1
EXHIBIT 10.01
EMPLOYMENT AGREEMENT
AGREEMENT by and among Mu Sub, Inc., an Indiana corporation
(the "Company"), Xxxxx Industries, Inc., an Indiana corporation ("Xxxxx"), and
V. Xxxxxxx Xxxx (the "Executive") dated as of the 6th day of April, 2000.
The Boards of Directors of the Company and Xxxxx have
determined that it is in their best interests to assure that Xxxxx will have the
continued dedication of the Executive pending the consummation of the
transactions contemplated among Meritor, Inc., a Delaware corporation
("Meritor"), the Company, a wholly owned subsidiary of Meritor, and Xxxxx (the
"Merger") pursuant to the Agreement and Plan of Reorganization dated as of April
6th, 2000 (the "Merger Agreement") and to provide the Company with continuity of
management following the Merger. Therefore, in order to accomplish these
objectives Xxxxx and the Company have each entered into this Agreement with the
Executive.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the
Effective Time as defined in the Merger Agreement.
2. Employment Period. Subject to the terms and conditions of
this Agreement, the Company hereby agrees to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, for the period
commencing on the Effective Date and ending on October 1, 2003 (the "Employment
Period").
3. Terms of Employment. (a) Position and Duties. (i) (A)
During the Employment Period, the Executive shall initially serve as the
President of the Company and as Vice Chairman of the Board of Directors of the
Company (the "Board"), and it is the intention of the parties hereto and of
Meritor to recommend to the Board that the Executive shall serve in the
positions set forth in the following sentence commencing at the times set forth
in the following sentence hereof, in each case, with such duties and
responsibilities as may be assigned to the Executive by the Chief Executive
Officer of Meritor as of the date hereof (the "Current CEO") (while the
Executive is serving as President) and/or by the Board, and as are commensurate
and consistent with such positions, and with the authority as is commensurate
and consistent with such positions, and (B) the Executive, who shall reside in
the Detroit, Michigan area, shall be based at the Company's headquarters. It is
the intention of the parties hereto and of Meritor to recommend to the Board
that, upon the earlier of (x) the retirement or cessation of service of the
Current CEO from the position of Chief Executive Officer of the Company or (y)
October 1, 2002, and subject to the approval of the Board, the Executive shall
commence serving as the Chief Executive Officer of the Company, and, upon the
earlier of (x) the retirement or cessation of service of the Current CEO from
the position of Chairman of the Board or (y) October 1, 2003, and subject to the
approval of the Board, the Executive shall commence serving as the Chairman of
the Board. While the Executive is serving as President of the Company during the
Employment Period, the Executive shall report directly to the Current CEO.
During the
2
Employment Period, it is intended that the Executive shall serve as a member of
the Board, subject to the Executive's earlier resignation from the Board or
removal from the Board pursuant to the terms of the Company's By-laws.
(i) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote his full time and attention to the business and
affairs of the Company and to use his reasonable best efforts to perform
faithfully and efficiently the responsibilities assigned to the Executive
hereunder. During the Employment Period, the Executive will not serve on
corporate boards without the prior approval of the Board. The Executive may also
manage personal investments, so long as such activities do not interfere with
the performance of the Executive's responsibilities to the Company in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to the
Effective Date and disclosed in Arvin's Definitive Proxy Statement, dated March
13, 2000, the continued conduct of such activities subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary (the "Annual Base
Salary") of no less than the Executive's year 2000 annual base salary
($800,000). Beginning October 1, 2000, the Annual Base Salary shall be reviewed,
consistent with the Company's practice for senior executives. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" and "affiliates" shall include any
company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. Beginning October 1, 2000, the
Executive shall be entitled to receive an annual cash bonus (the "Annual
Bonus"), based on a percentage of the Executive's Annual Base Salary, pursuant
to the terms of the Company's annual bonus plan for senior executives, including
the Current CEO, as in effect from time to time. With respect to each fiscal
year during the Employment Period, the Executive's target bonus opportunity
shall be determined by the Compensation and Management Development Committee of
the Board (the "Compensation Committee"). Notwithstanding anything contained
herein to the contrary, with respect to the annual bonus period occurring during
the fiscal year beginning on October 1, 2000, the sum of the Executive's Annual
Base Salary and Annual Bonus shall be at least equal to 90% of the sum of the
annual base salary and annual bonus paid or payable to the Current CEO with
respect to such fiscal year. For the period from the Effective Date through
September 30, 2000, the Executive shall receive a pro rata share of the bonus
for the period from January 1, 2000 through September 30, 2000, determined in
accordance with the Xxxxx Annual Incentive Plan.
(iii) Initial Equity Award. On the Effective Date,
the Company shall grant the Executive an award of restricted shares (the
"Restricted Stock") of the Company's common stock (the "Common Stock") and a
stock option to acquire a number of shares of
-2-
3
Common Stock (the "Option" and together with the Restricted Stock, the "Initial
Equity Award"), with the "value" of the Initial Equity Award to be equal to the
aggregate of the amounts payable to the Executive, assuming that he were
terminated other than for Cause on the Effective Date, under Section 6(a) of the
Employment Agreement between Xxxxx and the Executive in the form publicly filed
as an Exhibit to Arvin's Form 10-K filed for the year ended December 28, 1997
(the "Prior Agreement"). For purposes hereof, the "value" of the Initial Equity
Award will be determined on the same basis as the value of the initial equity
awards of Common Stock for the other senior executives of Xxxxx is determined,
as mutually agreed upon (including, without limitation, the assumptions to be
used for purposes of the Black Scholes valuation methodology), as soon as
reasonably practicable following the date hereof, by the Executive and the
Current CEO. The Initial Equity Award will be granted one-third (1/3) in
restricted shares and two-thirds (2/3) in stock options. The Option will have an
exercise price equal to the fair market value of the Common Stock subject
thereto on the date of grant and a term of ten years from the date of grant
(without regard to the Executive's earlier termination of employment for any
reason). Except as otherwise provided herein, the Restricted Stock and the
Option shall vest in three equal annual installments on each of the first,
second and third anniversaries of the Effective Date, subject to accelerated
vesting upon a "change of control" of the Company (as defined in the stock
incentive plan pursuant to which the Initial Equity Award is granted).
(iv) Long-Term Incentive Awards. Beginning October 1,
2000, the Executive shall be entitled to participate in all long-term incentive
plans and programs generally applicable to senior executives of the Company,
including the Current CEO, on a basis and with terms and conditions, including
any applicable performance goals, that are as favorable as the basis and terms
and conditions of the long-term incentive awards of any other senior executive
of the Company, with respect to the same period, provided that, except as
provided below, the Executive's level of participation need not be equal to that
of the Current CEO's level of participation. Notwithstanding anything contained
herein to the contrary, with respect to the 1999 through 2001 long-term
incentive award period, the Executive's long-term incentive award shall be (I)
at least equal to 90% of one-third (1/3) of the cash performance plan long-term
incentive award granted to the Current CEO with respect to such award period and
(II) an award to the Executive on the Effective Date of an option to purchase a
number of shares of Common Stock such that the option will have a Black Scholes
value (determined on the same basis as the Current CEO's long-term incentive
plan award) on the Effective Date that is equal to 90% of one-third (1/3rd) of
the Black Scholes value of the option granted to the Current CEO in respect to
such award period. With respect to the 2000 through 2002 long-term incentive
award period, the Executive's long-term incentive award amount shall be such
amount as the Board, with the advice of the Compensation Committee, may
determine.
(v) Other Employee Benefit Plans. During the
Employment Period, except as otherwise expressly provided herein, the Executive
shall be entitled to participate in all employee benefit, welfare and other
plans, practices, policies and programs generally applicable to senior
executives of the Company, including the Current CEO, on a basis no less
favorable than that provided to any other senior executive of the Company,
provided that the Executive's level of participation need not be equal to that
of the Current CEO's level of participation.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites, generally
applicable to senior executives of the Company, including the Current CEO, on a
basis no less favorable than that provided to any
-3-
4
other senior executive of the Company, provided that the Executive's level of
fringe benefits and perquisites need not be equal to that of the Current CEO's
level of fringe benefits and perquisites.
(vii) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the Company's policies.
(viii) Office. During the Employment Period, the
Executive shall be entitled to an office at the Company's headquarters of a size
and with furnishings and other appointments as provided generally with respect
to the senior executives of the Company.
(ix) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the plans,
policies, programs and practices of the Company as in effect with respect to the
senior executives of the Company, including the Current CEO.
4. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), unless within the 30 days after such receipt, the Executive shall have
furnished to the Company a written determination by a physician selected by the
Company or its insurers and reasonably acceptable to the Executive or the
Executive's legal representative that he has fully recovered from the illness or
condition that led to his absence from his duties and that he is fit to resume
them on a full-time basis. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the Company
on a full-time basis for an aggregate of 180 calendar days in any consecutive
12-month period or for a period of 120 consecutive calendar days, as a result of
incapacity due to mental or physical illness.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) any failure by the Executive to comply with any
of the provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Executive promptly after receipt of notice thereof given by the Company; or
(ii) the continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliated companies (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies
-4-
5
the manner in which the Board believes that the Executive has not substantially
performed the Executive's duties; or
(iii) the willful engaging by the Executive in
illegal conduct or gross misconduct that is materially and demonstrably
injurious to the Company; or
(iv) (A) conviction of a felony, or guilty or nolo
contendere plea by the Executive with respect thereto or (B) conviction of
another crime, or guilty or nolo contendere plea by the Executive with respect
thereto that is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. 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 in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than a majority of the entire membership of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i), (ii), (iii) or (iv) above, and specifying the
particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's positions (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 3(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the failure to appoint the Executive as Chief
Executive Officer of the Company upon the earlier of (A) the retirement or
cessation of service from such position of the Current CEO or (B) October 1,
2002;
-5-
6
(iv) the failure to appoint the Executive as Chairman
of the Company upon the earlier of (A) the retirement or cessation of service
from such position of the Current CEO or (B) October 1, 2003;
(v) the Company's requiring the Executive to be based
at any office or location other than the Company's headquarters;
(vi) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(vii) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason (subject to the cure provisions in Sections 4(c)(i)
and (ii)), the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause, death or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
-6-
7
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the highest annual bonus paid or
payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months), to the Executive
for any of the three completed fiscal years immediately prior
to the Date of Termination (the "Recent Annual Bonus") and (y)
a fraction, the numerator of which is the number of days in
the fiscal year in which the Date of Termination occurs
through the Date of Termination, and the denominator of which
is 365, and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described
in clauses (1), (2) and (3), shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and
(2) the sum of (x) the Executive's Annual Base Salary and (y)
the Recent Annual Bonus; and
(ii) the Executive shall be entitled to the immediate
commencement of an annual pension benefit of not less than the Executive's
annual pension benefit calculated under the terms of Arvin's qualified and
non-qualified retirement plans as in effect immediately prior to the Effective
Date, as if the Executive had attained the age and received the service credit
under such plans that the Executive would have attained and received if he had
remained in the employ of the Company for an additional three years after the
Date of Termination and had earned the compensation payable pursuant to Section
5(a)(i) evenly over such three-year period (the "Enhanced Retirement Benefit").
Upon the Executive's death, his spouse as of the date hereof, should she survive
the Executive, shall be paid an annual benefit of 50% of the Enhanced Retirement
Benefit for her life (the "Survivor Retirement Benefit"); and
(iii) the Executive and his spouse as of the date
hereof shall continue to be provided with medical and dental benefits pursuant
to the terms of the plans and policies of the Company in effect for active
executive officers of the Company for the three-year period following the Date
of Termination, and thereafter, the Executive and his spouse as of the date
hereof shall be provided with retiree medical and dental benefits for the
remainder of each of their lives, on terms and conditions no less favorable than
the retirement medical and dental programs of Meritor, as in effect immediately
prior to the Effective Date (collectively referred to herein as the
"Post-Employment Medical Benefits"); and
(iv) the Restricted Stock and the Option and all
other equity-based awards granted to the Executive shall immediately vest in
full, and, for purposes of the post-termination exercise period of any such
awards, the Executive shall be treated as a retiree (to the extent such
treatment provides him with a longer post-termination exercise period than
otherwise required); and
-7-
8
(v) all long-term incentive awards granted to the
Executive shall immediately vest in full and be paid out based on the maximum
award and/or performance level; and
(vi) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company through the Date of Termination (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. In addition,
the Restricted Stock, the Options and all other equity-based awards granted to
the Executive shall immediately vest in full, and all long-term incentive awards
granted to the Executive shall immediately vest in full and be paid out to the
Executive's estate at the time such amount would otherwise have been payable to
the Executive in an amount that is based on the performance level achieved by
the Company for the fiscal year (in the case of annual incentive awards) and for
the cycle (in the case of long-term incentive awards). The amount of such
long-term incentive awards shall be pro rated through the Executive's date of
death. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 5(b) shall include death benefits as in
effect on the date of the Executive's death with respect to senior executives of
the Company, including the Current CEO (but not necessarily the same level of
benefits as the Current CEO), and their beneficiaries and the immediate
commencement of the Survivor Retirement Benefit and the Post-Employment Medical
Benefits for the remainder of the life of the Executive's spouse as of the date
hereof.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. In addition, the Restricted Stock and the Option and all other
equity-based awards granted to the Executive shall immediately vest in full, and
all long-term incentive awards granted to the Executive shall immediately vest
in full and be paid out based on the maximum award and/or performance level.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 5(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits as in effect at any time thereafter
generally with respect to the senior executives of the Company, including the
Current CEO (but not necessarily the same level of benefits as the Current CEO),
and their beneficiaries and the immediate commencement of the Enhanced
Retirement Benefit and the Post-Employment Medical Benefits.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason during the Employment Period, this Agreement
shall terminate without further obligations to the
-8-
9
Executive other than the obligation to pay to the Executive (i) the Accrued
Obligations (less the amount described in Section 5(a)(i)(A)(2) and any
compensation deferred following the Effective Date, solely to the extent the
applicable deferred compensation plan requires forfeiture as a result of such
termination without exception) and (ii) Other Benefits. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
5(d) shall include, and the Executive shall be entitled after the Date of
Termination to receive, the retirement benefits, including, without limitation,
post-retirement medical and dental benefits, as in effect on the Date of
Termination with respect to the senior executives of the Company, including the
Current CEO (but not necessarily the same level of benefits as the Current CEO).
6. Non-exclusivity of Rights. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
7. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest including arbitration (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding and except as set forth below, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
8) (a "Payment") would be subject to the excise tax imposed by Section 4999
-9-
10
of the Code or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 8(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by a nationally recognized certified public accounting firm reasonably
acceptable to the Executive as may be designated by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of (i) the later
of the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that
-10-
11
any payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and xxx for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and xxx for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 8(c)) promptly pay
to the Company the amount of such refund (together
-11-
12
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to Section 8(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
9. Confidential Information/Non-Competition/Non-Solicitation.
(a) The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) The Executive agrees that, (i) while the Executive is
employed during the Employment Period or (ii) for a period of two years
following the date on which the Executive's employment hereunder is terminated
by the Company for Cause or by the Executive without Good Reason, whichever
period in (i) or (ii) is applicable the Executive will not, without the written
consent of the Company, engage in any business of, or enter the employ of, or
have any interest in, directly or indirectly, any other person, firm,
corporation or other entity engaged in a business that is in substantial and
direct competition with the Company as of the Date of Termination. Nothing
herein shall restrict the Executive from owning 2% or less of the outstanding
securities of any corporation or other entity whose securities are listed on any
national securities exchange or traded over-the-counter, if the Executive has no
other connection or relationship with the issuer of such securities.
(c) The Executive agrees that, during the Employment Period
and for a period of two years following the date on which the Executive's
employment hereunder is terminated by the Company for Cause or by the Executive
without Good Reason, the Executive will not, directly or indirectly, on behalf
of the Executive or any other person, solicit for employment by other than the
Company any person employed by the Company at the Effective Date, nor will the
Executive, directly or indirectly, on behalf of the Executive or any other
person, solicit for employment by other than the Company any person known by the
Executive to be employed at the time by the Company.
(d) In the event of a breach or threatened breach of this
Section 9, the Executive agrees that the Company shall be entitled to injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, the Executive acknowledges that damages would be inadequate
and insufficient. The termination of the Executive's employment hereunder shall
have no effect on the continuing operation of this Section 9. In no event shall
an
-12-
13
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
10. Resolution of Disputes. Any controversy or claim arising
out of or relating to this Agreement shall at the request of either party be
determined by arbitration. The arbitration shall be held in Indiana and
conducted in accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association. The dispute shall be submitted
to a single arbitrator to be mutually agreed upon by the parties. If the parties
cannot agree on a single arbitrator, each party shall appoint one arbitrator who
shall then jointly appoint a single arbitrator. Judgment upon the arbitration
award may be entered in any court having jurisdiction. The institution and
maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief. The Company agrees to
pay the costs of the arbitration and to reimburse the Executive for reasonable
expenses incurred as a result of such arbitration.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will 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. As used in this Agreement, "Company" and "Xxxxx" shall mean the
Company and Xxxxx as hereinbefore defined and any successor to their respective
businesses and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
-13-
14
If to the Executive: At the most recent address on file at
Xxxxx.
If to the Company: Mu Sub, Inc.
c/o Meritor, Inc.
0000 Xxxx Xxxxx Xxxx
Xxxx, Xxxxxxxx 00000
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(vii) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) Subject to compliance with the terms hereof as of the
Effective Date, from and after the Effective Date this Agreement shall supersede
any other employment, severance or change of control agreement between the
Executive and Xxxxx with respect to the subject matter hereof. This Agreement
shall be of no force and effect if the "Effective Time" (as defined in the
Merger Agreement) of the Merger does not occur.
(g) This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
-14-
15
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from their respective Boards
of Directors, Xxxxx has caused these presents to be executed in its name on its
behalf, and Meritor has cause these presents to be executed by Mu Sub, all as of
the day and year first above written.
/s/ V. Xxxxxxx Xxxx
----------------------------------------
V. Xxxxxxx Xxxx
XXXXX INDUSTRIES, INC.
/s/ Xxxxx X. Xxxxx
----------------------------------------
Name: Xxxxx X. Xxxxx
Title: Vice President, Finance and
Chief Financial Officer
MU SUB, INC.
/s/ Xxxxx X. Xxxx
----------------------------------------
Name: Xxxxx X. Xxxx
Title: Chairman of the Board and
Chief Executive Officer
