EXHIBIT 10.5
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of August 1, 2002, by and between Dayton Parts,
Inc., a Michigan corporation ("DPI," or "Corporation"), and Gary A. Smalley,
presently residing at 4005 Pamay Drive, Mechanicsburg, Pennsylvania 17050 (the
"Executive").
WITNESSETH:
WHEREAS, the Executive is presently employed by DPI as Plant Manager;
WHEREAS, the Board of Directors of DPI (the "Board") desires to further
motivate the Executive to continue his active participation in the growth and
success of the Corporation; and
WHEREAS, the Board desires that the Executive perform his duties to the
Corporation without being influenced by the uncertainties of a possible Change
of Control (as defined below) of the Corporation and assess and advise the Board
whether any proposed transaction that would constitute a Change of Control would
be in the best interests of the Corporation and its shareholders.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the Corporation and the Executive agree
as follows:
1. OPERATION AND TERMINATION OF AGREEMENT. This Agreement shall be
effective immediately upon its execution by both parties. This Agreement shall
terminate upon the earlier of:
(a) The termination of the Executive's employment with the Corporation for
any reason whatsoever prior to a Change of Control; or
(b) One (1) year following the date of a Change of Control.
2. REQUIREMENTS FOR BENEFITS. The Severance Payments (as defined below)
shall be payable under this Agreement if (a) there has been a Change of Control
and (b) the Executive has incurred a Termination of Employment (as defined
below) subsequent to the Change of Control.
3. CHANGE OF CONTROL DEFINED. For purposes of this paragraph, the term
"Change of Control" means:
(a) that any person or entity, including a "group" (within the meaning of
Rule 13d-1 under the Securities Exchange Act of 1934, as amended ("Exchange
Act")), but excluding: JPE, Inc., its subsidiaries, any private equity fund
managed by Questor Management Company, LLC ("Questor"), any affiliate of any
such fund and any group of which any such fund or affiliate may be a member,
becomes (in one transaction or in a series of related transactions) the
beneficial owner of all or substantially all of the shares of DPI held by JPE,
Inc.; or
(b) that any one or more persons or entities, including a "group" (within
the meaning of Rule 13d-1 under the Exchange Act), but excluding: JPE, Inc., its
subsidiaries, any private equity fund managed by Questor, or any affiliate of
any such fund and any group of which any such fund or affiliate may be a member,
becomes the owner of all or substantially all of assets of the Corporation (in
one transaction or in a series of transactions).
4. TERMINATION OF EMPLOYMENT.
(a) A "Termination of Employment" shall be deemed to occur if on or prior
to one (1) year from the date of a Change of Control the Executive's employment
with the Corporation is terminated for any reason other than death, Disability,
voluntary retirement or for Cause.
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(b) Termination for "Cause" means the Executive has:
(i) materially failed to perform his assigned duties and not
cured such failure (if curable) within fifteen (15) days of his
receipt of written notice of the failure;
(ii) materially breached any provision of this Agreement and
not cured such breach (if curable) within fifteen (15) days of his
receipt of written notice of the breach;
(iii) engaged in personal dishonesty in connection with his
assigned duties or that harms or is intended to harm the
Corporation;
(iv) engaged in gross misconduct or gross negligence in
connection with his assigned duties or that harms or is intended to
harm the Corporation;
(v) engaged in a breach of fiduciary duty to the Corporation
involving personal profit;
(vi) willfully violated any law, rule, regulation, or final
cease-and-desist order (other than minor traffic violations or
similar offenses); or
(vii) engaged in other serious misconduct of such a nature
that his continued employment may reasonably be expected to affect
the Corporation or its reputation adversely.
(c) "Disability" means the Executive's inability to perform his duties to
the Corporation by reason of any medically determinable physical or mental
impairment which is expected to result in death, which has lasted or is expected
to last for a continuous period of not less than six (6) months, or which has
lasted or is expected to last for any period of eight (8) months out of any
consecutive twelve (12) month period.
5. SEVERANCE PAYMENT.
(a) Upon the Termination of Employment under Section 4(a), the Corporation
shall pay the Executive an amount equal to one (1) year of the Executive's base
salary with the Corporation immediately prior to the Change of Control (the
"Cash Payment"). Such Cash Payment shall be payable in accordance with the
Corporation's normal payroll procedures and shall begin immediately following
the Date of Termination. The "Date of Termination" shall be the date that notice
of termination is given by the Corporation.
(b) During the period that Executive is receiving payments under Section
5(a) or Section 5(b), as applicable, the Corporation shall pay Executive's
continuation coverage under Section 4980B of the Internal Revenue Code of 1986,
as amended. The payments made under Section 5(a) and (b) are collectively
referred to herein as the "Severance Payments."
(c) The Severance Payments provided under this Section 5 shall be in lieu
of any other severance payments or causes of action available to the Executive
pursuant to this Agreement. As a condition to receipt of payments under this
Section 5, the Executive shall execute a Release and Settlement Agreement
acceptable to the Corporation pursuant to which the Executive shall waive any
and all claims resulting from employment at or termination from the Corporation
other than payments or benefits which are expressly provided for in this
Agreement.
6. PROTECTED INFORMATION; PROHIBITED COMPETITION.
(a) The Executive hereby recognizes and acknowledges that during the
course of the Executive's employment by the Corporation, the Corporation has
disclosed and shall furnish, disclose or make available to the Executive
confidential or proprietary information related to the Corporation's business,
including, but not limited to, customer lists, ideas, processes, inventions and
devices, that such confidential or proprietary information has been developed
and shall be developed through the expenditure by the Corporation of substantial
time and money and that all such confidential information could be used by the
Executive and others to compete with the Corporation.
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The Executive hereby agrees that all such confidential or proprietary
information shall constitute trade secrets, and further agrees to use such
confidential or proprietary information only for the purpose of carrying out his
duties with the Corporation and not otherwise to disclose such information. For
purposes of this Agreement, information shall be deemed confidential
notwithstanding any prior unauthorized disclosure.
(b) The restrictions in this Section 6 shall survive the termination of
the Agreement and shall be in addition to any restrictions imposed on the
Executive by statute or at common law.
(c) During the term of this Agreement, and for a period of twelve (12)
months following the termination of his employment (except for a termination for
which the Executive is not entitled to receive payments pursuant to Section 5 of
this Agreement), the Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, Triangle Auto Spring Co., Euclid
Industries, Meritor or Standen's Limited.
(d) The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in this Section
6 may result in significant and continuing, injury to the Corporation or its
successor, the monetary value of which may be impossible to establish.
Therefore, the Executive hereby agrees that, notwithstanding any provision in
Section 9 to the contrary, the Corporation shall be entitled to injunctive
relief granted by a court of appropriate jurisdiction without the posting of a
bond or other security in the event of any breach or threatened breach of the
terms of Section 6. Nothing in this Agreement shall be construed as prohibiting
the Corporation from pursuing any other remedies available to the Corporation
for such breach or threatened breach, including the recovery of damages from the
Executive. The provisions of this Section 6 shall survive the termination of
this Agreement.
7. SUCCESSORS; BINDING AGREEMENT.
(a) The Corporation 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 Corporation ("Successor")
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Corporation would be required to perform this
Agreement if no such succession had taken place. If the Successor assumes the
obligations under this Agreement, the Executive understands and acknowledges the
fact that no Severance Payments shall be due the Executive from the Corporation
upon the Change of Control. The failure of the Corporation to obtain such
agreement from its Successor prior to or as of the date of the Change of Control
shall constitute a breach of this Agreement and shall entitle the Executive to
immediate Severance Payments pursuant to Section 5(a), except that for purposes
of implementing the foregoing, the Date of Termination shall be deemed to have
occurred on the date of the Change of Control.
(b) As used in this Agreement, the "Corporation" shall include any
Successor, which Successor executes and delivers the Agreement provided for in
this Section 7 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(c) This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees. If the Executive should die after his termination while any Cash
Payments would still be payable to him hereunder if he had continued to live,
all such Cash Payments, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee or, if there be no designee, to the Executive's estate.
8. NOTICES. Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested, or by a
national overnight delivery service addressed to the Corporation at the
Corporation's then principal office (attention Chairman), or to the Executive at
the address set forth in the preamble, or to such other address or addresses as
any party hereto may from time to time specify in writing for the purpose in a
notice given to the other parties in compliance with this Section 8. Notices
shall be deemed given when received.
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9. DISPUTES.
(a) The arbitration procedure set forth in this Section 9 shall be the
sole and exclusive method for resolving and remedying monetary claims arising
out of disputes regarding or involving this Agreement (the "Disputes"); provided
that nothing in this Section 9 shall prohibit a party from instituting
litigation to enforce any Final Determination (as defined in Section 9(d)) or to
obtain injunctive relief. Except as otherwise provided in this Section 9 or in
the Commercial Arbitration Rules of the American Arbitration Association as in
effect at the pertinent time, the arbitration procedures and any Final
Determination hereunder shall be governed by, and shall be enforced pursuant to,
the Uniform Arbitration Act.
(b) In the event that either party asserts that there exists a Dispute,
such party shall deliver a written notice to the other party to the Dispute
specifying the nature of the asserted Dispute and requesting a meeting to
attempt to resolve the same. If no such resolution is reached within ten (10)
business days after such delivery of such notice, the party delivering such
notice of Dispute (the "Disputing Person") may, within forty-five (45) business
days after delivery of such notice, commence arbitration by delivering to the
other party a notice of arbitration (a "Notice of Arbitration"). Such Notice of
Arbitration shall specify the matters as to which arbitration is sought, the
nature of any Dispute, the claims of the party and shall specify the amount and
nature of any damages, if any, sought to be recovered as a result of any alleged
claim, and any other matters required by the Commercial Arbitration Rules of the
American Arbitration Association as in effect at the pertinent time to be
included therein, if any.
(c) (i) The parties shall in good faith select one arbitrator to arbitrate
the Dispute who shall resolve the Dispute according to the procedures set
forth in this Section 9.
(ii) IF THE PARTIES ARE UNABLE TO AGREE UPON AN ARBITRATOR PURSUANT
TO SECTION 9(c)(i) WITHIN FIFTEEN (15) BUSINESS DAYS, THEN EACH PARTY
SHALL SELECT ONE ARBITRATOR WITHIN THE NEXT FIFTEEN (15) BUSINESS DAYS. IN
THE EVENT THAT EITHER PARTY FAILS TO SELECT AN ARBITRATOR AS PROVIDED IN
THIS PARAGRAPH 9(c)(ii), THEN THE MATTER SHALL BE RESOLVED BY THE
ARBITRATOR SELECTED BY THE OTHER PARTY. IF EACH PARTY CHOOSES AN
ARBITRATOR, THEN THOSE ARBITRATORS SHALL SELECT A THIRD INDEPENDENT,
NEUTRAL ARBITRATOR EXPERT IN THE SUBJECT MATTER OF THE DISPUTE, AND THE
THREE ARBITRATORS SO SELECTED SHALL RESOLVE THE MATTER ACCORDING TO THE
PROCEDURES SET FORTH IN THIS SECTION 9. IF THE ARBITRATORS SELECTED BY THE
PARTIES ARE UNABLE TO AGREE ON A THIRD ARBITRATOR WITHIN FIFTEEN (15)
BUSINESS DAYS, AFTER THEIR SELECTION, THE THIRD ARBITRATOR SHALL BE
SELECTED BY THE PRESIDENT OF THE AMERICAN ARBITRATION ASSOCIATION.
(d) The arbitration shall be conducted in Oakland County, Michigan, under
the Commercial Arbitration Rules of the American Arbitration Association as in
effect from time to time, except as modified by the written agreement of the
parties, to this Agreement. The arbitrator(s) shall conduct the arbitration so
that a final result, determination, finding, judgment and/or award (the "Final
Determination") shall be made or rendered as soon as practicable, but in no
event later than one hundred (100) business days after the delivery of the
Notice of Arbitration nor later than ten (10) business days following completion
of the arbitration. The Final Determination must be agreed upon and signed by
the sole arbitrator or by at least two of the three arbitrators (as applicable).
The Final Determination shall be final and binding on all parties and there
shall be no appeal from or reexamination of the Final Determination, except for
fraud, perjury, or misconduct by an arbitrator prejudicing the rights of any
party and to correct manifest clerical errors. The prevailing party shall be
entitled to reasonable fees and costs (including reasonable fees and expenses of
attorneys and legal assistants) incurred by the prevailing party in connection
with the arbitration.
(e) Judgment may be entered upon the Final Determination by any court of
competent jurisdiction.
10. MITIGATION. Notwithstanding anything in this Agreement to the
contrary, if the Executive becomes employed or becomes self-employed during the
time during which he is entitled to receive Severance Payments hereunder, the
Corporation's complete and entire obligation to make Severance Payments shall
immediately terminate with no further liability to the Corporation.
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11. NONALIENATION OF BENEFITS. Except as may be contrary to applicable
law, no sale, transfer, alienation, assignment, pledge, collateralization or
attachment of any benefits under this Agreement shall be valid or recognized by
the Corporation.
12. ERISA. This Agreement is an unfunded compensation arrangement for
members of a select group of the Corporation's management or highly compensated
employees and any applicable exemptions under the Employee Retirement Income
Security Act of 1974, as amended, for such a "top hat" arrangement shall be
applicable to this Agreement.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. This Agreement
contains the entire agreement of the parties relating to the subject matter
hereof and supersedes any prior written or oral agreements or understandings
relating to the same subject matter.
14. MODIFICATION AND WAIVER. No modification, amendment, or waiver of this
Agreement shall be valid unless in writing and signed by or on behalf of the
parties hereto. A waiver of the breach of any term or condition of this
Agreement shall not be deemed to constitute a waiver of any subsequent breach of
the same or any other term or condition.
15. SEVERABILITY. This Agreement is intended to be performed in accordance
with, and only to the extent permitted by, all applicable laws, ordinances,
rules and regulations. If any provision of this Agreement, or the application
thereof to any person or circumstance, shall for any reason and to any extent be
held invalid or unenforceable, such invalidity and unenforceability shall not
affect the remaining provisions hereof and the application of such provisions to
other persons or circumstances, all of which shall be enforced to the greatest
extent permitted by law.
16. WITHHOLDING. The compensation provided to the Executive pursuant to
this Agreement shall be subject to any withholdings and deductions required by
any applicable income and employment federal, state and local tax laws. In the
event the Corporation fails to withhold such sums for any reason, it may require
the Executive to promptly remit to the Corporation sufficient cash to satisfy
applicable income and employment withholding taxes.
17. HEADINGS. The headings in this Agreement are inserted for convenience
of reference only and shall not be a part of or control or affect the meaning of
any provision hereof.
18. ATTORNEY CONSULTATION. The Executive has had an opportunity to consult
with an attorney of his choosing prior to executing this Agreement.
19. GOVERNING LAW. To the extent not governed by Federal law, this
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Michigan.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
DAYTON PARTS, INC., a Michigan
corporation
BY: /s/ David L. Treadwell
--------------------------
David L. Treadwell
TITLE: Chairman & CEO
EXECUTIVE
BY: /s/ Gary A. Smalley
----------------------
GARY A. SMALLEY
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