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CEO Employment Agreement - Zander

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EXHIBIT 10.40 EMPLOYMENT AGREEMENT AGREEMENT by and between Motorola, Inc. (the " Company" ), and Edward J. Zander (the " Executive" ) dated as of the 15th day of December 2003, as amended as of the 27th day of July, 2005. WHEREAS, the Board of Directors of the Company (the " Board" ) has determined that it is in the best interests of the Company and its shareholders to employ the Executive as the Company' s Chief Executive Officer and to have the Executive serve as Chairman of the Board; WHEREAS, the Company desires to employ the Executive and to enter into an agreement embodying the terms of such employment; and WHEREAS, the Executive desires to enter into this Agreement and to accept such employment, subject to the terms and provisions of 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, the Company and the Executive (individually a " Party" and together the " Parties" ) agree as follows: 1. Effective Date . The " Effective Date" shall mean January 5, 2004. 2. Employment Period . The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the fifth anniversary thereof (the " Initial Term" ), provided that, on the fourth anniversary and each anniversary of the Effective Date thereafter, the employment period shall be extended by one year unless at least 30 days prior to such anniversary, the Company or the Executive delivers a written notice (a " Notice of Non-Renewal" ) to the other Party that the employment period shall not be extended (the Initial Term as so extended, the " Employment Period" ). 3. Terms of Employment . (a) Position and Duties . (i) During the Employment Period, (A) the Executive shall serve as the Chief Executive Officer, with such duties and responsibilities as are commensurate with such positions, reporting directly to the Board, and (B) the Executive' s principal location of employment shall be at the principal headquarters of the Company; provided , that the Executive may be required under reasonable business circumstances to travel outside of such location in connection with performing his duties under this Agreement. In addition, the Company shall cause the Executive to be elected as Chairman of the Board as of the Effective Date, and during the Employment Period, the Executive shall remain on the Board and as Chairman of the Board, subject to Section 4(g), and shall perform his duties as a director of the Company conscientiously and faithfully. (ii) The Executive agrees that during the Employment Period, he shall devote substantially all of his business time, energies and talents to serving as the Company' s Chief Executive Officer and Chairman of the Board, perform his duties conscientiously and


faithfully subject to the lawful directions of the Board, and in accordance with each of the Company' s corporate governance and ethics guidelines, conflict of interests policies and code of conduct (collectively, the " Company Policies" ). During the Employment Period, it shall not be a violation of this Agreement for the Executive, subject to the requirements of Section 7, to (A) serve on corporate, civic or charitable boards or committees, provided , that, without the written approval of the Board, the Executive shall be permitted to serve on no more than one such corporate board, (B) deliver lectures or fulfill speaking engagements and (C) manage personal investments, so long as such activities do not interfere with the performance of the Executive' s responsibilities as the Chief Executive Officer or as Chairman of the Board of the Company or violate any Company Policies. (iii) The Executive acknowledges and agrees that he shall at all times during his service with the Company be subject to the Motorola Stock Ownership Requirements, as may be in effect from time to time, which currently require that the Executive maintain holdings of the Company' s common stock (" Common Stock" ) in an amount at least equal to four times the Executive' s Annual Base Salary (as defined below). In connection with such requirements, the Executive shall purchase 75,000 shares of Common Stock on or prior to July 31, 2005, provided, that, 25,000 of such shares shall be purchased on or prior to July 31, 2004 and another 25,000 of such shares shall be purchased on or prior to January 31, 2005. (b) Compensation. (i) Base Salary . During the Employment Period, the Executive shall receive an annualized base salary (" Annual Base Salary" ) of not less than $1,500,000, payable pursuant to the Company' s normal payroll practices. During the Employment Period, the current Annual Base Salary shall be reviewed for increase only at such time as the salaries of senior officers of the Company are reviewed generally, provided that, the Executive' s first such review shall occur no earlier than calendar year 2005. (ii) Annual Bonus . For each fiscal year completed during the Employment Period, the Executive shall be eligible to receive an annual cash bonus (" Annual Bonus" ) based upon performance targets that are established by the Compensation and Leadership Committee of the Board (the " Committee" ), provided that, the Executive' s target Annual Bonus shall be not less than 135% of his Annual Base Salary (the " Target Bonus" ). Payment of the Target Bonus shall be guaranteed for fiscal year 2004 (the " Guaranteed Bonus" ). The Executive has agreed to defer receipt of the Guaranteed Bonus pursuant to the terms of the Company' s Management Deferred Compensation Plan until after the Executive' s Date of Termination (as defined below). However, notwithstanding the immediately preceding sentence, the Executive shall not be required to defer receipt of the Guaranteed Bonus beyond the first day on which the deductibility of the Guaranteed Bonus by the Company is no longer precluded by the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended (the " Code" ), and in no event shall the Executive be required to defer receipt beyond January 1 of the year following the year in which his Date of Termination (as defined below) occurs. (iii) Mid-Range Incentive Plan . For each multi-year period (as recommended by management and determined by the Committee) completed during the Employment Period, the Executive shall be eligible to receive an award (" Mid-Range Incentive Plan Award" )

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based upon performance targets that are established by the Committee, provided that, the Executive' s target Mid-Range Incentive Plan Award shall be not less than 250% of his Annual Base Salary. (iv) Long-Term Incentive Awards . As determined by the Committee, the Executive shall be eligible for grants of equity compensation awards under the Company' s long term incentive compensation arrangements in accordance with the Company' s policies, as in effect from time to time. Except for grants with respect to fiscal year 2004 as set forth below, all grants of equity compensation awards shall be made in the discretion of the Committee based upon performance of the Executive and the Company and the Company' s compensation philosophy. A. 2004 Stock Option . In May 2004, the Executive shall be granted an option (the " 2004 Stock Option" ) to purchase a number of shares of common stock of the Company (the " Common Stock" ) for fiscal year 2004 pursuant to the Company' s Omnibus Incentive Plan of 2003 (the " Incentive Plan" ) having an aggregate Black-Scholes value of $6,250,000. The Black-Scholes value to be calculated under this Section 3(b)(iv)(A) shall be determined on the 2004 Stock Option grant date in a manner consistent with the methodology used by Hewitt Associates for valuing stock options granted to employees of its publicly traded clients during the year 2003. The 2004 Stock Option shall have a per share exercise price equal to the closing price of a share of Common Stock on the last trading day prior to the date of grant as reported in the Wall Street Journal (the " Fair Market Value" ), a ten-year term and a vesting schedule such that the 2004 Stock Option will become exercisable in four equal annual installments commencing on the first anniversary of the date of grant, provided that, the Executive remains in the employ of the Company through each such date. Except as specifically provided herein, the terms and conditions of the 2004 Stock Option shall be subject to the terms of the Incentive Plan and the award agreement evidencing the grant of the 2004 Stock Option, as provided to senior executives of the Company generally. B. 2004 Restricted Stock Units . In May 2004, the Executive shall be granted an award of a number of restricted stock units (the " Restricted Stock Units" ) based on shares of Common Stock for fiscal year 2004 pursuant to the Incentive Plan equal to the quotient obtained by dividing (i) $2,000,000 by (ii) the Fair Market Value on the date of grant. The Restricted Stock Units shall vest 10% on the first anniversary of the date of grant, 20% on the second anniversary of the date of grant, 30% on the third anniversary of the date of grant and 40% on the fourth anniversary of the date of grant, provided that, the Executive remains in the employ of the Company through each such date. The Executive has agreed to defer receipt of the settlement of any Restricted Stock Units until after the Executive' s Date of Termination (as defined below). However, notwithstanding the immediately preceding sentence, the Executive shall not be required to defer receipt of the settlement of any Restricted Stock Units beyond the first day on which the deductibility of such settlement by the Company is no longer precluded by the provisions of Section 162(m) of the Code. Except as specifically provided herein, the terms and conditions of the Restricted Stock Units shall be subject to the terms of the Incentive Plan and the award agreement evidencing the grant of the Restricted Stock Units, as provided to senior executives of the Company generally, and in no event shall the

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Executive be required to defer receipt beyond January 1 of the year following the year in which his Date of Termination occurs. Notwithstanding anything in this Section 3(b)(iv)(B) to the contrary, the Executive shall be entitled to immediate settlement of any outstanding Restricted Stock Units to the extent the Restricted Stock Units otherwise become taxable to the Executive. C. Effective Date Stock Option . On the Effective Date, the Company shall grant to the Executive a stock option pursuant to the Incentive Plan to purchase 1,350,000 shares of Common Stock (the " Effective Date Stock Option" ). The Effective Date Stock Option shall have a per share exercise price equal to the Fair Market Value on the Effective Date, a ten-year term and will vest in four equal annual installments commencing on the first anniversary of the date of grant, provided that, the Executive remains in the employ of the Company through each such date. Except as specifically provided herein, the terms and conditions of the Effective Date Stock Option shall be subject to the terms of the Incentive Plan and the award agreement evidencing the grant of the Effective Date Stock Option, as provided to senior executives of the Company generally. D. Effective Date Restricted Stock Units . On the Effective Date, the Company shall grant to the Executive 400,000 Restricted Stock Units under the Incentive Plan (the " Effective Date Restricted Stock Units" ). The restrictions with respect to the Effective Date Restricted Stock Units shall lapse 50% on the second anniversary of the Effective Date and the remainder shall lapse on the fourth anniversary of the Effective Date, provided that, the Executive remains in the employ of the Company through each such date. The Executive has agreed to defer receipt of the settlement of any Effective Date Restricted Stock Units until after the Executive' s Date of Termination (as defined below). However, the Executive shall not be required to defer receipt of the settlement of any Effective Date Restricted Stock Units beyond the first day on which the deductibility of such settlement by the Company is no longer precluded by the provisions of Section 162(m) of the Code, and in no event shall the Executive be required to defer receipt beyond January 1 of the year following the year in which his Date of Termination occurs. Notwithstanding anything in this Section 3(b)(iv)(D) to the contrary, the Executive shall be entitled to immediate settlement of any outstanding Effective Date Restricted Stock Units to the extent the Effective Date Restricted Stock Units become taxable to the Executive. Except as specifically provided herein, the terms and conditions of the Effective Date Restricted Stock Units shall be subject to the terms of the Incentive Plan and the award agreement evidencing the grant of the Effective Date Restricted Stock Units, as provided to senior executives of the Company generally. (v) Pension Plans . During the Employment Period, the Executive shall be eligible for participation in the qualified pension plans, practices, policies and programs of the Company, as may be in effect from time to time, for senior executives of the Company generally. (vi) Other Benefits . During the Employment Period, the Executive shall be eligible for participation in the welfare, perquisites, fringe benefit, and other benefit plans, practices, policies and programs, as may be in effect from time to time, for senior executives of the Company generally; provided, that, any severance payments or benefits to be

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received under any severance benefit plans, practices, policies and programs shall be offset and reduced by any severance benefits or payments received under this Agreement. The fringe benefits and perquisites described in the preceding sentence shall include: reasonable use of Company aircraft for personal and business purposes (not less than 100 flight hours annually for personal use); participation in the Company' s Elected Officer Life Insurance Program; relocation benefits on a tax-neutral basis (including, but not limited to, providing a suitable, furnished apartment to the Executive for transition housing for up to 12 months); and, at the level generally provided for the chief executive officer of the Company, financial planning; an automobile allowance; personal security; and a home security system. (vii) Change in Control Benefits . The Executive shall be eligible for participation in the Motorola, Inc. Senior Officer Change in Control Severance Plan or any successor change in control plan or program (the " Change in Control Plan" ), as may be in effect from time to time, for senior executives of the Company generally. At all times during the Employment Period, the Company will maintain the Change in Control Plan as in effect on the Effective Date, or provide the Executive with no less favorable benefits and protection under an alternative program or arrangement. Additionally, upon a Change in Control (as defined in Section 9(f)), all equity-based awards granted to the Executive on or after the Effective Date (including, without limitation, the 2004 Stock Option, the Restricted Stock Units, the Effective Date Stock Option and the Effective Date Restricted Stock Units) shall become fully vested and exercisable (or, if applicable, all restrictions shall lapse), all performance goals shall be deemed achieved at target levels, all Performance Stock (as defined in the Incentive Plan) shall be delivered as promptly as practicable and all performance units, restricted stock units and other incentive awards shall be paid out as promptly as practicable. Notwithstanding the foregoing, if the Company adopts an equity incentive plan with Change in Control benefits more generous than the benefits provided in this Section 3(b)(vii) or a Change in Control severance plan for senior executives generally with more generous benefits than the Change in Control Plan, the Executive will be entitled to those more generous benefits to the extent Executive' s awards are granted under such plan or such Change in Control severance plan is adopted, as applicable. (viii) Expenses . During the Employment Period, the Executive shall be eligible for prompt reimbursement for business expenses reasonably incurred by the Executive in accordance with the Company' s policies, as may be in effect from time to time, for its senior executives generally. (ix) Vacation . During the Employment Period, the Executive shall be eligible for paid vacation in accordance with the Company' s policies, as may be in effect from time to time, for its senior executives generally. (x) Signing Bonus . In connection with the replacement of outstanding amounts at his current employer that will be forfeited, on the Effective Date, the Company shall pay to the Executive a lump sum cash payment of $600,000. In addition, on the Effective Date, the Company shall grant to the Executive the number of restricted shares of Company Common Stock under the Incentive Plan (the " Effective Date Restricted Stock" ) determined by dividing (a) $1,400,000 by (b) the per-share fair market value of Company Common Stock as of the close of market on the Effective Date, rounded up to the nearest whole share. The restrictions with respect to the Effective Date Restricted Stock shall lapse 100% on the second anniversary of the

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Effective Date, provided that, the Executive remains in the employ of the Company through such date. Except as specifically provided herein, the terms and conditions of the Effective Date Restricted Stock shall be subject to the terms of the Incentive Plan and the award agreement evidencing the grant of the Effective Date Restricted Stock, as provided to senior executives of the Company generally. (c) Other Entities . The Executive agrees to serve, without additional compensation, as an officer and director for each of the Company' s subsidiaries, partnerships, joint ventures, limited liability companies and other affiliates, including entities in which the Company has a significant investment (collectively, the Company and such entities, the " Affiliated Group" ), as determined by the Company. As used in this Agreement, the term " affiliates" shall include any entity controlled by, controlling, or under common control with the Company. 4. Termination of Employment . (a) Death or Disability . The Executive' s employment shall terminate automatically upon the Executive' s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may provide the Executive with written notice in accordance with Section 9(b) of this Agreement of its intention to terminate the Executive' s em
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