipt thereof, as follows: (i) if to the Company, to: Chiles Offshore LLC 11200 Westheimer, Suite 410 Houston, Texas 77042 Fax No. (713) 339-3888 With a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153-0119 Attn: David Zeltner Fax No. (212) 310-8007 (ii) if to the Executive, to: William E. Chiles 5096 Fieldwood Drive Houston, Texas 77056 Fax No. (713) 850-1203 13 With a copy to: Gardere Wynne Sewell & Riggs, L.L.P. 333 Clay Avenue, Suite 800 Houston, Texas 77002 Attn: Mr. N. L. Stevens III Fax No. (713) 308-5807 Any party may change its address for notice hereunder by notice to the other party hereto. 7.3 Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof ant supersedes all prior agreements, written or oral, with respect thereto. 7.4 Waivers and Amendments. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any waiver on the part of any party of any such right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 7.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas (without giving effect to the choice of law provisions thereof) where the employment of the Executive shall be deemed, in part, to be performed and, subject to Section 7.11 hereof, enforcement of this Agreement or any action taken or held with respect to this Agreement Shall be taken in the courts of appropriate jurisdiction in Houston, Texas. 7.6 Assignment. This Agreement, and any rights and obligations hereunder, may not be assigned by the Executive and may be assigned by the Company (subject to Section 4.6 (iii) hereof) only to a successor by merger or purchaser of substantially all of the assets of the Company. 7.7 Counterparts. This Agreement may be executed in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.8 Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 14 7.9 No Presumption Against Interest. This Agreement has been negotiated, drafted, edited and reviewed by the respective parties, and therefore, no provision arising directly or indirectly herefrom shall be construed against any party as being drafted by said party. 7.10 Validity Contest. The Company shall promptly pay any and all legal fees and expenses incurred by the Executive from time to time as a direct result of the Company's contesting the due execution, authorization, validity or enforceability of this Agreement. 7.11 Dispute Resolution. If any dispute arises out of or relates to this Agreement, or the breach thereof, Executive and the Company agree to promptly negotiate in good faith to resolve such dispute. If the dispute cannot be settled by the parties through negotiation, Executive and the Company agree to try in good faith to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration Association before resorting to arbitration, litigation or any other dispute resolution procedure. If the parties are unable to settle the dispute by mediation as provided in the preceding sentence, any claim, controversy or dispute arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration before a panel of three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association, The arbitration shall be conducted in Houston, Harris County, Texas, or such other location to which the parties mutually agree. The decision of the arbitrator(s) shall be final and binding and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The costs of mediation and arbitration may be awarded to either party by the mediator or the arbitrators and absent such award shall be borne equally by the parties. 7.12 Binding Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and its respective successors and assigns and the Executive and his legal representatives. 7.13 No Third Party Beneficiaries. Notwithstanding anything in this Agreement to the contrary, express or implied, any right, benefit, or agreement contained, expressed or implied in this Agreement shall be only for the benefit of the parties hereto and their respective legal representatives, successors, heirs, and assigns, and such rights, benefits and other agreements shall not enure to the benefit of any other person or entitle any such person to any claim, cause of action, remedy or other rights of any kind, it being the intention of the parties hereto that no person shall be deemed a third party beneficiary of this Agreement. [The remainder of this page has been intentionally left blank.] 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EXECUTIVE /s/ William E. Chiles -------------------------- William E. Chiles COMPANY CHILES OFFSHORE LLC By: /s/ Randall Blank -------------------------- Name: Randall Blank Title: Vice President 16