EMPLOYMENT AND COMPENSATION AGREEMENT
THIS EMPLOYMENT
AND COMPENSATION
AGREEMENT (this
"Agreement"),
made and
entered into as of July 1, 2005, between Terex Corporation, a Delaware
corporation, with its principal office located
at 500 Post Road East, Westport,
CT 06880 (together with its successors and assigns permitted under this
Agreement, "Terex"), and Ronald M. DeFeo ("DeFeo"), whose address is 45
Beachside Avenue, Westport, CT 06880.
W I T N E S S E T H:
WHEREAS,
Terex wishes to assure itself of the services of DeFeo for the
period hereinafter provided, and DeFeo is willing to be
employed by Terex for
said period, upon the terms and conditions
provided in this Agreement; and
WHEREAS, Terex
has determined that it is in the best interests of Terex and
its stockholders to enter into this
Agreement;
NOW,
THEREFORE,
in consideration of the premises and mutual covenants
contained herein and for other good and
valuable
consideration, the
receipt of
which is mutually acknowledged, Terex and DeFeo (individually a "Party" and
together the "Parties") agree as
follows:
1.
DEFINITIONS.
(a) "Affiliate" shall mean an entity
(i) that is directly or indirectly controlled by or under common
control with Terex, or
(ii) that controls Terex.
(b) "Base Salary" shall mean the annual salary provided for in
Section
3 below, as
adjusted from time to time by the Board.
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(c) "Beneficial
Owner" shall have the
meaning defined in
Rule 13d-3
under the
Exchange Act.
(d) "Beneficiary"
shall mean the
person or persons named by DeFeo
pursuant
to Section 23 below
or, in the event that no such person is named
and survives
DeFeo, his estate.
(e) "Board" shall mean the Board of Directors of Terex.
(f) "Cause" shall mean:
(i)
DeFeo's conviction
in a court of law in
the United States,
Canada, Australia or
Europe of, or guilty plea or no contest plea to,
a felony charge or a misdemeanor charge involving moral turpitude
(it
being understood that a driving violation alone will not be deemed
to
involve moral turpitude unless accompanied by some other act
involving
moral turpitude),
(ii) willful,
substantial
and continued failure by DeFeo to
perform his duties under this Agreement,
(iii) willful engagement by DeFeo in conduct that is
demonstrably
and materially injurious to Terex,
(iv) entry by a court or quasi-judicial governmental agency of
the United
States or a
political subdivision thereof of an order
barring DeFeo from
serving as an
officer or director of a public
company, or
(v) a breach by DeFeo of Section 11 or Section 12 below.
For the purposes of clauses (ii) and (iii) of this definition,
no
act or failure to act on the part of DeFeo shall be deemed "willful"
(x) if caused by a
Disability or (y)
unless done,
or omitted to be
done, by him not in good faith or without reasonable belief that his
act or omission was in the best interest of Terex.
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<PAGE>
(g) "Change in Control" shall mean
(i) any Person
becoming the
Beneficial
Owner of 35 percent
or
more of the combined voting power of Terex's then outstanding
securities, excluding
any Person who becomes such a Beneficial Owner
in connection with
transactions described
in clauses (x), (y) or (z)
of paragraph (iii) below;
(ii) a change in the composition of the Board occurring
within a
rolling two-year period, as a result of which fewer than a majority
of
the directors are Incumbent Directors ("Incumbent Directors" shall
mean directors who
either (x) are members of the Board as of the date
of this Agreement or
(y) are elected, or
nominated for election, to
the Board with the
affirmative votes of
at least a majority
of the
Incumbent Directors at
the time of such election or nomination, but
shall not include an individual not otherwise an Incumbent
Director
whose election
or nomination is in connection with an actual or
threatened proxy
contest, including but not limited to a consent
solicitation, relating to the election of directors to the
Board);
(iii) consummation, in any transaction or series of
transactions,
of a complete
liquidation
or dissolution of Terex or a merger,
consolidation or sale
of all or
substantially all of
Terex's assets
(collectively, a
"Business Combination") other than a Business
Combination after which (x) the stockholders of Terex own more than
50
percent of the combined voting power of the voting
securities of the
company resulting
from the Business Combination, (y) at least a
majority of the board of directors of the resulting corporation were
Incumbent Directors and (z) no individual, entity or group (excluding
any corporation
resulting from the Business Combination or any
employee benefit plan
of such corporation
or of Terex)
becomes the
Beneficial Owner of 35 percent or more of the combined voting power
of
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<PAGE>
the securities
of the resulting corporation, who did not own such
securities immediately before the Business Combination; or
(iv) the stockholders of Terex approve a plan of complete
liquidation or
dissolution of Terex or there is consummated a sale or
disposition by Terex of all or substantially all Terex's
assets.
(h) "Code" shall mean the Internal Revenue Code of 1986, as from
time
to time
amended.
(i) "Committee" shall mean the Compensation Committee of the
Board.
(j) "Covenant
Period"
shall mean the period beginning with
commencement
of the Term and ending
as provided in Section
11(b) and, as
applicable,
Section 12(b).
(k) "Date of
Termination" shall
mean, with respect to
any purported
termination
of DeFeo's employment during the Term, (i) if DeFeo's
employment
terminates
due to Disability, 30 days after a good-faith
determination
of Disability by Terex
(provided that DeFeo shall not have
returned to
full-time performance of his duties during such 30-day period),
(ii) if DeFeo's
employment terminates
due to death, the date of death, and
(iii) if
DeFeo's employment terminates for any other reason, the date
specified in the Notice of Termination (which shall be not less than 30
days, and, in
the case of Voluntary
Termination by DeFeo, not more than 60
days, after the
date of such Notice of Termination).
(l) "Disability" shall mean DeFeo's inability to perform the
essential
duties
set forth in this Agreement by reason of a physical or mental
disability or
infirmity that has
continued for more
than six
consecutive
months or for
such shorter periods
as aggregate more than
24 weeks in any
24-month
period.
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<PAGE>
(m) "Diversified Industrial Group" shall consist of Eaton
Corporation,
Danaher
Corporation,
Ingersoll-Rand
Co., Ltd., Illinois
Tool Works, Inc.
and Dover
Corporation,
(as such group may be
adjusted in the
reasonable
discretion of
the Compensation Committee to recognize changed circumstances
with respect to
the companies comprising the Diversified Industrial Group).
(n)
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
from time to
time amended.
(o) "Good Reason" shall mean the occurrence (without DeFeo's express
written
consent) of any one of
the following
acts or omissions by Terex
unless, in the
case of any act or omission described in this Section
1(o),
such
act or omission is corrected prior to the Date of Termination
specified
in the Notice of Termination in respect thereof:
(i) the assignment
to DeFeo of any duties inconsistent with
DeFeo's status as a senior executive officer of Terex or a
substantial
adverse alteration
in the nature of DeFeo's authority, duties or
responsibilities, or
any other action by
Terex which
results in a
diminution in such status, authority, duties or responsibilities (it
being understood
that a mere change in authority, duties or
responsibilities, or
removal of titles other than that of Chief
Executive Officer,
or any other action by
Terex will not
constitute
Good Reason
in and of itself unless it results in a substantial
adverse alteration
or diminution of DeFeo's authority, duties or
responsibilities), excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which
is remedied by Terex promptly after receipt of notice thereof given
by
DeFeo;
(ii) a reduction by
Terex in DeFeo's base salary and/or annual
target bonus as in
effect on the date hereof or as the same may be
increased from time to time, except for across-the-board reductions
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<PAGE>
similarly and
proportionately
affecting all senior executives of
Terex; provided,
however, that such
across-the-board
reductions are
not made as a result of, or in contemplation of, a Change in
Control;
(iii) the failure by Terex to pay to DeFeo any portion of
DeFeo's
current
compensation
except pursuant
to an across-the-board
compensation deferral
similarly and proportionately affecting all
senior
executives of
Terex,
provided,
however,
that
such
across-the-board
compensation deferrals
are not made as a result of,
or in contemplation of, a Change in Control;
(iv) the failure by Terex to continue in effect any compensation
plan or other benefit in which DeFeo participates which is material
to
DeFeo's total
compensation, except
pursuant to an
across-the-board
compensation or
benefit deferral or reduction similarly and
proportionately
affecting all senior
executives of Terex,
provided,
however, that such across-the-board compensation or benefit
deferrals
are not made as a
result of,
or in contemplation of, a Change in
Control;
(v) the failure
by Terex to
continue to provide DeFeo with
benefits substantially
similar to those enjoyed by DeFeo under any of
Terex's pension,
life insurance, medical, health and accident,
disability plans or
other benefits
(including, without
limitation,
automobile, country
club, vacation,
and pension
benefits) in which
DeFeo was participating at the time, the taking of any action by
Terex
which would
directly or indirectly materially reduce any of such
benefits or deprive DeFeo of any material fringe benefit enjoyed by
DeFeo at the time (including, without limitation, automobile, country
club, vacation
and pension benefits), or the failure by Terex to
provide DeFeo with the
number of paid vacation days to which DeFeo is
then entitled; or
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<PAGE>
(vi) the relocation of
Terex's principal
offices to a
location
more than 50 miles from the location of such offices on the date of
this Agreement or a
requirement that DeFeo
be based anywhere
other
than at Terex's
principal offices except for necessary travel on
Terex's business to an
extent substantially
consistent with
DeFeo's
business travel obligations on the date of this Agreement.
(p) "Machinery
Group" shall consist of Astec Industries, Inc.,
Manitowoc,
Inc., JLG Industries,
Inc., Caterpillar,
Inc. and Joy
Global,
Inc.
(as such group may be
adjusted in the
reasonable discretion
of the
Compensation
Committee to recognize
changed circumstances
with respect to
the companies
comprising the Machinery Group).
(q) "Notice of
Termination" shall
mean delivery of written notice by
one Party and
receipt thereof by the other Party in accordance with Section
28 below, which
notice shall indicate the specific termination provision in
this
Agreement relied upon and shall set forth in
reasonable
detail the
facts and
circumstances
claimed to provide a basis for termination of
DeFeo's
employment hereunder.
(r) "Person" shall have the meaning defined in Section 3(a)(9) of
the
Exchange
Act, as modified
and used in Sections
13(d) and 14(d)
thereof;
provided,
however, that a Person shall not include:
(i) Terex or any subsidiary or affiliate (as such term is
defined
in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an
employee benefit plan of Terex or any Subsidiary or Affiliate,
(iii) an underwriter
temporarily holding
securities pursuant to
an offering of such securities, or
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<PAGE>
(iv) a corporation owned, directly or indirectly, by the
stockholders of Terex
in substantially
the same proportion as
their
ownership of stock of Terex.
(s) "Return on Invested Capital" shall be calculated as operating
income for the
applicable
four quarter
period divided by the sum of the
average
stockholders' equity and the average net debt for the four
quarters
of such
period, with average net debt consisting of long-term debt,
including
the current portion of long-term debt, less cash and cash
equivalents.
(t) "Spouse" shall mean, during the Term of Employment,
the woman who
as of any
relevant date is legally married to DeFeo.
(u) "Subsidiary" shall mean a corporation of which Terex owns
directly
or indirectly more than 50 percent of its outstanding securities
representing
the right,
other than as affected
by events of default,
to
vote for the
election of directors.
(v) "Terex's Annual Incentive Compensation Plan" shall mean the
Terex
2004 Annual
Incentive Compensation
Plan or any
subsequently adopted
plan
regarding the
payment of annual bonuses to the senior executives of Terex.
(w) "Term of
Employment" or "Term" shall mean the period specified in
Section
2(b) below
during which DeFeo is employed by Terex
or any of its
Affiliates.
2. TERM OF EMPLOYMENT,
POSITIONS AND DUTIES.
(a) Employment of DeFeo. Terex hereby employs DeFeo, and
DeFeo hereby
accepts
employment
with Terex,
in the position and with the duties and
responsibilities
set forth below and
upon such other terms and conditions
as are
hereinafter stated.
(b) Term of Employment. The Term of Employment
shall commence on
the
date of this
Agreement and shall terminate on December 31, 2012, unless it
is sooner terminated as provided in Section 9 below or extended by
agreement of the
Parties; provided,
however, that, if a
Change in Control
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<PAGE>
shall occur on
or prior to December 31, 2012, the Term of Employment shall
continue
in effect until the later of (x) 36 months
after the month in
which such
Change in Control occurs or (y) December 31, 2012.
(c) Title, Duties and Authorities.
(i) Until termination of his employment hereunder, DeFeo shall
be
employed as Chief Executive Officer of Terex, reporting to the Board,
with all the authorities and responsibilities that normally accrue to
the position of chief
executive officer, and shall hold such other
titles as the Board may grant, including but not limited to
President
and Chief Operating Officer of Terex.
(ii) Consistent
with its obligations to stockholders, Terex
agrees to use its best efforts to procure the election of DeFeo, and
to ensure DeFeo's
re-election during the Term, (x) as a member of and
(y) consistent
with generally accepted best corporate governance
standards, as Chairman of, the Board.
(d) Time and Effort.
(i) DeFeo agrees to devote his best efforts and abilities and
his
full business
time and attention to
the affairs of Terex in order to
carry out his duties and responsibilities under this Agreement.
(ii) Notwithstanding the foregoing, nothing shall preclude DeFeo
from
(A) serving
on the boards of (x) a reasonable number of
trade associations and charitable organizations and (y) with the
prior consent of the Board, any other business not in
competition
with Terex,
(B) engaging in charitable activities and community affairs,
and
9
<PAGE>
(C) managing his personal investments and affairs; provided,
however, that any such
activities do not
materially
interfere
with the proper
performance of his
duties and
responsibilities
specified in Section 2(c) above.
3. BASE
SALARY.
DeFeo shall receive
from Terex an initial
Base Salary, payable in
accordance with
the regular payroll practices of Terex, of $850,000. During
the Term, the
Board shall review the Base Salary for increase no less often
than
annually.
4. ANNUAL
BONUS.
(a) Entitlement.
DeFeo shall
receive an annual
bonus in respect
of
each calendar
year during the Term of Employment in accordance with Terex's
Annual
Incentive Compensation Plan or any annual incentive plan
or plans
established
by Terex either for DeFeo or for
members of Terex's senior
management
generally.
(b) Payment. The
annual bonus shall be payable as soon as reasonably
practicable
after the completion
of Terex's audited
financial
statements
for such
calendar year,
prepared in accordance
with generally accepted
accounting
principles,
but in no event later than 60 days after the
completion of
Terex's audited financial statements for such calendar year.
5. LONG-TERM
INCENTIVE COMPENSATION.
During the Term, DeFeo
shall participate in
any long-term
incentive
plan or plans
established by Terex either for DeFeo alone or for members of
Terex's senior
management generally.
6. EQUITY
OPPORTUNITY.
(a) As soon as legally
permissible and reasonably practicable after
the execution of this Agreement, DeFeo shall be entitled to receive a
restricted
stock award of an
aggregate of 100,000
shares of Terex
common
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stock
which shall vest as follows, subject to the achievement of the
performance
criteria provided for below:
(i) 10,000 shares
shall vest on March 31, 2006 in the event that
Terex's Return on Invested Capital equals or exceeds 20% for
calendar
year 2005.
(ii) 10,000 shares shall vest on March 31, 2007 in the event
that
Terex's Return on Invested Capital equals or exceeds 20% for
calendar
year 2006.
(iii) 10,000
shares vest on March 31, 2008 in the event that
Terex's Return on Invested Capital equals or exceeds 20% for
calendar
year 2007.
(iv) 35,000 shares shall vest on March 31, 2009 in the event
that
Terex's Return on Invested Capital for each of the four calendar
years
2005, 2006,
2007 and 2008 equals
or exceeds the
average Return on
Invested Capital of
the Machinery Group for each of those four years;
provided, however,
that in the
event Terex's Return on Invested
Capital for each of the four calendar years 2005, 2006, 2007 and 2008
is less than the average Return on Invested Capital of the Machinery
Group for each of those four years, but Terex's average Return on
Invested Capital
for any three of such
four years equals or
exceeds
the average Return on Invested Capital for the Machinery Group for
the
comparable three
years, then 20,000 shares (of the 35,000 shares
provided for in this
clause (iv)) shall
vest on March 31,
2009. If
Terex's Return on Invested Capital for each of the four calendar
years
2005, 2006, 2007 and
2008 is less than the average Return on Invested
Capital of the
Machinery Group for each of those four years and
Terex's average
Return on Invested
Capital does not equal
or exceed
the average Return on
Invested Capital for
the Machinery
Group for
three of such
four years, then no shares (of the 35,000 shares
provided for in this clause (iv)) shall vest.
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(v) 35,000 shares
shall vest on March 31, 2009 in the event that
the ratio of Terex's average Return on Invested Capital for the three
calendar years 2006,
2007 and 2008 to the
average Return on Invested
Capital of the
Diversified Industrial
Group for 2006, 2007
and 2008
(the "Three
Year Ratio") equals or exceeds 110% of the ratio that
Terex's average
Return on Invested Capital for 2005 bears to the
average Return on Invested Capital of the Diversified Industrial
Group
for 2005 (the "2005 Ratio"); provided, however, that 20,000 shares
(of
the 35,000 shares provided for in this clause (v)) shall vest on
March
31,
2009 if the Three Year
Ratio equals or
exceeds 100% of the
2005
Ratio but is less than 110% of the 2005 Ratio. If the Three Year
Ratio
is less than 100% of the 2005 Ratio, then no shares (of the 35,000
shares provided for in this clause (v)) shall vest.
(b) During the Term,
DeFeo shall be
eligible to receive grants of
options to
purchase shares of Terex's stock and awards of shares of
Terex's
stock, either or
both as determined by the Committee annually, under and in
accordance
with the terms of
applicable plans of
Terex and related option
and award
agreements.
DeFeo shall also be
entitled to
participate in any
equity
programs
of Subsidiaries or Affiliates upon such terms and
conditions as
may be established by the Committee.
7. EXPENSE
REIMBURSEMENT.
DeFeo shall be
entitled to prompt reimbursement by Terex for all reasonable
out-of-pocket expenses incurred by him during the Term in
performing
services
under this Agreement, upon his submission
of such accounts and records as may be
reasonably required by Terex.
8. EMPLOYEE
BENEFIT PLANS.
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During
the Term, DeFeo shall be entitled to participate in all life
insurance, short-term and long-term
disability, accident,
health insurance and
savings/retirement plans that are applicable to Terex
employees generally or to
the senior executives of Terex. DeFeo shall be entitled to the
number of paid
vacation days per year determined by Terex,
which, however, shall not be less
than four weeks in any calendar
year. DeFeo shall also be entitled to
all paid
holidays given by Terex to its employees
generally.
9. TERMINATION
OF EMPLOYMENT.
(a) General.
Notwithstanding
anything to the contrary herein, in the
event of
termination
of DeFeo's
employment
under this Agreement
for any
reason
whatsoever,
he, his dependents or
his Beneficiary,
as may be the
case,
shall be entitled to
receive (in addition
to payments and
benefits
under, and
except as specifically
provided in, subsections (b) through (i)
below, as
applicable):
(i) his Base Salary through the Date of Termination;
(ii) payment in lieu of any unused vacation, in accordance with
Terex's vacation policy and applicable laws;
(iii) any annual
bonus earned but not yet paid to him,
which
bonus shall not be
less than the annual
bonus paid to DeFeo
for the
calendar year preceding the Date of Termination that has most
recently
been paid to DeFeo;
(iv) any deferred
compensation under any incentive compensation
plan of Terex or any deferred compensation agreement then in
effect;
(v) any other compensation or benefits, including without
limitation long-term
incentive compensation described in Section 5
above, benefits under
equity grants and awards described in Section 6
above and employee
benefits under plans described in Section 8 above,
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that have vested
through the Date of
Termination or to
which he may
then be entitled
in accordance with the applicable terms of each
grant, award or plan; and
(vi) reimbursement
in accordance with Section 7 above of any
business expenses
incurred by DeFeo
through the Date of
Termination
but not yet paid to him.
(b) Termination
due to Death.
In the event that
DeFeo's employment
terminates due
to his death, his Beneficiary shall be entitled, in addition
to the
compensation and benefits specified in Section 9(a), to:
(i) his Base Salary,
at the rate in
effect on the date of his
death, through the end of the month in which his death occurs,
and
(ii) an annual bonus under Terex's Annual Incentive Compensation
Plan prorated to the
date of death, plus
any discretionary
payment
that may be awarded,
for the year in which
his death occurs,
which
bonus shall not be less than the product of (A) the annual
bonus paid
to DeFeo for the calendar year preceding the Date of
Termination
