Document:

<PAGE>   1
                                                                   EXHIBIT 10.17

                           RESEARCH FUNDING AGREEMENT

     This Agreement is effective as of January 11, 2000, by and between Baxter
Healthcare Corporation, a Delaware corporation, acting through its
CardioVascular Group, having offices at 17221 Red Hill Avenue, Irvine,
California 92614 (hereinafter referred to as "BAXTER") and Sangamo Biosciences,
Inc., a Delaware corporation, having an office at Point Richmond Tech Center,
501 Canal Blvd., Suite A100, Richmond, California 94840 (hereinafter referred to
as "SANGAMO").

                                    RECITALS

     WHEREAS, BAXTER and SANGAMO have entered into a License Agreement,
contemporaneously herewith (the "License Agreement"); and

     WHEREAS, SANGAMO wishes to undertake research relating to the further
development of its proprietary zinc finger binding protein and gene therapy
technology and BAXTER wishes to fund such research to facilitate SANGAMO's
ability to license such technology to BAXTER under the License Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

                             ARTICLE 1. Definitions

All terms used in this agreement (other than names of the parties and Article
headings) which are set forth in upper case letters, but not defined herein,
shall have the respective meanings set forth in the License Agreement.

                          ARTICLE 2. Research Activity

2.1  Research Program. The research program which is contemplated by this
Agreement is set forth in the research plan (the "Research Plan") attached as
Exhibit A. The Research Plan sets forth the research tasks and objectives to be
performed by SANGAMO. SANGAMO agrees to use its commercially reasonable efforts
consistent with international practice in the biotechnology industry, SANGAMO's
sound business judgment, and research, regulatory and market conditions, to
conduct the SPONSORED RESEARCH in accordance with the Research Plan in
consideration for the funding provided in Section 2.2.

2.2  Funding. BAXTER agrees to fund the SPONSORED RESEARCH as follows: (i) One
Million Dollars ($1,000,000) on or before January 21, 2000; and (ii) One
Million Dollars ($1,000,000) on the earlier of April 1, 2001, or the date on
which SANGAMO has fulfilled its obligations set forth in Clause 5.1(b) of the
License Agreement. If the parties mutually agree to extend the term of this
Agreement for additional research projects, the parties shall amend this

<PAGE>   2
Agreement to establish a mutually acceptable research plan, budget and payment
schedule for such extension; provided, however, that the budget and payment
schedule therefor shall be calculated on the basis of the reasonably
anticipated fully burdened cost to SANGAMO to perform the additional research
projects under the new research plan at rates not to exceed SANGAMO's then
standard FTE rate for performing similar research programs.

2.3  Evaluation of Research Plan. Within thirty (30) days after the end of each
calendar quarter during the term of the SPONSORED RESEARCH, SANGAMO shall
submit to BAXTER a written report describing any INVENTIONS conceived or
reduced to practice, and the progress of the SPONSORED RESEARCH, including
without limitation, a written report and analysis of all experimentation
conducted pursuant to performing the SPONSORED RESEARCH during such calendar
quarter. If the STEERING COMMITTEE determines pursuant to the LICENSE AGREEMENT
that modifications of the existing Research Plan are required, the Research Plan
will be amended as mutually agreed to in writing by the parties.

2.4  Exclusivity of Research. SANGAMO agrees that during the term of the
License Agreement it will not perform any research in the FIELD OF RESEARCH
similar to the SPONSORED RESEARCH for any other entity, nor assist any other
entity, in pursuing any work in the FIELD OF RESEARCH, without the written
approval of BAXTER.

2.5  Personnel Agreements. SANGAMO represents and warrants that it has
agreements with any individual employed to perform the SPONSORED RESEARCH under
this Agreement sufficient to procure and implement the rights and restrictions
granted and imposed by this Research Funding Agreement.

2.6  Access to Records. SANGAMO agrees to maintain and preserve the documents,
laboratory notebooks, graphs and charts and other original records and data
that result from the SPONSORED RESEARCH, and agrees to provide BAXTER access to
such records upon reasonable notice during normal business hours during the
term of this Agreement and the License Agreement solely for the purpose of
exercising its rights under the LICENSE AGREEMENT.

2.7  Compliance with Laws. SANGAMO agrees to comply in all material respects
with all applicable national and local laws of the jurisdiction wherein it
conducts business, including compliance at all times with applicable Good
Laboratory Practice guidelines as established by the FDA. SANGAMO further agrees
that any compensation it receives under this Agreement shall not be disbursed
for any purpose which is unlawful or unethical under those laws.

                           ARTICLE 3. Property Rights

3.1  Property Rights. Any and all INVENTIONS shall be owned by or otherwise
assigned to SANGAMO and licensed back to BAXTER pursuant to the terms of the
License Agreement. BAXTER agrees to assign to SANGAMO and hereby assigns any
and all of its rights to BAXTER INVENTIONS and to JOINT INVENTIONS, including
rights under the patent, copyright and other intellectual property laws of the
United States or any other country.

                                      -2-
<PAGE>   3
3.2  Disclosure of INVENTIONS. SANGAMO and BAXTER shall disclose promptly to
each other such INVENTIONS within thirty (30) days of conceiving and/or
reducing to practice such INVENTIONS.

                        ARTICLE 4. Term and Termination

4.1  The term of this Agreement shall be three (3) years commencing on its
effective date and shall expire automatically unless sooner terminated in
accordance with this Article 4.

4.2  In addition to any rights it may have hereunder, a party may terminate
this Agreement upon (30) days prior written notice following the occurrence of
any of the following:

     (a)  the bankruptcy, insolvency, dissolution or winding up of the other
party (other than dissolution or winding up for the purposes of a solvent
reconstruction or amalgamation); or

     (b)  the failure of the other party to cure the breach of any provision of
this Agreement for the payment of funds within thirty (30) days after written
notice thereof by the non-breaching party; or

     (c)  the failure of the other party to cure the breach of any material
provision of this Agreement, except nonpayment of funds, within sixty (60) days
after written notice thereof by the non-breaching party.

4.3  Performance under this Agreement may be terminated by BAXTER upon one
hundred eighty (180) days prior written notice to SANGAMO. If circumstances
beyond SANGAMO's control preclude continuation of the SPONSORED RESEARCH,
SANGAMO may terminate this Agreement upon one hundred eighty (180) days prior
written notice to BAXTER, provided that SANGAMO explains its reasons for
terminating.

4.4  This Agreement automatically shall terminate upon termination of the
LICENSE AGREEMENT.

4.5  Upon termination of this Agreement pursuant to Section 4.2, SANGAMO agrees
that BAXTER's only obligation is to reimburse SANGAMO for all costs and
non-cancelable commitments incurred to date in the performance of the SPONSORED
RESEARCH, such reimbursements not to exceed the total amount specified in this
Agreement for the SPONSORED RESEARCH. SANGAMO acknowledges and agrees that it
will have no recourse against BAXTER for such termination beyond the described
reimbursements. Furthermore, SANGAMO agrees to be bound by the terms of Articles
3, 5, 6 and 7 in the event of the termination of this Agreement.

                           ARTICLE 5. Confidentiality

5.1  This Article 5 applies, except as otherwise provided in this Article 5,
during the term of this Agreement, and thereafter for a period of five (5)
years. Both SANGAMO and BAXTER shall maintain in confidence, not disclose to
any Third Party and use only for the purposes of this Agreement information and
data which is not generally known and which (a) results from the use or
development of the Technology and Inventions pursuant to this Agreement or the
License

                                      -3-
<PAGE>   4
Agreement, or (b) is supplied by SANGAMO or BAXTER after April 13, 1999 in
connection with this Agreement or the License Agreement (or discussions leading
up to them) and is marked, identified or otherwise acknowledged to be
confidential ("Information").

5.2     To the extent it is reasonably necessary to fulfill their obligations
or exercise their rights pursuant to this Agreement, BAXTER and SANGAMO may
disclose Information they are otherwise obligated pursuant to this Article 5
not to disclose, to its Affiliates, its bona fide proposed sublicensees and
its permitted sublicensees, and shall limit disclosure of such Information to
its and their respective officers, directors, employees and consultants on a
need-to-know basis, in each case provided that such persons and entities
agree to keep the Information confidential for the same time periods and to
the same extent as the disclosing party is required to keep the Information
confidential. BAXTER and SANGAMO may also disclose such information to
government or other regulatory authorities to the extent that such disclosure
is required to be disclosed to obtain a patent or authorization to conduct a
clinical trial or to commercially market any product arising out of the
Technology or is otherwise required by applicable law, regulation or court
order, in each case provided that the disclosing party shall provide written
notice to the other party and sufficient opportunity to object to such
disclosure or to request confidential treatment thereof. The obligation not
to disclose Information shall not apply to any part of such Information that:

        (a)     is or becomes patented, published or otherwise part of the
public domain other than by acts of the person obligated not to disclose such
Information in contravention of this Agreement;

        (b)     is disclosed to the receiving party by a Third Party, provided
such Information was not obtained from such Third Party directly or indirectly
from SANGAMO or BAXTER (as the case may be);

        (c)     prior to disclosure pursuant to this Agreement, was already in
the possession of the receiving party, provided such Information was not
obtained directly or indirectly from SANGAMO or BAXTER (as the case may be);

        (d)     is developed independently of the Information obtained from
SANGAMO or BAXTER (as the case may be), by persons without access to or use of
the Information, as demonstrated by written evidence; or

        (e)     is disclosed by either SANGAMO or BAXTER with the prior written
consent of the other.

5.3     SANGAMO and BAXTER agree to not disclose the existence of or the
financial terms or conditions of this Agreement or the License Agreement to any
Third Party without the prior written consent of the other, except as required
by applicable law or regulatory authority.

5.4     Notwithstanding the provisions of Article 5, neither BAXTER nor SANGAMO
shall release any media release or other oral or written announcement for
dissemination to the media concerning or arising from this Agreement or the
License Agreement without the written consent of the other party.

                                      -4-
<PAGE>   5
5.5  This Article 5 survives the termination of this Agreement.

                ARTICLE 6. Limitation of Liability and Indemnity

6.1  SANGAMO agrees to indemnify, hold harmless and defend BAXTER, its
directors, trustees, officers, employees and agents against any and all losses,
liabilities, damages and expenses (including reasonable attorneys' fees and
costs) incurred as a result of any Third Party claims, suits, demands, causes
of action or other proceedings to the extent arising out of SANGAMO's
performance of the Sponsored Research, except to the extent arising from the
negligence or willful misconduct of BAXTER, or its directors, officers,
employees, and agents.

6.2  BAXTER agrees to indemnify, hold harmless and defend SANGAMO, its
directors, trustees, officers, employees and agents, against any and all
losses, liabilities, damages and expenses (including reasonable attorneys' fees
and costs) incurred as a result of any Third Party claims, suits, demands,
causes of action or other proceedings to the extent arising out of the
negligence or willful misconduct of BAXTER, or its directors, officers,
employees and agents.

6.3  This Article 6 survives the termination of this Agreement.

                              ARTICLE 7. Insurance

7.1  SANGAMO shall maintain insurance, including product liability insurance,
with respect to its performance of the SPONSORED RESEARCH in such amount as is
customarily maintained in accordance with good practice for the
biopharmaceutical industry. SANGAMO shall maintain such insurance for so long
as it continues to conduct the SPONSORED RESEARCH, and thereafter for so long
as SANGAMO maintains insurance for itself covering such activities. The
liability insurance requirement of this Section may be satisfied through
self-insurance with reserves consistent with industry practices.

7.2  SANGAMO shall, upon the request of BAXTER:

     (a)  produce evidence of the currency of such insurance; and

     (b)  note the interest of BAXTER on the policy in respect of such
insurance.

                            ARTICLE 8. Miscellaneous

8.1  Any notice, demand, consent or other communication ("Notice") given or
made under this Agreement:

     (a)  must be in writing and signed by a person duly authorized by the
sender;

     (b)  must either be delivered to the intended recipient as follows:

          (i)  to Sangamo
               Biosciences, Inc.:       Point Richmond Tech Center
                                        501 Canal Blvd., Suite A 100
                                        Richmond, California 94840

                                      -5-
<PAGE>   6
                                        Attention: President
                                        Fax No.: (510) 236-8951

          (ii) to Baxter Healthcare
               Corporation:             17221 Red Hill Avenue
                                        Irvine, California, 92614-5686
                                        Attention: Group Vice President
                                        CardioVascular Group
                                        Fax No.: (949) 250-6850

     (c)  will be effective upon receipt by the intended recipient.

8.2  This Agreement and the License Agreement contain the entire agreement
between the parties with respect to its subject matter and supersede all prior
agreements and understandings between the parties in connection with them.

8.3  No amendment or variation of this Agreement is valid or binding on a party
unless made in writing executed by all parties.

8.4  Except as provided in this Section 8.4, neither BAXTER nor SANGAMO may
assign or otherwise transfer this Agreement or any of its rights or obligations
herein without the prior written consent of the other party, which consent
shall not be unreasonably withheld.

     (a)  Either party may assign this Agreement together with the License
Agreement, the Convertible Debenture Purchase Agreement and the Convertible
Debenture, without the prior written consent of the other party in connection
with the sale or transfer of all or substantially all of its stock or assets to
which this Agreement relates, by merger, divestiture, spin-off or similar
transaction, provided that such assignee undertakes in writing to be bound by
all the terms and conditions in this Agreement and the other party is notified
within thirty (30) days of such assignment taking place; and

     (b)  SANGAMO and BAXTER may assign this Agreement together with the
License Agreement, the Convertible Debenture Purchase Agreement and the
Convertible Debenture to an Affiliate provided that such Affiliate undertakes
to be bound by the terms and conditions of this Agreement.

8.5  No failure to exercise nor any delay in exercising an right, power or
remedy by a party operates as a continuing waiver. A single or partial exercise
of any right, power or remedy does not preclude any other or further exercise
of that or any other right, power or remedy. A waiver is not valid or binding
on the party granting the waiver unless made in writing.

8.6  Each party agrees to do all things and execute all deeds, instruments,
transfers or other documents as may be necessary or desirable to give full
effect to the provisions of this Agreement and the transactions contemplated by
it.

8.7  This Agreement does not constitute an employer/employee relationship,
partnership of any kind, an association or trust between the parties, each party
being individually responsible only for its obligations as set out in this
Agreement and in addition the parties agree that their

                                      -6-

<PAGE>   7
relationship is one of independent contractors. BAXTER is not authorized or
empowered to act as agent on behalf of SANGAMO and BAXTER shall not on behalf
of SANGAMO enter into any contract, warranty or representation as to any
matter. SANGAMO shall not be bound by the acts or conduct of BAXTER. SANGAMO is
not authorized or empowered to act as agent on behalf of BAXTER and SANGAMO
shall not enter any contract, warranty or representations as to any matter on
behalf of BAXTER. BAXTER shall not be bound by the acts or conduct of SANGAMO.

8.8  This Agreement is governed by the laws of the State of California, USA.

8.9  This Agreement may be executed in any number of counterparts. All
counterparts together will be taken to constitute one instrument.

8.10 In the event of any delay in performance by either party of any of its
obligations or liabilities pursuant to this Agreement to the extent due to any
cause arising from or attributable to acts, events, non-happenings, omissions,
accidents or acts of God beyond the reasonable control of the party to perform
(including but not limited to strikes, lock-outs, shortage of labor, civil
commotion, riot, war, threat of or preparation for war, breaking off of
diplomatic relations, fire, explosion, sabotage, storm, flood, earthquake, fog,
subsidence, pestilence, epidemics, computer system or machinery breakdown,
failure of plant, collapse of structures, voluntary or mandatory compliance with
any direction, request or order of any person having or appearing to have
authority whether for defense or other governmental or national purposes, or any
requisition for materials or services apparently or stated to be used for the
purposes of defense, inability to obtain suitable raw material, equipment, fuel,
power, components or transportation), the party so delayed or prevented will be
under no liability for loss or injury suffered by the other party and any such
delay or failure to perform will not constitute a breach of this Agreement to
the extent due to such cause, provided that the party so delayed uses
commercially reasonable efforts to remedy the effect of such cause.

     IN WITNESS THEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.

BAXTER HEALTHCARE CORPORATION                  SANGAMO BIOSCIENCES, INC.
CARDIOVASCULAR GROUP

By: /s/ J. H. Kehl, Jr.                        By: /s/ Edward O. Lanphier
   --------------------------------               ------------------------------

        VP Business Development
Title:  Cardiovascular Group                   Title:  President & CEO
      -----------------------------                  ---------------------------

Date:     1/10/2000                            Date:     1/7/2000
     ------------------------------                 ----------------------------

                                      -7-<PAGE>   1
                                                                 EXHIBIT 10-E

DANA WORLD HEADQUARTERS

                                                              December 12, 1998

Southwood J. Morcott
Dana Corporation
4500 Dorr Street
Toledo, OH  43615

Dear Mr. Morcott:

         The Corporation is on this date entering into an amended and restated
employment agreement with you (the Employment Agreement). As a separate and
additional inducement for you to enter into the amended and restated Employment
Agreement and to provide you with reasonable assurance that the purposes of the
Employment Agreement will not be frustrated as a result of the cost of its
enforcement should a dispute arise out of or relate to any provision of the
Employment Agreement, the Corporation hereby agrees to pay, in consideration of
and following your execution of the amended and restated Employment Agreement,
all legal expenses, including costs, which you may incur in any such dispute in
accordance with the terms and conditions of the Memorandum attached to this
letter. This letter supersedes a corresponding letter (and Memorandum) dated
December 8, 1997 which shall no longer be of any force or effect.

         It is suggested that you retain this letter and the Memorandum with the
Employment Agreement and your other documents of value. For the Corporation's
files please acknowledge receipt and your agreement on the enclosed copy of this
letter and return it in an envelope marked "Confidential" to the Secretary of
Dana Corporation.

                                          Sincerely,

                                          DANA CORPORATION

                                          By:  /S/  MARTIN J. STROBEL
                                               ---------------------------------
                                                     Chairman of the Board
                                                         of Directors

                                          By:  /S/  R. B. PRIORY
                                               ---------------------------------

                                                 Chairman of the Compensation
                                                          Committee

My agreement to and receipt of the
foregoing letter and the Memorandum
is hereby acknowledged this 12TH
day of   JUNE   , 1999.     ----
       ---------------

/S/  S. J. MORCOTT
------------------------------------
Southwood J. Morcott
People Finding A Better Way
DANA CORPORATION
P.O. Box 1000 Toledo, Ohio 43697, Tel: (419) 535-4500  Fax: (419) 535-4643

<PAGE>   2

                       Memorandum of Terms and Conditions
                       Relating to Legal Fees and Expenses
                  Referred to in Letter dated December 12, 1998
              from Dana Corporation to the Executive (The "Letter")
              -----------------------------------------------------

         1. The words used in this memorandum and in the Letter shall have the
same meaning as in the Employment Agreement. Reference hereafter to the Letter
shall be deemed to refer also to this memorandum.

         2. The Corporation's obligations under the Letter shall become
effective if and when any claim or dispute by or against the Executive or anyone
claiming under or through the Executive (such person being hereinafter referred
to as the "beneficiary"), or any dispute between the Executive or his
beneficiary and the Corporation or any third party, should arise out of or
relate to the Employment Agreement or the Letter, or both, or the validity,
operation, interpretation, enforceability or breach thereof.

         3. The Corporation shall, upon presentation of appropriate commercial
vouchers, pay all legal expenses, including all reasonable legal fees, court
costs, arbitration costs, and ordinary and necessary out-of-pocket expenses of
attorneys, billed to and payable by the Executive or the beneficiary in
connection with bringing, prosecuting, defending, litigating, arbitrating,
negotiating or settling such dispute or claim, provided that

                  (a) the Executive or his beneficiary shall repay to the
Corporation any such expenses theretofore paid by or on behalf of the
Corporation if and to the extent that the Executive and his beneficiary shall
fail to prevail in such dispute or claim and such expenses were not incurred by
the Executive and his beneficiary while acting in good faith, and provided
further, that

                  (b) in the case of any claim or dispute by the Executive or
his beneficiary, such claim shall be timely made, or notice of such dispute
timely given, in writing, with specific reference to the provisions of the
Letter, delivered in the same manner as provided in Section 14(b) of the
Employment Agreement, in no event later than three (3) years after the
occurrence of the event giving rise to such claim or dispute.

         4. (a) At such time after the date of the Employment Agreement as the
Corporation shall receive written demand by the

<PAGE>   3

Executive or, in the event of his death, by his beneficiary, together with a
statement signed by an attorney selected by the Executive or his beneficiary
stating that in the opinion of such attorney a suit or claim described in
paragraph 2 above exists which could reasonably be expected to lead to
litigation, the Corporation will set aside in trust an amount equal to (i) the
Annual Base Salary payable to the Executive under the provisions of Section 3(a)
of the Employment Agreement for the month immediately preceding the month in
which such demand shall have been made or, if no such salary was payable for
such month, for the first month preceding the month in which such demand shall
have been made for which such salary was payable, multiplied by (ii) twelve
(12).

                  (b) Such amount and any income thereon shall be held, paid and
applied by the trustee of such trust for the purpose of assuring and securing
payment of the Corporation's obligations under paragraph 3 above. As and when
any funds are paid out by the trustee, the Corporation shall replenish same by
payment to the trustee of an amount equal to the funds so paid by the trustee.
Any funds remaining in the trust at such time as the trustee, in its sole
discretion, reasonably exercised, determines, upon the advice of counsel and
after consultation with the Corporation and the Executive or, in the event of
his death, his beneficiary, that all obligations of the parties under the
Employment Agreement and the Letter have been substantially satisfied, shall be
repaid by the trustee to the Corporation.

                  (c ) The trustee of such trust, the fees and expenses of which
shall be paid by the Corporation, shall be a national or state bank or trust
company having a combined capital, surplus and undivided profits and reserves of
not less than Ten Million Dollars ($10,000,000) which is duly authorized and
qualified to do business in the state in which the Executive resides at the time
of such demand.

         5. The following provisions of the Employment Agreement shall be deemed
applicable to the Letter to the same extent as if incorporated herein at length,
with the term "this Letter" being deemed substituted for the term "this
Agreement" where appropriate in any such provision: Section 5(e)(i), relating to
arbitration and judicial proceedings; Section 11, relating to successors to the
Corporation; Section 12(a), relating to the

                                       2
<PAGE>   4

definition of "beneficiary"; Section 13, relating to amendment, modification and
waiver; Section 14(a), relating to governing law and captions; Section 14(b),
relating to notices; Section 14(c), relating to severability; Section 14(d),
relating to withholding; Section 14(f), relating to the entirety of the Letter;
Section 14(g), relating to non-assignability and the like; Section 14(j),
relating to specific performance and the like; Section 14(m), relating to the
meaning of Executive after death or during incompetence; and Section 14(n),
relating to legal holidays.

         6. The Letter is not intended to enlarge, diminish or otherwise alter
in any way the Executive's rights, duties and obligations and those of the
Corporation under the Employment Agreement.

                                       3
<PAGE>   5

                              EMPLOYMENT AGREEMENT

                                     BETWEEN

                                DANA CORPORATION

                                       AND

                              SOUTHWOOD J. MORCOTT

                             DATED DECEMBER 12, 1998

<PAGE>   6

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

         SECTION                                                                            PAGE
<S>                                                                                                        <C>
Recitals ...................................................................................................1

1.       Employment and Term................................................................................1

2.       Position and Duties of the Executive...............................................................2
         (a)      Position..................................................................................2
         (b)      Duties....................................................................................3
         (c)      Location of Office........................................................................4

3.       Compensation.......................................................................................4
         (a)      Salary....................................................................................4
         (b)      Additional Compensation...................................................................4
         (c)      Incentive, Stock and Savings Plans........................................................5
         (d)      Retirement and Welfare Benefit Plans......................................................5
         (e)      Expenses..................................................................................6
         (f)      Fringe Benefits...........................................................................6
         (g)      Office and Support Staff..................................................................6
         (h)      Vacation and Other Absences...............................................................7
         (i)      Benefits Shall Not Be Reduced Under Certain Circumstances.................................7
         (j)      Supplemental Retirement Annuity...........................................................8

4.       Termination of Employment.........................................................................11
         (a)      Death or Disability......................................................................11
         (b)      Cause....................................................................................12
         (c)      Good Reason..............................................................................14
         (d)      Notice of Termination....................................................................15
         (e)      Date of Termination......................................................................16

5.       Obligations of the Corporation Upon Termination...................................................16
         (a)      Termination Other Than for Cause.........................................................16
         (b)      Termination On or After Change of Control................................................19
         (c)      Cause; Other Than for Good Reason........................................................19
         (d)      Death or Disability......................................................................20
         (e)      Resolution of Disputes...................................................................20
                  (i)      Right of Election by Executive to Arbitrate or Sue..............................20
                  (ii)     Third-Party Stakeholder.........................................................21
         (f)      Benefits are in Addition to Supplemental Retirement Annuity..............................22

</TABLE>

                                       i

<PAGE>   7
<TABLE>
<CAPTION>

<S>                                                                                                        <C>
6.       Non-exclusivity of Rights.........................................................................22

7.       Full Settlement...................................................................................22

8.       Golden Parachute Tax Payments.....................................................................23

9.       Confidential Information..........................................................................24

10.      Competition.......................................................................................25

11.      Successors........................................................................................27

12.      Certain Definitions...............................................................................27
         (a)      Beneficiary..............................................................................28
         (b)      Change of Control........................................................................28
         (c)      Change of Control Date...................................................................30
         (d)      Change of Control Period.................................................................30

13.       Amendment or Modification; Waiver................................................................30

14.      Miscellaneous.....................................................................................30

Exhibit A .................................................................................................34

</TABLE>

                                       ii

<PAGE>   8

<TABLE>
<CAPTION>

                                  DEFINED TERMS
                                  -------------

DEFINED TERMS*                                              SECTION                              PAGE
--------------                                              -------                              ----
<S>                                                         <C>                           <C>
Accounting Firm                                             8(b)                          23
Accrued Obligation                                          5(a)(i)(3)                    16
ACP                                                         3(b)                          5
Affiliate                                                   2(a)                          3
Affiliated Company                                          3(a)                          4
Agreement                                                   Introduction                  1
Annual Base Salary                                          3(a)                          4
Annual Bonus                                                3(b)                          4

Beneficiary                                                 12(a)                         28
Board                                                       3(a)                          4

Cause                                                       4(b)                          12
Change of Control                                           12(b)                         28
Change of Control Date                                      12(c)                         30
Change of Control Period                                    12(d)                         30
Code                                                        5(a)(ii)                      17
Competition                                                 10(c)                         26
Corporation                                                 Introduction                  1
                                                            11(b)                         27
                                                            14(e)                         31

Date of Termination                                         4(e)                          16
Disability                                                  4(a)(ii)                      12
Disability Effective Date                                   4(a)(ii)                      12

Employment Period                                           1(a)                          1
Excise Tax                                                  8(a)                          23
Executive                                                   Introduction                  1

Gross-Up Payment                                            8(a)                          23
</TABLE>

--------
            *Each listed term is intended to include both the singular and
            plural form of the term.

                                      iii

<PAGE>   9

<TABLE>
<CAPTION>

                                  DEFINED TERMS
                                  -------------

DEFINED TERMS*                                              SECTION                              PAGE
--------------                                              -------                              ----
<S>                                                         <C>                           <C>
Highest Average Monthly Compensation                        3(j)(vi)                      11

Notice of Termination                                       4(d)                          15

Other Benefits                                              5(a)(v)                       19

Payment                                                     8(a)                          23
Pension and Retirement Pro gram of the Corporation          3(j)(vii)                     11

Renewal Date                                                1(c)                          2

Service                                                     3(j)(viii)                    11
Subsidiary                                                  2(a)                          3

Target Annual Bonus                                         3(b)                          5
Terminal Date                                               1(b)                          1
Termination                                                 5(a)                          16
Termination Period                                          5(a)(ii)                      17

Welfare Benefit Continuation                                5(a)(iii)                     18
</TABLE>

-------------
         *Each listed term is intended to include both the singular and plural
form of the term.

                                       iv

<PAGE>   10

                  AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement")
made and entered into as of this 12th day of December, 1998, by and between DANA
CORPORATION, a Virginia corporation whose principal place of business is located
at 4500 Dorr Street, Toledo, Ohio (the "Corporation"), and Southwood J. Morcott
(the "Executive");

                  WHEREAS, the Executive is a principal executive officer of the
Corporation and an integral part of its management; and

                  WHEREAS, the Corporation wishes to assure itself of the
continuing services of the Executive and to assure the Executive of continued
employment during the period of employment hereunder; and

                  WHEREAS, the Executive is willing to commit himself to remain
in the employ of the Corporation during such period on terms and conditions
substantially similar to those on which other senior executive officers of the
Corporation are employed, and to forego opportunities elsewhere during such
period; and

                  WHEREAS, the parties have entered into an Agreement dated
December 14, 1992, as amended from time to time thereafter (the "Prior
Agreement"); and

                  WHEREAS, the parties wish to amend and restate the Prior
Agreement (as it had been amended from time to time thereafter) in its entirety;

                  NOW, THEREFORE, IN CONSIDERATION of the mutual promises,
covenants and agreements set forth below, it is hereby agreed as follows:

         1.       EMPLOYMENT AND TERM.

                  (a) The Corporation agrees to continue the employment of the
Executive, and the Executive agrees to remain in the employ of the Corporation,
in accordance with the terms and provisions of this Agreement, for the period
set forth below (the "Employment Period").

<PAGE>   11

                  (b) The Employment Period under this Agreement shall commence
as of December 12, 1998, and, subject only to the provisions of Section 4 below
relating to termination of employment, shall continue until (i) the close of
business on December 31, 2001 or (ii) such later date as shall result from the
operation of subparagraph (c) below (the "Terminal Date").

                  (c) Commencing on December 31, 1998, and on each anniversary
of such date (such date and each such annual anniversary thereof, the "Renewal
Date") the Terminal Date set forth in subparagraph (b) above shall be extended
so as to occur three (3) years from the Renewal Date unless either party shall
have given notice to the other party that the Terminal Date is not to be
extended or further extended.

         2.       POSITION AND DUTIES OF THE EXECUTIVE.

                  (a) POSITION. It is contemplated that during the Change of
Control Period (as defined in Section 12(d), below), the Executive will continue
to serve as a principal officer of the Corporation and as a member of its Board
of Directors if serving as a member of the Board of Directors immediately prior
to the Change of Control Date, with the office(s) and title(s), reporting
responsibility, and duties and responsibilities of the Executive immediately
prior to the Change of Control Date. The Executive hereby agrees that at any
time prior to the Change of Control Date, the Board of Directors of the
Corporation (or the individual to whom the Executive reports) may, without the
Executive's consent, change the Executive's office(s), title(s), reporting
responsibility, and duties or responsibilities.

                  The office(s), title(s), reporting responsibility, duties and
responsibilities of the Executive on the date of this Agreement, as the same may
be changed from time to time after the date of this Agreement in accordance with
the provisions of the previous paragraph, shall be summarized in Exhibit A to
this Agreement, it being understood and agreed that if, as and when the
office(s), title(s), reporting responsibility, duties or responsibilities of the
Executive shall be so changed after the date of this Agreement, Exhibit A shall
be deemed to be, and shall be updated by the parties to reflect such change;
PROVIDED, HOWEVER, that Exhibit A is

                                       2
<PAGE>   12

intended only as a memorandum for the convenience of the parties and shall be
disregarded if, and to the extent that, Exhibit A shall fail to reflect
accurately the office(s), title(s), reporting responsibility, duties or
responsibilities of the Executive as so changed after the date of this Agreement
because the parties shall have failed to update Exhibit A as aforesaid.

                  At all times during the Change of Control Period, the
Executive shall hold a position of responsibility and importance and a position
of scope, with the functions, duties and responsibilities attached thereto, at
least equal in responsibility and importance and in scope to and commensurate
with his position described in general terms above in this Section 2(a) and
intended to be summarized in Exhibit A to this Agreement.

                  During the Employment Period the Executive shall, without
compensation other than that herein provided, also serve and continue to serve,
if and when elected and re-elected, as an officer or director, or both, of any
United States Subsidiary, division or Affiliate of the Corporation.

                  For all purposes of this Agreement, (i) a Subsidiary shall
mean a corporation or other entity, of which 50% or more of the voting
securities or other equity interests is owned directly, or indirectly through
one or more intermediaries, by the Corporation, and (ii) an Affiliate shall mean
a corporation or other entity which is not a Subsidiary and which directly, or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, the Corporation. For the purpose of this
definition, the terms "control," "controls" and "controlled" mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a corporation or other entity, whether through
the ownership of voting securities, by contract, or otherwise.

                  (b) DUTIES. Throughout the Employment Period the Executive
shall devote his full time and undivided attention during normal business hours
to the business and affairs of the Corporation except for reasonable vacations
and except for illness or incapacity, but nothing in this Agreement shall

                                       3
<PAGE>   13

preclude the Executive from devoting reasonable periods required for:

                           (i) serving as a director or member of a committee or
         any organization involving no conflict of interest with the interests
         of the Corporation;

                           (ii) delivering lectures, fulfilling speaking
         engagements, teaching at educational institutions;

                           (iii) engaging in charitable and community
         activities; and

                           (iv) managing his personal investments;

provided that such activities do not materially interfere with the regular
performance of his duties and responsibilities under this Agreement.

                  (c) LOCATION OF OFFICE. During the Change of Control Period,
the office of the Executive shall be located at the principal offices of the
Corporation, within the greater Toledo, Ohio area, and the Executive shall not
be required to locate his office elsewhere without his prior written consent,
nor shall he be required to be absent therefrom on travel status or otherwise
more than thirty (30%) of the working days in any calendar year nor for more
than ten (10) consecutive days at any one time.

         3.       COMPENSATION.

                  The Executive shall receive the following compensation for his
services:

                  (a) SALARY. So long as the Executive is employed by the
Corporation, he shall be paid an annual base salary, payable not less often than
monthly, at the rate of not less than $100,000 per month with such increases as
shall be awarded from time to time in accordance with the Corporation's regular
administrative practices of other salary increases applicable to executives of
the Corporation, subject to any and all required withholdings and deductions for
Social

                                       4
<PAGE>   14

Security, income taxes and the like (the "Annual Base Salary"). The Board of
Directors of the Corporation (the "Board") may from time to time direct such
upward adjustments to Annual Base Salary as the Board deems to be necessary or
desirable; PROVIDED, HOWEVER, that during the Change of Control Period (as
defined in Section 12(d) below), the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and from time to time but not
less often than annually and shall be substantially consistent with increases in
base salary generally awarded in the ordinary course of business to other senior
executives of the Corporation and its Affiliated Companies (a term which, as
used in this Agreement, shall mean a Subsidiary or Affiliate of the Corporation)
and, in addition, shall be adjusted effective as of January lst of each calendar
year commencing in the Change of Control Period to reflect increases in the cost
of living during the preceding calendar year. Annual Base Salary shall not be
reduced after any increase thereof pursuant to this Section 3(a). Any increase
in Annual Base Salary shall not serve to limit or reduce any other obligation of
the Corporation under this Agreement.

                  (b) ADDITIONAL COMPENSATION. So long as the Executive is
employed by the Corporation, he shall be eligible to receive annual short-term
incentive awards or bonuses (such award or bonus is hereinafter referred to as
"Short-Term Award" or "Annual Bonus") from the Dana Corporation Additional
Compensation Plan, and from any successor or replacement plan (the Dana
Corporation Additional Compensation Plan and such successor or replacement plans
being referred to herein collectively as the "ACP"), in accordance with the
terms thereof; PROVIDED, HOWEVER, that, with respect to each fiscal year of the
Corporation ending during the Change of Control Period, the Executive shall be
awarded (whether under the terms of the ACP or otherwise) an Annual Bonus in an
amount that shall not be less than fifty percent (50%) of his Annual Base Salary
rate in effect on the last day of such fiscal year (which amount shall be
prorated if such fiscal year shall be less than 12 months) (the "Target Annual
Bonus"). Each Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the receipt of such Annual Bonus is deferred in
accordance with the terms of the ACP.

                                       5
<PAGE>   15

                  (c) INCENTIVE, STOCK AND SAVINGS PLANS. So long as the
Executive is employed by the Corporation, he shall be and continue to be a full
participant in the Dana Corporation 1997 Stock Option Plan, the ACP (providing
for Short-Term Awards) and in any and all other incentive, stock, savings or
retirement plans, practices or policies in which executives of the Corporation
participate that are in effect on the date hereof and that may hereafter be
adopted, including, without limitation, any stock option, stock purchase or
stock appreciation plans, or any successor plans that may be adopted by the
Corporation with, except in the case of the ACP after the commencement of the
Change of Control Period, at least the same reward opportunities, if any, that
have heretofore been provided to the Executive. Nothing in this Agreement shall
preclude improvement of reward opportunities in such plans or other plans in
accordance with the practice of the Corporation on or after the date of this
Agreement. Any provision of the ACP or of this Agreement to the contrary
notwithstanding, any Short-Term Awards made to the Executive during the Change
of Control Period (whether for services rendered prior to or after the Change of
Control Date) shall be paid wholly in cash as soon as practicable after the
awards are made.

                  (d) RETIREMENT AND WELFARE BENEFIT PLANS. The Executive, his
dependents and Beneficiary, including, without limitation, any beneficiary of a
joint and survivor or other optional method of payment applicable to the payment
of benefits under the Pension and Retirement Program of the Corporation, as
defined in Section 3(j)(vii) below, shall be entitled to all payments and
benefits and service credit for benefits during the Employment Period to which
other senior executives of the Corporation, their dependents and their
beneficiaries are entitled under the terms of employee retirement and welfare
benefit plans and practices of the Corporation, including, without limitation,
the Pension and Retirement Program of the Corporation (as defined in Section
3(j)(vii) below), the Corporation's Savings and Investment Plan, its Stock
Purchase Plan, its Stock Award Plan, its Income Protection Plan for Management
and Certain Other Employees providing layoff and severance benefits, its 1989
Restricted Stock Plan, its Excess Benefits Plan, its Supplemental Benefits Plan,
its death benefit plans (consisting of

                                       6
<PAGE>   16

its Group Insurance Plan for Management Employees providing life insurance,
accidental death and dismemberment insurance, and travel accident insurance),
its disability benefit plans (consisting of its salary continuation, sickness
and accident and long-term disability benefits programs), its medical, dental
and health and welfare plans and other present or equivalent successor plans and
practices of the Corporation, its Subsidiaries and divisions, for active and
retired employees, for which officers, their dependents and beneficiaries, are
eligible, and to all payments or other benefits under any such plan or practice
subsequent to the Employment Period as a result of participation in such plan or
practice during the Employment Period.

                  (e) EXPENSES. So long as the Executive is employed by the
Corporation, he shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the polices,
practices and procedures of the Corporation and its Affiliated Companies from
time to time in effect, commensurate with his position and on a basis at least
comparable to that of other senior executives of the Corporation.

                  (f) FRINGE BENEFITS. So long as the Executive is employed by
the Corporation, he shall be entitled to fringe benefits, including, without
limitation, the business and personal use of an automobile, and payment or
reimbursement of club initiation fees and dues, in accordance with the plans,
practices, programs and policies of the Corporation and its Affiliated Companies
from time to time in effect, commensurate with his position and at least
comparable to those received by other senior executives of the Corporation.

                  (g) OFFICE AND SUPPORT STAFF. So long as the Executive is
employed by the Corporation, he shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, commensurate with his position and at least
comparable to those received by other senior executives of the Corporation.

                  (h) VACATION AND OTHER ABSENCES. So long as the Executive is
employed by the Corporation, he shall be entitled

                                       7
<PAGE>   17

to paid vacation and such other paid absences whether for holidays, illness,
personal time or any similar purposes, in accordance with the plans, policies,
programs and practices of the Corporation and its Affiliated Companies in effect
from time to time, commensurate with his position and at least comparable to
those received by other senior executives of the Corporation.

                  (i) BENEFITS SHALL NOT BE REDUCED UNDER CERTAIN CIRCUMSTANCES.
Nothing in this Agreement shall preclude the Corporation from amending or
terminating any employee benefit or welfare plan or practice, but, it being the
intent of the parties that the Executive shall continue to be entitled during
the Employment Period to perquisites as set forth in this Section 3 and to
benefits and service credit for benefits under Section 3(d) above at least equal
to those attached to his position on February 13, 1984, the date of the original
agreement between the parties, and except as provided in the last sentence of
this Section 3(i), nothing in this Agreement shall operate or be construed to
reduce, or authorize a reduction without the Executive's written consent in, the
level of such perquisites, benefits or service credit for benefits; in the event
of any such reduction, by amendment or termination of any plan or practice or
otherwise, the Executive, his dependents and Beneficiary, shall continue to be
entitled to perquisites, benefits and service credit for benefits at least equal
to the perquisites, benefits and service credit for benefits under such plans or
practices that he or his dependents and Beneficiary would have received if such
reduction had not taken place. If and to the extent that such perquisites,
benefits and service credits are not payable or provided under any such plans or
practices by reason of such amendment or termination thereof, the Corporation
itself shall pay or provide therefor. Notwithstanding the foregoing provisions
of this Section 3(i), the Executive hereby waives the benefit of the foregoing
minimum benefit protection only as it applies to the Dana Corporation Savings
and Investment Plan, and to its medical, dental and health plans for active and
retired employees. The Executive expressly does not waive the application of the
foregoing minimum benefit protection to any of the other benefit plans, programs
or practices enumerated in Section 3 above, including, without limitation, the
Pension and Retirement Program of the Corporation (including

                                       8
<PAGE>   18

the lump sum discount factor in effect on February 13, 1984), its death benefit
plans, its disability benefit plans, and its Income Protection Plan for
Management and Certain Other Employees. The Executive reserves the right to
cancel the above waiver, prospectively, at any future time by giving written
notice to the Corporation of such cancellation. Nothing in this Section 3(i)
shall be construed to prohibit the Corporation from amending or terminating any
employee benefit or welfare plan or practice to reduce benefits, so long as such
reduction applies to all salaried Corporation employees covered by such plan or
practice equally and such reduction is adopted prior to the commencement of the
Change of Control Period.

                  (j)      SUPPLEMENTAL RETIREMENT ANNUITY.

                           (i) If the Service of the Executive, including,
         without limitation, the period set forth in Section 5(a)(iv)(2) below,
         relating to the period between the Date of Termination and the end of
         the Termination Period, shall terminate other than for Cause as defined
         in Section 4(b) below, and if the Executive shall have a total of not
         less than fifteen (15) years of Service, as defined in subparagraph
         (viii) of this Section 3(j), whether or not consecutive, the Executive,
         subject to compliance with the provisions of Sections 9 and 10 below,
         relating to confidential information and Competition, respectively, and
         after the Executive's death, his Beneficiary shall be entitled to the
         supplemental retirement annuity provided by this Section 3(j) in
         addition to all other benefits to which the Executive (or his
         Beneficiary), may be entitled including, without limitation, benefits
         under the Pension and Retirement Program of the Corporation.

                  Such supplemental retirement annuity shall be payable by the
Corporation on a straight life annuity basis commencing on the first day of the
month coinciding with or next following the latest of

                  (1)  termination of Service;

                  (2)  attainment by the Executive of age 55; and

                                       9
<PAGE>   19

                  (3)  if the Executive had not previously retired with 15 years
                       or more of Service, the expiration of the Employment
                       Period;

and continuing on the first day of each month thereafter during his lifetime.

                           (ii) The monthly payment provided for in Section
         3(j)(i) above shall be equal to fifty percent (50%) (or if higher, the
         percentage which is the product of 1.6% multiplied by the Executive's
         Credited Service at retirement, as such Credited Service is determined
         by application of the definition of Credited Service under the Dana
         Corporation Retirement Plan), of the Executive's Highest Average
         Monthly Compensation, as defined in Section 3(j)(vi), less the sum of

                  (1)      commencing at the earliest date that it could be
                           payable on or after termination of Service, the
                           aggregate monthly retirement benefit payable to the
                           Executive for life on a straight life annuity basis
                           under the Pension and Retirement Program of the
                           Corporation to the extent attributable to
                           contributions of the Corporation, its Subsidiaries
                           and Affiliates;

                  (2)      commencing at the earliest date that it could be
                           payable on or after termination of Service, the
                           aggregate monthly retirement or disability benefit
                           payable to the Executive for life on a straight life
                           annuity basis following his retirement or termination
                           from employment by the Corporation, its Subsidiaries
                           and Affiliates, to the extent attributable to
                           contributions other than by the Executive under
                           pension or retirement plans of all corporations,
                           organizations or entities other than the Corporation,
                           its Subsidiaries and Affiliates;

                  (3)      commencing at the earliest date payable on or after
                           termination of Service, 50% of the monthly primary
                           Social Security benefit that

                                       10
<PAGE>   20

                           would be or would have been payable to the Executive
                           in the absence of any compensation that may at the
                           time be or have been earned by him; and

                  (4)      commencing at the earliest date payable on or after
                           termination of Service and continuing until no longer
                           payable, the aggregate monthly disability benefit
                           payable to the Executive under disability benefit
                           plans and pension plans of the Corporation, its
                           Subsidiaries and Affiliates to the extent
                           attributable to contributions of the Corporation, its
                           Subsidiaries and Affiliates.

                           (iii) The Executive may elect to receive payment of
         the supplemental retirement annuity provided by this Section 3(j),
         under a joint and survivor or any other optional method of payment
         available under the Dana Corporation Retirement Plan, including,
         without limitation, any deferment in the time of payment thereof. The
         amount of the benefit payable pursuant to any form of payment under
         this Section 3(j) shall be determined by applying the mortality
         assumptions, interest rates, and other factors contained in the Dana
         Corporation Retirement Plan that would be applicable to the form of
         payment elected by the Executive (subject, however, to any actuarial
         factor that may apply as a result of the operation of Section 3(i));
         PROVIDED THAT, if a lump sum distribution is made hereunder, the amount
         of the lump sum distribution shall be actuarially equivalent to the
         monthly benefit prescribed by Section 3(j)(ii), calculated using the
         basis described in subparagraph (1) or (2), below, whichever produces
         the larger lump sum amount:

                  (1)      the lump sum amount calculated on the basis of the
                           "applicable interest rate" (as in effect for the
                           November preceding the calendar year in which the
                           calculation is made) and the "applicable mortality
                           table," both as defined in Section 417(e) of the
                           Internal Revenue Code; or

                                       11
<PAGE>   21

                  (2)      the lump sum amount calculated on the basis of the
                           actuarial equivalent factor used to convert the
                           Executive's Earned Benefit Account into a life
                           annuity under the Dana Corporation Retirement Plan at
                           the time the calculation is made, subject to any lump
                           sum discount factor that might apply as a result of
                           the operation of Section 3(i) of this Agreement.

         If it is determined that the Executive is subject to federal income
         taxation on an amount in respect of the supplemental retirement annuity
         prior to the distribution of all of such amount to him, the Corporation
         shall forthwith pay to the Executive all (or the balance) of such
         amount as is includable in the Executive's federal gross income and
         correspondingly reduce future payments, if any, of the supplemental
         retirement annuity.

                           (iv) In the event the Executive should die prior to
         terminating Service with the Corporation, the Executive's surviving
         spouse to whom he is then married, or if no such surviving spouse is
         then living, his Beneficiary, shall be entitled to receive a lump sum
         benefit equal to 100% of the benefit to which the Executive would have
         been entitled under this Section 3(j), as if the Executive had retired
         on the date of his death and elected a lump sum benefit hereunder.
                           (v) In the event that the Corporation defaults in
         payment of all or any part of the supplemental retirement annuity
         provided above in this Section 3(j) and fails to remedy such default
         within thirty days after having received notice from the Executive or
         his Beneficiary, the Corporation shall thereupon pay to the Executive
         or his Beneficiary, as the case may be, in full discharge of its
         obligations under this Section 3(j), (1) a lump sum amount actuarially
         equivalent (based on the same assumptions and discount factors as would
         be applicable under the Dana Corporation Retirement Plan) to the future
         payments otherwise payable under this Section 3(j), and (2) an amount
         equal to any and all past due payments under this Section 3(j).

                                       12
<PAGE>   22

                           (vi) The term "Highest Average Monthly Compensation"
         shall mean the sum of (1) one-twelfth (1/12) of the Annual Base Salary
         provided in Section 3(a) at the rate being paid at the time the
         Executive's termination of employment occurred, and (2) one-twelfth
         (1/12) of the average of the highest Annual Bonuses payable to the
         Executive for any three (3) consecutive full or partial fiscal years
         during his employment by the Corporation, PROVIDED, HOWEVER, that,
         solely for purposes of this Section 3(j), and for no other purposes
         under this Agreement, with respect to 1994 and subsequent years' Annual
         Bonuses, only that portion of the Employee's Annual Bonus as does not
         exceed 125% of his Annual Base Salary will be considered.

                           (vii) The term "Pension and Retirement Program of the
         Corporation" shall mean the Dana Corporation Retirement Plan, the Dana
         Corporation Excess Benefits Plan, the Dana Corporation Supplemental
         Benefits Plan, and any other supplemental, early retirement and similar
         plan or plans of the Corporation, its Subsidiaries and Affiliates,
         providing for pension or retirement benefits that may be applicable to
         the Executive and that are in effect on the date hereof or may
         hereafter be adopted or substituted for any such plan, but exclusive of
         the Dana Corporation Savings and Investment Plan and any similar plan
         or plans.

                           (viii) The term "Service" shall mean employment as an
         employee by the Corporation, any Subsidiary or Affiliate thereof or any
         corporation the capital stock or assets of which have been acquired by,
         or which has been merged into or consolidated with the Corporation or
         any Subsidiary or Affiliate thereof.

         4        TERMINATION OF EMPLOYMENT.

                  (a)      DEATH OR DISABILITY.

                           (i) The Executive's employment shall terminate
         automatically upon the Executive's death during the Employment Period.

                                       13
<PAGE>   23

                           (ii) If the Corporation determines in good faith that
         the Disability (as defined below) of the Executive has occurred during
         the Employment Period, it may give to the Executive written notice in
         accordance with Section 14(b) below of its intention to terminate the
         Executive's employment. In such event, the Employment Period shall
         terminate effective on the 30th day after receipt of such notice by the
         Executive (the "Disability Effective Date"), PROVIDED, that within the
         30 days after such receipt, the Executive shall not have returned to
         full-time performance of the Executive's duties. For purposes of this
         Agreement, "Disability" shall mean the absence of the Executive from
         the Executive's duties with the Corporation on a full-time basis for
         180 consecutive business days as a result of incapacity due to mental
         or physical illness which is determined to be total and permanent by a
         physician selected by the Corporation or its insurers and acceptable to
         the Executive or the Executive's legal representative (such agreement
         as to acceptability not to be withheld unreasonably).

                  (b) CAUSE. The Corporation may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, the termination of the Executive's employment shall be deemed to have
been for "Cause" only

                           (i) if termination of his employment shall have been
         the result of his conviction of, or plea of guilty or nolo contendere
         to, the charge of having committed a felony (whether or not such
         conviction is later reversed for any reason), or

                           (ii) if there has been a breach by the Executive
         during the Employment Period of the provisions of Section 2(b),
         relating to the time to be devoted to the affairs of the Corporation,
         or of Section 9, relating to confidential information, and such breach
         results in demonstrably material injury to the Corporation, and, with
         respect to any alleged breach of Section 2(b) hereof, the Executive
         shall have either failed to remedy such alleged breach within thirty
         days from his receipt

                                       14
<PAGE>   24

         of written notice from the Secretary of the Corporation pursuant to
         resolution duly adopted by the Board of Directors of the Corporation
         after notice to the Executive and an opportunity to be heard demanding
         that he remedy such alleged breach, or shall have failed to take all
         reasonable steps to that end during such thirty-day period and
         thereafter;

PROVIDED, that there shall have been delivered to the Executive a certified copy
of a resolution of the Board of Directors of the Corporation adopted by the
affirmative vote of not less than three-fourths of the entire membership of the
Board of Directors called and held for that purpose and at which the Executive
was given an opportunity to be heard, finding that the Executive was guilty of
conduct set forth in subparagraph (i) or (ii) above, specifying the particulars
thereof in detail.

                  Anything in this Section 4(b) or elsewhere in this Agreement
to the contrary notwithstanding, the employment of the Executive shall in no
event be considered to have been terminated by the Corporation for Cause if
termination of his employment took place

                  (1)      as the result of bad judgment or negligence on the
                           part of the Executive, or

                  (2)      because of an act or omission believed by the
                           Executive in good faith to have been in or not
                           opposed to the interests of the Corporation, or

                  (3)      for any act or omission in respect of which a
                           determination could properly be made that the
                           Executive met the applicable standard of conduct
                           prescribed for indemnification or reimbursement or
                           payment of expenses under (A) the Bylaws of the
                           Corporation, or (B) the laws of the State of
                           Virginia, or (C) the directors' and officers'
                           liability insurance of the Corporation, in each case
                           either as in effect at the time of this Agreement or
                           in effect at the time of such act or omission, or

                                       15
<PAGE>   25

                  (4)      as the result of an act or omission which occurred
                           more than twelve calendar months prior to the
                           Executive's having been given notice of the
                           termination of his employment for such act or
                           omission unless the commission of such act or such
                           omission could not at the time of such commission or
                           omission have been known to a member of the Board of
                           Directors of the Corporation (other than the
                           Executive, if he is then a member of the Board of
                           Directors), in which case more than twelve calendar
                           months from the date that the commission of such act
                           or such omission was or could reasonably have been so
                           known, or

                  (5)      as the result of a continuing course of action which
                           commenced and was or could reasonably have been known
                           to a member of the Board of Directors of the
                           Corporation (other than the Executive, if he is then
                           a member of the Board of Directors) more than twelve
                           calendar months prior to notice having been given to
                           the Executive of the termination of his employment.

                  (c) GOOD REASON. Following a Change of Control (as defined in
Section 12(b) below), the Executive may terminate his employment for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence
after the Change of Control Date of any of the following events:

                           (i) Failure to elect or reelect the Executive to the
         Board of Directors of the Corporation, if the Executive shall have been
         a member of the Board of Directors on the date of this Agreement or at
         any time thereafter during the Employment Period, or failure to elect
         or reelect the Executive to, or removal of the Executive from, the
         office(s) described in Section 2(a) above and intended to be summarized
         in Exhibit A to this Agreement.

                           (ii) A significant change in the nature or scope of
         the authorities, powers, functions or duties attached to the position
         described in Section 2 above and

                                       16
<PAGE>   26

         intended to be summarized in Exhibit A to this Agreement, or a
         reduction in compensation, which is not remedied within 30 days after
         receipt by the Corporation of written notice from the Executive.

                           (iii) A determination by the Executive made in good
         faith that as a result of a Change of Control, and a change in
         circumstances thereafter and since the date of this Agreement
         significantly affecting his position, he is unable to carry out the
         authorities, powers, functions or duties attached to his position and
         contemplated by Section 2 of this Agreement and the situation is not
         remedied within 30 days after receipt by the Corporation of written
         notice from the Executive of such determination.

                           (iv) A breach by the Corporation of any provision of
         this Agreement not embraced within the foregoing clauses (i), (ii) and
         (iii) of this Section 4(c) which is not remedied within 30 days after
         receipt by the Corporation of written notice from the Executive.

                           (v) The liquidation, dissolution, consolidation or
         merger of the Corporation or transfer of all or a significant portion
         of its assets unless a successor or successors (by merger,
         consolidation or otherwise) to which all or a significant portion of
         its assets have been transferred shall have assumed all duties and
         obligations of the Corporation under this Agreement but without
         releasing the corporation that is the original party to this Agreement;

PROVIDED, that in any event set forth in this Section 4(c), the Executive shall
have elected to terminate his employment under this Agreement, upon not less
than ten and not more than ninety days' advance written notice to the
Corporation, attention of the Secretary, given, except in the case of a
continuing breach, within three calendar months after (A) failure to be so
elected or reelected, or removal, (B) expiration of the thirty-day cure period
with respect to such event, or (C) the closing date of such liquidation,
dissolution, consolidation, merger or transfer of assets, as the case may be.

                                       17
<PAGE>   27

                  An election by the Executive to terminate his employment given
under the provisions of this Section 4(c) shall not be deemed a voluntary
termination of employment by the Executive for the purpose of this Agreement or
any plan or practice of the Corporation.

                  (d) NOTICE OF TERMINATION. Any termination by the Corporation
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 14(b)
below. 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 in
         Section 4(e) below) is other than the date of receipt of such notice,
         specifies the termination date (which date shall be not more than
         fifteen days after the giving of such notice).

                  (e)      DATE OF TERMINATION.  "Date of Termination" means

                           (i) if the Executive's employment is terminated by
         the Corporation for Cause, or by the Executive for Good Reason, the
         date of receipt of the Notice of Termination or any later date
         specified therein, as the case may be,

                           (ii) if the Executive's employment is terminated by
         the Corporation other than for Cause or Disability, the Date of
         Termination shall be the date on which the Corporation notifies the
         Executive of such termination and

                                       18
<PAGE>   28

                           (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 CORPORATION UPON TERMINATION.

                  (a) TERMINATION OTHER THAN FOR CAUSE. If, during the
Employment Period, the Corporation shall terminate the Executive's employment
other than for Cause or the Executive shall terminate his employment following a
Change of Control for Good Reason (termination in any such case referred to as
"Termination"):

                           (i)  the Corporation shall pay the Executive in a
         lump sum in cash within 30 days after the Date of Termination 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 Target Annual Bonus and (y) a
                           fraction, the numerator of which is the number of
                           days in the current fiscal year 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

                           (ii) at the end of the month next following the
         Termination, and at the end of each month thereafter until the earliest
         of the end of the Employment Period, three years following the Date of
         Termination, or until the Executive shall attain the age of 65 years,
         but in no event beyond the end of the month in which the death of the
         Executive shall have occurred or

                                       19
<PAGE>   29

         the end of the sixth month following the Disability Effective Date
         (such period to be called the "Termination Period"), the Corporation
         shall pay to the Executive an amount equal to the Highest Average
         Monthly Compensation; PROVIDED, HOWEVER, that such amount shall be
         reduced by any other amounts payable to the Executive in respect of
         salary or bonus continuation to be received by the Executive under any
         severance plan, policy or arrangement of the Corporation; and,
         PROVIDED, FURTHER, that if the Date of Termination occurs on or after
         the occurrence of a Change of Control, such amount shall be paid as a
         lump-sum within 30 days following the Date of Termination, such
         lump-sum calculated based upon the present value (within the meaning of
         Section 28OG(d)(4) of the Internal Revenue Code of 1986 as amended (the
         "Code")) of the payments which would be made absent the Change of
         Control; and

                           (iii) During the Termination Period, or such longer
         period as any plan, program, practice or policy may provide, the
         Corporation shall continue benefits to the Executive and/or the
         Executive's family at least equal to those which would have been
         provided to them in accordance with the plans, programs, practices and
         policies described in Section 3(d) above if the Executive's employment
         had not been terminated in accordance with the most favorable plans,
         practices, programs or policies of the Corporation and its Affiliated
         Companies as in effect and applicable generally to other senior
         executives of the Corporation and its Affiliated Companies and their
         families during the 90-day period immediately preceding the Date of
         Termination or, if more favorable to the Executive, as in effect at any
         time thereafter or, if more favorable to the Executive, as in effect
         generally at any time thereafter with respect to other senior
         executives of the Corporation and its Affiliated Companies and their
         families, PROVIDED, HOWEVER, that if the Executive becomes reemployed
         with another employer and is eligible to receive medical or other
         welfare benefits under another employer-provided plan, the medical and
         other welfare benefits described herein shall be secondary to those
         provided under such other plan during such applicable period of
         eligibility

                                       20
<PAGE>   30

         (such continuation of such benefits for the applicable period herein
         set forth shall be hereinafter referred to as "Welfare Benefit
         Continuation"). For purposes of determining eligibility of the
         Executive for retiree benefits pursuant to such plans, practices,
         programs and policies, the Executive shall be considered to have
         remained employed until the end of the Termination Period and to have
         retired on the date of the end of the Termination Period. To the extent
         that any benefits referred to in this Section 5(a)(iii) shall not be
         payable or provided under any such plan by reason of the Executive's no
         longer being an employee of the Corporation as the result of
         Termination, the Corporation shall itself pay, or provide for payment
         of, such benefits and the service credit for benefits provided for in
         Section 5(a)(iv) below, to the Executive, his dependents and
         Beneficiary; and

                           (iv) The period from the Date of Termination until
         the end of the Termination Period shall be considered:

                  (1)      Service with the Corporation for the purpose of
                           continued credits under the employee benefit plans
                           referred to in Section 3(d) above and all other
                           benefit plans of the Corporation applicable to the
                           Executive or his Beneficiary as in effect immediately
                           prior to Termination but prior to any reduction of
                           benefits thereunder as the result of amendment or
                           termination during the Employment Period;

                  (2)      Service within the meaning of Section 3(j)(viii)
                           above for purposes of Section 3(j) above; and

                  (3)      Employment with the Corporation for purposes of
                           determining payments and other rights in respect of
                           awards made or accrued and award opportunities
                           granted prior to Termination under the executive
                           incentive plans referred to in Section 3(c) above and
                           all other incentive

                                       21
<PAGE>   31

                           plans of the Corporation in which the Executive was a
                           participant prior to Termination; and

                           (v) to the extent not theretofore paid or provided,
         the Corporation shall timely pay or provide to the Executive and/or the
         Executive's family any other amounts or benefits required to be paid or
         provided or which the Executive and/or the Executive's family is
         eligible to receive pursuant to this Agreement and under any plan,
         program, policy or practice or contract or agreement of the Corporation
         and its Affiliated Companies as in effect and applicable generally to
         other senior executives of the Corporation and its Affiliated Companies
         and their families during the 90-day period immediately preceding the
         Date of Termination or, if more favorable to the Executive, as in
         effect generally thereafter with respect to other senior executives of
         the Corporation and its Affiliated Companies and their families (such
         other amounts and benefits shall be referred to below as the "Other
         Benefits").

                  (b) TERMINATION ON OR AFTER CHANGE OF CONTROL. If Termination
shall have occurred coincidental with a Change of Control or during the Change
of Control Period, any provision of Section 5(a)(iv) above or of the ACP to the
contrary notwithstanding, upon such Termination, the Corporation shall pay or
distribute to the Executive on an accelerated basis, to the extent, if any, not
theretofore accelerated, any and all outstanding Short-Term Awards, or
installments thereof, under the ACP that shall have been awarded to the
Executive prior to Termination and deferred for payment subsequent to
termination of employment, with any such accelerated payment based on the value,
determined in accordance with such plan (or successor plan), of such awards or
installments (and any increments thereon) on the Termination Date, and such
accelerated payment or distribution shall constitute a complete discharge of the
Corporation's obligation in respect of the Short-Term Awards so paid or
distributed.

                  (c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause during the Employment Period, the
Corporation shall have no further obligations to the Executive under this
Agreement other than

                                       22
<PAGE>   32

the obligation to pay the Executive's Annual Base Salary, any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon), and accrued vacation pay through the Date of Termination, in
each case to the extent not theretofore paid, and any other amounts or benefits
to which the Executive and/or the Executive's family is otherwise entitled under
the terms of any employee benefit or incentive plan of the Corporation. If the
Executive terminates employment during the Employment Period, excluding a
termination for Good Reason following a Change of Control, the Corporation shall
have no further obligations to the Executive, other than to pay the Executive's
Annual Base Salary, any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon), and accrued vacation
pay through the termination date, in each case to the extent not theretofore
paid, any other benefits to which the Executive and/or the Executive's family is
otherwise entitled under the terms of any employee benefit or incentive plan of
the Corporation, and, if the Executive is otherwise eligible under the
provisions of Section 3(j) of this Agreement, he shall also be entitled to
receive the supplemental retirement annuity described in such Section 3(j).

                  (d)      DEATH OR DISABILITY.

                           (i) In the event of the death of the Executive during
         the Employment Period, the legal representative of the Executive shall
         be entitled to the compensation provided for in Sections 3(a) and 3(b)
         above for the month in which death shall have taken place, at the rate
         being paid at the time of death, and the Employment Period shall be
         deemed to have ended as of the close of business on the last day of the
         month in which death shall have occurred but without prejudice to any
         payments due in respect of the Executive's death. Further, in the event
         the Executive should die prior to terminating Service with the
         Corporation, the Executive's surviving spouse or Beneficiary, as the
         case may be, shall be entitled to receive the supplemental retirement
         annuity pursuant to Section 3(j)(iv).

                           (ii) In the event of the Disability of the Executive
         during the Employment Period, the Executive

                                       23
<PAGE>   33

         shall be entitled to the compensation provided for in Sections 3(a) and
         3(b) above, at the rate being paid on the Disability Effective Date,
         for the period of such Disability but not in excess of six months. The
         amount of any payments due under this Section 5(d)(ii) shall be reduced
         by any payments to which the Executive may be entitled for the same
         period because of disability under any disability or pension plan of
         the Corporation or of any Subsidiary or Affiliate thereof.

                  (e)      RESOLUTION OF DISPUTES.
                           (i) RIGHT OF ELECTION BY EXECUTIVE TO ARBITRATE OR
         SUE. In the event that the Executive's employment shall be terminated
         by the Corporation during the Employment Period and such termination is
         alleged to be for Cause, or the Executive's right to terminate his
         employment under Section 4(c) above shall be questioned by the
         Corporation, or the Corporation shall withhold payments or provision of
         benefits for any other reason, the Executive shall have the right, in
         addition to all other rights and remedies provided by law, at his
         election either to seek arbitration within the Toledo, Ohio area under
         the rules of the American Arbitration Association by serving a notice
         to arbitrate upon the Corporation or to institute a judicial
         proceeding, in either case within ninety days after having received
         notice of termination of his employment or notice in any form that the
         termination of his employment under Section 4(b) above is subject to
         question or that the Corporation is withholding or proposes to withhold
         payments or provision of benefits.

                           (ii) THIRD-PARTY STAKEHOLDER. In the event that the
         Corporation defaults on any obligation set forth in Section 5(a) above,
         relating to Termination, and shall have failed to remedy such default
         within thirty (30) days after having received written notice of such
         default from the Executive, in addition to all other rights and
         remedies that the Executive may have as a result of such default, the
         Executive may demand and the Corporation shall thereupon be required to
         deposit, with the third-party stakeholder hereinafter described, an
         amount equal to the undiscounted value of any and all

                                       24
<PAGE>   34

         undischarged, future obligations of the Corporation under Section 5(a)
         above and such amount shall thereafter be held, paid, applied or
         distributed by such third-party stakeholder for the purpose of
         satisfying such undischarged, future obligations of the Corporation
         when and to the extent that they become due and payable. Any interest
         or other income on such amount shall be retained by the third-party
         stakeholder and applied, if necessary, by it to satisfy such
         obligations, PROVIDED, HOWEVER, that any interest or other income that
         is earned on such undischarged, future obligations after the date that
         the third-party stakeholder determines, in its sole discretion, that
         such obligations are due and owing to the Executive, shall be paid to
         the Executive as earned. To the extent not theretofore expended, such
         amount (including any remaining unexpended interest or other income)
         shall be repaid to the Corporation at such time as the third-party
         stakeholder, in its sole discretion, reasonably exercised, determines,
         upon the advice of counsel and after consultation with the Corporation
         and the Executive or, in the event of his death, his Beneficiary, that
         all obligations of the Corporation under Section 5(a) above have been
         substantially satisfied.

                           Such amount shall, in the event of any question, be
         determined jointly by the firm of certified public accountants
         regularly employed by the Corporation and a firm of certified public
         accountants selected by the Executive, in each case upon the advice of
         actuaries to the extent the certified public accountants consider
         necessary, and, in the event such two firms of accountants are unable
         to agree on a resolution of the question, such amount shall be
         determined by an independent firm of certified public accountants
         selected jointly by both firms of accountants.

                           The third-party stakeholder, the fees and expenses of
         which shall be paid by the Corporation, shall be a national or state
         bank or trust company having a combined capital, surplus and undivided
         profits and reserves of not less than Ten Million Dollars ($10,000,000)
         which is duly authorized and qualified to

                                       25
<PAGE>   35

         do business in the state in which the Executive resides at the time of
         such default.

                  (f) BENEFITS ARE IN ADDITION TO SUPPLEMENTAL RETIREMENT
ANNUITY. Any provision of this Agreement to the contrary notwithstanding, the
payments, benefits, service credit for benefits and other matters provided by
this Section 5, including without limitation Section 5(a) above, in the event of
a Termination, are in addition to any payments, benefits, service credit for
benefits and other matters provided by Section 3(j) above relating to a
supplemental retirement annuity that may apply in such event.

         6        NON-EXCLUSIVITY OF RIGHTS.

                  Except as provided in Sections 5(a)(ii), 5(b) and 5(c) above,
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
Corporation or any of its Affiliated Companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement entered into after the date
hereof with the Corporation or any of its Affiliated Companies. 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
entered into after the date hereof with, the Corporation or any of its
Affiliated Companies 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 Corporation'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 Corporation 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

                                       26
<PAGE>   36

provisions of this Agreement and, except as provided in Section 5(a)(iii) above,
such amounts shall not be reduced whether or not the Executive obtains other
employment.

         8        GOLDEN PARACHUTE TAX PAYMENTS.

                  (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution involving a change of control of the Corporation, by the
Corporation or any other person or entity, 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 of the Code (or any successor
provision) 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") from the Corporation 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.

                  (b) All calculations and 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 Price Waterhouse (or any
successor thereto by merger or operation of law) (the "Accounting Firm"). In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the change of control, the Executive shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne

                                       27
<PAGE>   37

solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this
Section 8, shall be paid by the Corporation to the Executive within five days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Corporation and the Executive.

                  (c) The Executive shall promptly notify the Corporation in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Corporation of the Gross-Up Payment.

                  The Corporation shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such claim 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 Corporation 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 sue for a refund or to 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 Corporation
shall determine; PROVIDED, HOWEVER, that if the Corporation directs the
Executive to pay such claim and sue for a refund, the Corporation 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.

                                       28
<PAGE>   38

Furthermore, the Corporation'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.

         9        CONFIDENTIAL INFORMATION.

                  (a) The Executive agrees not to disclose, either while in the
Corporation's employ or at any time thereafter, to any person not employed by
the Corporation, or not engaged to render services to the Corporation, except
with the prior written consent of an officer authorized to act in the matter by
the Board of Directors of the Corporation, any confidential information obtained
by him while in the employ of the Corporation, including, without limitation,
information relating to any of the Corporation's inventions, processes,
formulae, plans, devices, compilations of information, methods of distribution,
customers, client relationships, marketing strategies or trade secrets;
PROVIDED, HOWEVER, that this provision shall not preclude the Executive from use
or disclosure of information known generally to the public or of information not
considered confidential by persons engaged in the business conducted by the
Corporation or from disclosure required by law or Court order. The agreement
herein made in this Section 9(a) shall be in addition to, and not in limitation
or derogation of, any obligations otherwise imposed by law upon the Executive in
respect of confidential information and trade secrets of the Corporation, its
Subsidiaries and Affiliates.

                  (b) The Executive also agrees that upon leaving the
Corporation's employ he will not take with him, without the prior written
consent of an officer authorized to act in the matter by the Board of Directors
of the Corporation, and he will surrender to the Corporation any record, list,
drawing, blueprint, specification or other document or property of the
Corporation, its Subsidiaries and Affiliates, together with any copy and
reproduction thereof, mechanical or otherwise, which is of a confidential nature
relating to the Corporation, its Subsidiaries and Affiliates, or, without
limitation, relating to its or their methods of distribution, client

                                       29
<PAGE>   39

relationships, marketing strategies or any description of any formulae or secret
processes, or which was obtained by him or entrusted to him during the course of
his employment with the Corporation.

         10       COMPETITION.

                  (a) Subject to the provisions of Section 5(e) above relating
to resolution of disputes, there shall be no obligation on the part of the
Corporation to make any further payments provided for in Section 3(j) above
relating to payment of a supplemental retirement annuity, if the Executive
shall, during the period that such payments are being made or benefits provided,
engage in Competition with the Corporation as hereinafter defined, provided all
of the following shall have taken place:

                           (i) the Secretary of the Corporation, pursuant to
         resolution of the Board of Directors of the Corporation, shall have
         given written notice to the Executive that, in the opinion of the Board
         of Directors, the Executive is engaged in such Competition, specifying
         the details;

                           (ii) the Executive shall have been given a reasonable
         opportunity upon reasonable notice to appear before and to be heard by
         the Board of Directors prior to the determination of the Board
         evidenced by such resolution;

                           (iii) the Executive shall neither have ceased to
         engage in such Competition within thirty days from his receipt of such
         notice nor diligently taken all reasonable steps to that end during
         such thirty-day period and thereafter.

                  Notwithstanding any provision to the contrary contained
herein, in the event of a Termination, as defined in Section 5(a) above, this
Section 10(a) shall not apply following a Change of Control.

                  (b) The Executive agrees in addition to the provisions
relating to Competition set forth in Section 10(a) above that he will not engage
in Competition at any time (i) during

                                       30
<PAGE>   40

the Employment Period, and (ii) except in the event of a Termination, during the
thirty-six (36) months immediately following the termination of his employment
with the Corporation.

                  (c)      The word "Competition" for the purposes of this
                           Agreement shall mean

                           (i) taking a management position with or control of a
         business engaged in the design, development, manufacture, marketing or
         distribution of products, which constituted 15% or more of the sales of
         the Corporation and its Subsidiaries and Affiliates during the last
         fiscal year of the Corporation preceding the termination of the
         Executive's employment, in any geographical area in which the
         Corporation, its Subsidiaries or Affiliates is at the time engaging in
         the design, development, manufacture, marketing or distribution of such
         products; PROVIDED, HOWEVER, that in no event shall ownership of less
         than 5% of the outstanding capital stock entitled to vote for the
         election of directors of a corporation with a class of equity
         securities held of record by more than 500 persons, standing alone, be
         deemed Competition with the Corporation within the meaning of this
         Section 10,

                           (ii0 soliciting any person who is a customer of the
         businesses conducted by the Corporation, or any business in which the
         Executive has been engaged on behalf of the Corporation and its
         Subsidiaries or Affiliates at any time during the term of this
         Agreement on behalf of a business described in clause (i) of this
         Section 10,

                           (iii0 inducing or attempting to persuade any employee
         of the Corporation or any of its Subsidiaries or Affiliates to
         terminate his employment relationship in order to enter into employment
         with a business described in clause (i) of this Subsection 10(c), or

                           (iv) making or publishing any statement which is, or
         may reasonably be considered to be, disparaging of the Corporation or
         any of its Subsidiaries or Affiliates, or directors, officers,
         employees or the operations or

                                       31
<PAGE>   41

         products of the Corporation or any of its Subsidiaries or Affiliates,
         except to the extent the Executive, during the Employment Period, makes
         the statement to employees or other representatives of the Corporation
         or any of its Subsidiaries or Affiliates in furtherance of the
         Corporation's business and the performance of his services hereunder.

         11.      SUCCESSORS.

                  Except as otherwise provided herein,

                  (a This Agreement shall be binding upon and shall inure to the
benefit of the Executive, his heirs and legal representatives, and the
Corporation and its successors as provided in this Section 11.

                  (b This Agreement shall be binding upon and inure to the
benefit of the Corporation and any successor of the Corporation, including,
without limitation, any corporation or corporations acquiring, directly or
indirectly, 50% or more of the outstanding securities of the Corporation, or all
or substantially all of the assets of the Corporation, whether by merger,
consolidation, sale or otherwise (and such successor shall thereafter be deemed
embraced within the term "the Corporation" for the purposes of this Agreement),
but shall not otherwise be assignable by the Corporation.

         12.      CERTAIN DEFINITIONS.

                  The following defined terms used in this Agreement shall have
the meanings indicated:

                  (a BENEFICIARY. The term "Beneficiary" as used in this
Agreement shall, in the event of the death of the Executive, mean an individual
or individuals and/or an entity or entities, including, without limitation, the
Executive's estate, duly designated on a form filed with the Corporation by the
Executive to receive any amount that may be payable after his death or, if no
such individual, individuals, entity or entities has or have been so designated,
or is at the time in existence or able to receive any such amount, the
Executive's estate.

                                       32
<PAGE>   42

                  (b       CHANGE OF CONTROL. A "Change of Control" shall be
deemed to have occurred if the event set forth in any one of the following
paragraphs shall have occurred:

                  (i) any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Corporation (not including in
                  the securities Beneficially Owned by such Person any
                  securities acquired directly from the Corporation or its
                  Affiliates) representing 20% or more of the combined voting
                  power of the Corporation's then outstanding securities,
                  excluding any Person who becomes such a Beneficial Owner in
                  connection with a transaction described in clause (1) of
                  paragraph (iii) below; or

                  (ii) the following individuals cease for any reason to
                  constitute a majority of the number of directors then serving:
                  individuals who, on the date hereof, constitute the Board and
                  any new director whose appointment or election by the Board or
                  nomination for election by the Corporation's stockholders was
                  approved or recommended by a vote of at least two-thirds (2/3)
                  of the directors then still in office who either were
                  directors on the date hereof or whose appointment, election or
                  nomination for election was previously so approved or
                  recommended. For purposes of the preceding sentence, any
                  director whose initial assumption of office is in connection
                  with an actual or threatened election contest, including but
                  not limited to a consent solicitation, relating to the
                  election of directors of the Corporation, shall not be
                  counted; or

                  (iii) there is consummated a merger or consolidation of the
                  Corporation or any direct or indirect Subsidiary of the
                  Corporation with any other corporation, other than (1) a
                  merger or consolidation which would result in the voting
                  securities of the Corporation outstanding immediately prior to
                  such merger or consolidation continuing to represent (either
                  by remaining outstanding or by being converted into voting
                  securities of the surviving entity or any

                                       33
<PAGE>   43

                  parent thereof) at least 50% of the combined voting power of
                  the securities of the Corporation or such surviving entity or
                  any parent thereof outstanding immediately after such merger
                  or consolidation, or (2) a merger or consolidation effected to
                  implement a recapitalization of the Corporation (or similar
                  transaction) in which no Person is or becomes the Beneficial
                  Owner, directly or indirectly, of securities of the
                  Corporation (not including in the securities Beneficially
                  Owned by such Person any securities acquired directly from the
                  Corporation or its Affiliates) representing 20% or more of the
                  combined voting power of the Corporation's then outstanding
                  securities; or

                  (iv) the stockholders of the Corporation approve a plan of
                  complete liquidation or dissolution of the Corporation or
                  there is consummated an agreement for the sale or disposition
                  by the Corporation of all or substantially all of the
                  Corporation's assets, other than a sale or disposition by the
                  Corporation of all or substantially all of the Corporation's
                  assets to an entity, at least 50% of the combined voting power
                  of the voting securities of which are owned by stockholders of
                  the Corporation in substantially the same proportions as their
                  ownership of the Corporation immediately prior to such sale.

"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.

"Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof, except that such term
shall not include (i) the Corporation or any of its Subsidiaries, (ii) a trustee
or other fiduciary holding securities under an employee benefit plan of the
Corporation or any of its Affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities or (iv) a corporation
owned, directly or indirectly, by the stockholders of the Corporation

                                       34
<PAGE>   44

in substantially the same proportions as their ownership of stock of the
Corporation.

                  (c CHANGE OF CONTROL DATE. The "Change of Control Date" shall
mean the first date on which a Change of Control occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Corporation is terminated or the Executive
ceases to have the position with the Corporation set forth in Section 2(a) above
prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination or cessation (i) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control or (ii) otherwise arose in connection with or anticipation of
the Change of Control, then for all purposes of this Agreement the "Change of
Control Date" shall mean the date immediately prior to the date of such
termination or cessation.

                  (d  CHANGE OF CONTROL PERIOD.  The "Change of Control Period"
shall mean the period commencing on the Change of Control Date and ending on the
last day of the Employment Period.

         13.       AMENDMENT OR MODIFICATION; WAIVER.

                  No provision of this Agreement may be amended, modified or
waived unless such amendment, modification or waiver shall be authorized by the
Board of Directors of the Corporation or any authorized committee of the Board
of Directors and shall be agreed to in writing, signed by the Executive and by
an officer of the Corporation thereunto duly authorized. Except as otherwise
specifically provided in this Agreement, no waiver by either party hereto of any
breach by the other party hereto of any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of a subsequent
breach of such condition or provision or a waiver of a similar or dissimilar
provision or condition at the same time or at any prior or subsequent time.

                                       35
<PAGE>   45

         14.      MISCELLANEOUS.

                  (a This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, 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.

                  (b 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:

IF TO THE EXECUTIVE:                        COPY TO:
-------------------                         -------

Mr. Southwood J. Morcott                    Mr. Southwood J. Morcott
c/o Dana Corporation                        29765 Durham Circle
4500 Dorr Street                            Perrysburg, Ohio  43551
Toledo, Ohio  43615

IF TO THE CORPORATION:
---------------------

Dana Corporation
4500 Dorr Street
Toledo, Ohio 43615
Attention: Secretary

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 Corporation may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as it determines is required
to be withheld pursuant to any applicable law or regulation.

                  (e When used herein in connection with plans, programs and
policies relating to the Executive, employees,

                                       36
<PAGE>   46

compensation, benefits, perquisites, executive benefits, services and similar
words and phrases, the word "Corporation" shall be deemed to include all
wholly-owned Subsidiaries of the Corporation.

                  (f This instrument contains the entire agreement of the
parties concerning the subject matter, and all promises, representations,
understandings, arrangements and prior agreements concerning the subject matter
are merged herein and superseded hereby, including, without limitation, the
agreements between the parties dated February 13, 1984, December 10, 1990,
December 14, 1992, and December 8, 1997.

                  (g No right, benefit or interest hereunder, shall be subject
to anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.

                  (h The Executive shall not have any right, title, or interest
whatsoever in or to any investments which the Corporation may make to aid it in
meeting its obligations under this Agreement.

                  (i Subject to the provisions of Section 5(e) above, all
payments to be made under this Agreement shall be paid from the general funds of
the Corporation and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of amounts payable under
this Agreement.

                  (j The Corporation and the Executive recognize that each party
will have no adequate remedy at law for breach by the other of any of the
agreements contained in this Agreement and, in the event of any such breach, the
Corporation and the Executive hereby agree and consent that the other shall be
entitled to a decree of specific performance, mandamus or other appropriate
remedy to enforce performance of such agreements.

                                       37
<PAGE>   47

                  (k Subject to the provisions of Section 5(e) above, nothing
contained in this Agreement shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Corporation and the Executive
or any other person.

                  (l Subject to the provisions of Section 5(e) above, to the
extent that any person acquires a right to receive payments from the Corporation
under this Agreement, except to the extent provided by law such right shall be
no greater than the right of an unsecured general creditor of the Corporation.

                  (m In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his legal representative or,
where appropriate, to his Beneficiary.

                  (n If any event provided for in this Agreement is scheduled to
take place on a legal holiday, such event shall take place on the next
succeeding day that is not a legal holiday.

                                       38
<PAGE>   48

                  IN WITNESS WHEREOF, the Executive and, pursuant to due
authorization from its Board of Directors, the Corporation have caused this
Agreement to be executed as of the day and year first above written.

                                         DANA CORPORATION

                                         By /S/  MARTIN J. STROBEL
                                           ------------------------------------
                                         Name:
                                         Title:

                                         By /S/  R. B. PRIORY
                                           ------------------------------------
                                         Chairman of the
                                         Compensation Committee

Attest:

 /S/  SUE A. GRIFFIN
--------------------
Assistant Secretary

                                          /S/  S. J. MORCOTT
                                         ------------------------------------
                                          Executive

                                       39
<PAGE>   49

               Exhibit A to Agreement made as of December 12, 1998
                between Dana Corporation and Southwood J. Morcott
               ---------------------------------------------------

                  As of February 18, 1999, for purposes of Section 2(a),

                  the office and title of the Executive is Chairman of the Board
of Directors of the Corporations;

                  the reporting responsibility of the Executive is to report
directly and only to the Board of Directors of the Corporation; and

                  the duties and responsibilities of the Executive are:

                  The Executive shall continue to serve as the principal officer
                  of the Corporation and as general manager of all operations
                  and affairs of the Corporation, its subsidiaries, affiliates
                  and divisions, at all times having the authority, powers and
                  duties of the person charged with the general management of
                  the business and affairs of the Corporation, with authority to
                  manage and direct all operations and affairs of the
                  Corporation, its subsidiaries, affiliates and divisions, and
                  to employ and discharge all employees thereof subject to
                  approval of the Board of Directors of the Corporation with
                  respect to elected officers of the Corporation. The Executive
                  shall serve as Chairman of the Policy Committee of the
                  Corporation and as Co-Chairman of the Strategic Operating
                  Committee of the Corportion. The Executive shall continue to
                  report to and be responsible only to the Board of Directors of
                  the Corporation, with all employees of the Corporation, its
                  subsidiaries, affiliates and divisions reporting directly or
                  indirectly to him.

                                       40

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