September 15, 2009

 

Mr. James D. Donlon, III

[Address Redacted]

Dear Jim:

This letter confirms our mutual understanding of your employment as Executive
Vice President of ArvinMeritor, Inc. (“Company”). This letter agreement sets
forth our mutual agreement with respect to your continued employment and
termination of employment from the Company.

Effective Date

This agreement is effective as of September 15, 2009.
 

Prior Agreement

This agreement supersedes and replaces the agreement dated April 12, 2005
between you and the Company (the “Prior Agreement”).
 

Commitment Period

During the period from September 15, 2009 through January 15, 2010 (the
“Commitment Period”), subject to earlier termination as provided in this
agreement, you will continue to be employed by the Company as Executive Vice
President of the Company. You will continue to report to the Chairman, President
and Chief Executive Officer of the Company and will continue to be based in
Troy, Michigan. During the Commitment Period, you will use your best efforts to
effectuate a definitive agreement to sell or prepare for sale certain segments
of the Company’s Light Vehicles Systems business. You agree to devote your full
time and efforts to perform faithfully and efficiently the responsibilities
assigned to you by the Chairman, President and Chief Executive Officer of the
Company.
 

Base Salary

You will continue to receive your current monthly base salary of $52,787 in
accordance with Company payroll practices. In the event that the Board approves
the reinstatement of full base salaries for officers of the Company, your
monthly base salary will be increased to $58,650 commencing prospectively as of
the date specified in such approval.

Annual Incentive Plans

You will be eligible to fully participate on a non-prorated basis in the
Company’s annual Incentive Compensation Plan (ICP) for Fiscal Year 2009 (October
1, 2008 to September 30, 2009) and on a pro-rated basis consistent with those of
comparable executives for Fiscal Year 2010 (October 1, 2009 to September 30,
2010). Your ICP target award is 65% of your annual base salary ($703,800).
Actual award payments will be in accordance with the terms of the Incentive
Compensation Plan and may be adjusted to reflect Company performance and your
individual performance as approved by the Committee.

Long-Term Incentives

As discussed with you, the Board’s Compensation and Management Development
Committee has approved the following: 

(i)     

FY2007 – 2009 Effective December 1, 2009, full and immediate vesting of all
outstanding Restricted Shares granted (18,500 plus accumulated dividends). You
also remain eligible for a cash Performance Plan award, if any, with a target
amount of $500,000, payable in December, 2009 and potential vesting on December
1, 2009 of 18,500 Performance Shares, both in accordance with the terms of such
plan, subject to approval by the Board’s Compensation and Management Development
Committee;

(ii)     

FY2008 – 2010 Effective January 16, 2010, full and immediate vesting of all
outstanding Shares granted (52,000 plus accumulated dividends). You also remain
eligible for a Cash Performance Plan award, if any, with a target amount of
$500,000, payable in December, 2010 in accordance with the terms of such plan,
subject to approval by the Board’s Compensation and Management Development
Committee; and

(iii)     

FY2009 – 2011 Effective January 16, 2010, full and immediate vesting of all
outstanding Shares granted (129,000). You also remain eligible for a cash
Performance Plan award, if any, with a target amount of $500,000, payable in
December 2011 in accordance with the terms of such plan, subject to approval by
the Board’s Compensation and Management Development Committee.

Notwithstanding the foregoing regarding potential December payment dates, as set
forth above, the Board’s Compensation and Management Development Committee has
the right to change said payment dates, but only to the extent said changes
comply with Section 409A.

Benefits

You will be eligible to participate in all employee retirement and health and
welfare benefit plans maintained by the Company and offered to all full time
employees of the Company, including medical, disability, life insurance and
vacation, to the extent permitted by the terms of the plans and by the law,
subject to the Company’s rights to amend or terminate such plans as set forth in
those plans.

As an officer of the Company, you will continue to be eligible for the following
additional benefits, in accordance with the terms of the policies providing such
benefits, subject to the Company’s rights to modify or terminate such benefits: 

·     

Car Allowance

·     

Financial Counseling Allowance

·     

Personal Excess Liability Coverage

Termination of Employment

If your employment with the Company is not sooner terminated pursuant to this
agreement as specified below, your employment with the Company will be
terminated by the Company without Cause effective as of January 16, 2010 (the
“Termination Date”). However, in no event will your employment be terminated by
the Company without Cause prior to January 16, 2010.

Severance Benefits

If you incur a separation from service with the Company within the meaning of
Section 409A (as defined below) (“Separation from Service”), you will be
eligible for certain severance benefits as follows:

·     

By the Company Without Cause.

·     

Any accrued and unpaid salary and vacation pay through your date of Separation
from Service with the Company (“Accrued Obligations”) paid within thirty (30)
days following your Separation from Service or such earlier date as may be
required by law.

·     

Monthly severance pay equal to $58,650 for a period of 24 months (“Severance
Period”) payable in accordance with the following paragraphs.

·     

Your separation pay will be paid in equal semi-monthly installments beginning
with the first payroll cycle that includes the Release Effective Date (as
defined hereinafter). You will receive any amount due for the period from the
date of your Separation from Service through the Release Effective Date in a
lump sum within one week of the Release Effective Date.

§     

Notwithstanding the foregoing, if you are a “specified employee” within the
meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the
final regulations thereunder (“Section 409A), you will be required to wait to
receive any portion of your severance pay that is not exempt from Section 409A.

·     

A portion of your severance pay may be exempt from Section 409A pursuant to
Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under
Section 409A is the amount of separation pay that does not exceed two times the
lesser of (1) your annualized compensation determined in accordance with Section
409A regulations and (2) the maximum amount that may be taken into account under
IRC Section 401(a)(17) for the year in which you separate from service (the
“409A Exempt Amount”).

·     

Any portion of your severance pay that is not exempt under the Section 409A,
that would otherwise have been paid during the first six (6) months following
your Separation from Service, will be paid in a lump sum the first payroll cycle
following the six-month anniversary of your Separation from Service.

·     

The balance of your severance pay that is not exempt under the Section 409A
exemption will be paid in equal semi-monthly payments beginning with the later
of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt
Amount has been completely paid and (2) the first payroll cycle after your
six-month anniversary of your Separation from Service.

·     

Pro-rata annual incentive bonus participation for the then-current fiscal year
(FY2010), based on the time actually worked, paid after the end of the fiscal
year, in accordance with the terms of the Incentive Compensation Plan.

·     

Long-Term Incentives as set forth above.

·     

Continued health coverage through the end of the Severance Period; provided that
(A) to the extent any such benefit is provided via reimbursement to you, no such
reimbursement will be made by the Company later than the end of the year
following the year in which the underlying expense is incurred, (B) any such
benefit provided by the Company in any year will not be affected by the amount
of any such benefit provided by the Company in any other year, subject to any
maximum benefit limitations under the applicable plan's terms, and (C) under no
circumstances you be permitted to liquidate or exchange any such benefit for
cash or any other benefit.

·     

Continued life insurance coverage, car allowance and financial counseling
allowance through the end of the Severance Period. The car allowance and
financial counseling allowances will be paid in accordance with the Company’s
normal payroll process.

·    

Short and Long-Term Disability coverage will remain in effect through the last
day actually worked prior to the start of the Severance Period.

·     

Payment of all vested benefits under the Company’s savings plans and pension
plan, in accordance with the terms of such plans;

·    

Reasonable outplacement services for a period of twelve (12) months from the
date of your Separation from Service at a cost not to exceed ten thousand
dollars ($10,000).

·     

If you become subsequently employed and covered by a health insurance plan of a
new employer, your coverage under the Company’s health plans will cease as of
the date you become covered under such other employer’s health plan.

·     

By the Company for Cause (Cause is defined as your continued and willful failure
to your perform duties, provided that you have been given written notice and an
opportunity to cure the failure within five (5) business days; gross misconduct
which is materially and demonstrably injurious to the Company; or conviction of
or pleading guilty or no contest to a (a) felony or (b) other crime which
materially and adversely affects the Company):

o     

Accrued Obligations paid within thirty (30) days following your Separation from
Service or such earlier date as may be required by law.

o     

Any vested plan benefits under the Company’s savings and pension plans, payable
in accordance with the terms of such plans.

o          

Forfeit all unvested long-term incentive awards, performance shares, restricted
stock, RSU’s and cash portions of any long term incentive cycles.

o         

Forfeit eligibility to receive an annual incentive award.

·       

By the Executive for any reason prior to January 16, 2010 (other than due to
death or disability):

o           

Accrued Obligations paid within thirty (30) days following your Separation from
Service or such earlier date as may be required by law

o          

Any vested plan benefits under the Company’s savings and pension plans, payable
in accordance with the terms of such plans.

o         

Payment of any earned but unused vacation.

o           

Vesting or forfeiture of all restricted shares, RSU’s and performance shares and
payouts under cash performance plans, will be determined under the terms of the
1998B, 1997 and 2007 LTIP as applicable and any related agreements.

Change in Control
 

In the event of a Change in Control as defined the 1998B Stock Benefit Plan and
1997 Long-Term Incentives Plan, as applicable, you will be eligible for vesting
and payment of equity grants and awards under cash performance plans under those
plans in accordance with the terms of those plans, as applicable, and the
related grants and agreements.
 

In the event of a Change in Control as defined in the 2007 Long-Term Incentive
Plan, you will be eligible for vesting and payment of equity grants and awards
under cash performance plans under the 2007 Long-Term Incentive Plan in
accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control
(as defined in the 2007 Long-Term Incentive Plan) or within one year thereafter
(except for Cause), you will also be eligible for:

§     

The severance terms outlined above under “By The Company Without Cause”;
provided, that the full target amount of the annual bonus under the Incentive
Compensation Plan for the then-current fiscal year will be paid immediately upon
termination (instead of a pro rata amount of actual payout at the end of the
fiscal year).

Death Benefits

·     

Accrued Obligations paid within thirty (30) days following your death or such
earlier date as may be required by law.

·     

Pro-rata annual incentive bonus participation for the time actually worked in
the year of death, paid in accordance with the terms of the Incentive
Compensation Plan.

·    

Long-Term Incentives as set forth in that section of this letter above.

·    

Continued medical, dental and/or vision plan coverage for your spouse and other
dependents for six months following your death and at the end of this six month
period your spouse and dependents may be eligible for coverage under COBRA (for
an additional period not to exceed thirty (30) months).

·    

Payment of all death benefits under the Company’s savings and pension plans, in
accordance with the terms of such plans.

Disability

Disability is initially defined as your inability to perform the duties of your
current job as a result of disease or injury. Based on your years of service,
your first six months of disability (“Short-Term Disability”) will result in
either full salary continuation for the entire six-month period or a combination
of full salary continuation and reduced salary continuation for said six-month
period. Following Short-Term Disability, if you are unable to perform your job
duties and otherwise meet the requirements for benefits under the Company’s Long
Term Disability Plan, you will be placed on a leave of absence due to Long Term
Disability and will receive benefits under the provisions of the Company’s Long
Term Disability Plan. Following a one and one-half -year period on Long-Term
Disability, eligibility for continued coverage under the Company’s Long-Term
Disability Plan will be based on your inability to perform any job for which you
are qualified by education, training or experience. While you are on Disability,
you will

-     

Accrued salary paid within thirty (30) days following your Disability or such
earlier date as may be required by law.Accrued vacation will be paid in
accordance with the Company’s Disability policies and procedures.

-     

Be eligible to receive a pro rata annual incentive bonus based on the time that
you were actively at work, paid in accordance with the terms of the Incentive
Compensation Plan.

-     

Long-Term Incentives as set forth in that section of this letter above.

-     

Be entitled to medical, dental, vision and life insurance coverage on the same
terms as if you were actively employed while you are on Disability.

-     

If you participate in the Company’s defined benefit pension plans, continue to
earn vesting service but you will not receive credited service for the purpose
of determining your plan benefit; and if you are eligible to receive Company
pension contributions to the 401(k) plan and the supplemental 401(k) restoration
plan, you will continue to earn vesting service, but Company contributions to
such plans will cease.

Deferred Compensation

If you incur a Separation from Service with the Company, any amounts deferred by
or on your behalf under the Company’s Deferred Compensation Plan or Supplemental
401(k) Restoration Plan will be paid in accordance with the terms of such plans.
 

Retirement Benefits

As long as you are actively employed (not receiving severance payments
hereunder) you are eligible to participate in the Supplemental 401(k)
Restoration Plan, which has discretionary matching company contributions, and
the supplemental savings restoration plan. In addition, you are eligible to
receive the pension contribution in accordance with the terms of the Company’s
savings plans, which is a percentage of base pay and ICP varying by age that is
available under those plans.

Indemnification

The Company will provide indemnification and defend you with regard to any
claims arising from any decision made by you in good faith, while performing
services for the Company, in accordance with the provisions of the Company’s
by-laws.
 

Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability
insurance coverage, so long as you are actively employed (not receiving
severance payments hereunder).

Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate
Claims” and the Company’s “Standards of Business Conduct and Conflict of
Interest Certificate.” Any controversy involving the construction or application
of any terms, covenants or conditions of this Agreement, or any claims arising
out of any alleged breach of this Agreement, will be submitted to and resolved
by final and binding arbitration in Oakland County, Michigan (conducted pursuant
to the rules of the American Arbitration Association).
 

Non-Solicitation/Proprietary Information

In the event you leave employment of the Company for any reason, you agree for a
period of twenty-four (24) months following your departure, you will not solicit
for employment any Company employee. You also agree that you will not disclose,
nor will you use, any Company proprietary information after you leave employment
of the Company.
 

Release Agreement

You agree that, as a condition to receive any amounts or benefits payable upon
your Separation from Service (other than Accrued Obligations and benefits in
which you are otherwise vested under the terms of the applicable benefits
plans), you will execute a general release agreement in a form provided by the
Company, within twenty-one (21) (forty-five (45) days in the case of a group
termination) days of the date of your Separation from Service and not revoke
such acceptance of the agreement within any revocation period prescribed by law.
The date the release agreement becomes irrevocable will be the Release Effective
Date. If you do not sign a general release agreement within fourteen (14) days
of the date of your Separation from Service or if you sign such agreement and
revoke it within such fourteen (14) day period, any amounts and benefits (other
than Accrued Obligations and benefits in which you are otherwise vested under
the terms of the applicable benefit plans) will cease as of last day of such 14
day period and will not resume unless and until the Release Effective Date.
 

Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney
prior to signing this agreement. You also acknowledge and agree that this
agreement is voluntarily entered into by you in consideration of the
undertakings by the Company as set forth in this agreement and is consistent in
all respects with discussions by the Company’s personnel with you.
 

Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain
equity grants and payout of cash plans that are specifically referred to above,
this letter supersedes the provisions of any prior employment letter between you
and the Company, including without limitation the Prior Agreement.
Notwithstanding the foregoing, the Invention Assignment and Arbitration
Agreements and the agreements referred to under “Arbitration” above remain in
full force and effect.
 

Successors and Assigns

This agreement will be binding upon and inure to the benefit of any successors
to you and the Company.

Counterparts

This agreement may be executed in several counterparts, each of which will be
deemed to be an original, and all such counterparts when taken together will
constitute one and the same original.
 

Governing Law

This agreement will be governed by the laws of the State of Michigan.

 

Sincerely,

Charles G. McClure, Jr.
Chairman of the Board, President and Chief Executive Officer
ArvinMeritor, Inc.
 

Accepted:

 

/s/ James D. Donlon, III                    September 17, 2009

                                    
                                                       

JAMES D. DONLON, III                    Date