-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BmU2OJVcdowXmKaRYWMPxBamwb4bDD//hlypYXBM/Txtb+OiJqx3TODoVY4suuWo Y28bSZH3CXNQ81L4DNaGJA== 0000950129-98-001357.txt : 19980401 0000950129-98-001357.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950129-98-001357 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: COOPER INDUSTRIES INC CENTRAL INDEX KEY: 0000024454 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 314156620 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-01175 FILM NUMBER: 98580565 BUSINESS ADDRESS: STREET 1: 600 TRAVIS, SUITE 5800 STREET 2: FIRST CITY TWR CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 713-209-8400 MAIL ADDRESS: STREET 1: P.O. BOX 4446 CITY: HOUSTON STATE: TX ZIP: 77210 FORMER COMPANY: FORMER CONFORMED NAME: COOPER BESSEMER CORP DATE OF NAME CHANGE: 19710505 10-K405 1 COOPER INDUSTRIES, INC. - DATED 12/31/97 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-1175 Cooper Industries, Inc. (Exact Name of Registrant as Specified in Its Charter) Ohio 31-4156620 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 600 Travis, Suite 5800, Houston, Texas 77002 (Address of Principal Executive Offices) (Zip Code) 713/209-8400 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $5 par value The New York Stock Exchange Pacific Exchange Rights to Purchase Preferred Stock The New York Stock Exchange Pacific Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate value of the registrant's voting stock held by non-affiliates of the registrant as of March 2, 1998 was $6,770,704,943. Number of shares outstanding of registrant's Common Stock as of March 2, 1998 - 120,485,314 DOCUMENTS INCORPORATED BY REFERENCE Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 1998 (Part I Item 1, Part II - Items 6, 7, 7A and 8, Part III - Items 10, 11 and 12 and Part IV - Item 14(a)(1)) 2 PART I ITEM 1. BUSINESS; ITEM 2. PROPERTIES GENERAL The terms "Cooper" or "Company" refer to the registrant, Cooper Industries, Inc. Cooper was incorporated under the laws of the State of Ohio on January 8, 1919. The Company's businesses operate in three business segments: Electrical Products, Tools & Hardware and Automotive Products. Cooper manufactures, markets and sells its products and provides services throughout the world. Cooper has manufacturing facilities in 22 countries and currently employs approximately 41,200 people. On December 31, 1997, the plants and other facilities used by Cooper throughout the world contained an aggregate of approximately 29,557,000 square feet of space, of which approximately 79 percent was owned and 21 percent was leased. The charts on the next page show the number of employees, square footage of facilities owned and leased and location of manufacturing facilities for each industry segment. Cooper believes its facilities are adequate and suitable for its current and anticipated level of operations. Certain equipment and production facilities have been financed by industrial revenue bonds issued by local government authorities and are subject to security arrangements customary in such financings. -2- 3
Square Footage of Number and Nature of Facilities Plants and Facilities ----------------------------------------- ------------------------- Number of Segment Employees Manufacturing Warehouse Sales Other Owned Leased - ------- --------- ------------- --------- ----- ----- ---------- -------- Electrical 19,000 72 11 87 7 10,509,000 1,496,000 Products Tools & Hardware 6,900 27 8 3 1 4,642,000 804,000 Automotive 15,000 48 13 13 6 8,166,000 3,789,000 Products Other 300 -- -- -- 1 -- 151,000 ------ --- -- --- -- ---------- --------- Total 41,200 147 32 103 15 23,317,000 6,240,000 ====== === == === == ========== =========
Manufacturing Plant Locations ----------------------------- Europe United South United (Other Segment States Canada Mexico America Kingdom Than UK) Australia Other - ------- ------ ------ ------ ------- ------- -------- --------- ----- Electrical Products 35 2 5 3 11 12 3 1 Tools & Hardware 16 - 2 2 1 4 2 - Automotive Products 33 2 2 1 1 5 1 3 --- --- --- --- --- --- --- --- Total 84 4 9 6 13 21 6 4
-3- 4 Operations in the United States are conducted by unincorporated divisions and wholly-owned subsidiaries of the Company, organized by the three business segments. Activities outside the United States contribute significantly to the revenues and operating earnings of all segments of Cooper. These activities are conducted in major commercial countries by wholly-owned subsidiaries and jointly-owned companies, the management of which is structured through the Company's three business segments. As a result of these international operations, sales and distribution networks are maintained throughout most of the industrialized world. Cooper believes that generally there are no substantial differences in the business risks associated with these international operations compared with domestic activities, although Cooper is subject to certain political and economic uncertainties encountered in activities outside the United States, including trade barriers, restrictions on foreign exchange and currency fluctuations. As the U.S. dollar strengthens against foreign currencies at a rate greater than inflation in those countries, the Company may experience lower segment revenues and operating earnings. The five countries in which the Company generates the most international revenues are Canada, Germany, Italy, Mexico and the United Kingdom. The Company has leveraged its operations to reduce the impact of currency fluctuations on net income to the extent practicable. The Company has several small joint ventures with operations in China. Investments in China are subject to greater risks related to economic and political uncertainties as compared to most countries where the Company has operations. Exhibit 21.0 contains a list of Cooper's subsidiaries. Data with respect to Cooper's industry segments, domestic and international operations and export sales are contained in Note 15 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-32 through A-34 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. A discussion of acquisitions and divestitures is included in Notes 3, 7, 17 and 18 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-21, A-23 through A-25, and A-36 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. With its three business segments, Cooper serves four major markets: industrial, construction, electrical power distribution and automotive. Markets for Cooper's products and services are worldwide, though the United States is the largest market. Within the United States, there is no material geographic concentration by state or region. Most operating units experience significant competition from both larger and smaller companies with the key competitive factors being price, quality, brand name and availability. Cooper believes that it is among the leading manufacturers in the world of electrical distribution equipment; hazardous duty electrical equipment; emergency lighting; lighting fixtures and fuses; nonpower hand tools; industrial power tools; chain products; automotive and heavy-duty brake products; and automotive lamps, wire sets, spark plugs, wiper blades, steering, suspension and driveline products; and aviation ignition components. Cooper's research and development activities are for purposes of improving existing products and services and originating new products. During 1997, approximately $61 million was spent for research and development activities as compared with approximately $57 million in 1996 and $46 million in 1995. Cooper obtains and holds patents on products and designs in the United States and many foreign countries where operations are conducted. Although in the aggregate Cooper's patents are important in the operation of its businesses, the loss by expiration or otherwise of any one patent or group of patents would not materially affect its business. -4- 5 Cooper does not presently anticipate that compliance with currently applicable environmental regulations and controls will significantly change its competitive position, capital spending or earnings during 1998. Cooper has been a party to administrative and legal proceedings with governmental agencies that have arisen under statutory provisions regulating the discharge or potential discharge of material into the environment. Orders and decrees consented to by Cooper have contained agreed-upon timetables for fulfilling reporting or remediation obligations or maintaining specified air and water discharge levels in connection with permits for the operations of various plants. Cooper believes it is in compliance with the orders and decrees and such compliance is not material to the business or financial condition of Cooper. For additional information concerning the Company's accruals for environmental liabilities, see Note 7 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A- 23 through A-25 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. Approximately 58 percent of the United States hourly production work force of Cooper is employed in 69 manufacturing facilities, distribution centers and warehouses not covered by labor agreements. Numerous agreements covering approximately 42 percent of the hourly production employees exist with 34 bargaining units at 35 operations in the United States. Forty-eight international operations also have agreements with various unions. During 1997, new agreements were concluded covering hourly production employees at 10 operations in the United States. Cooper considers its employee relations to be excellent. Sales backlog at December 31, 1997 was approximately $447 million (excluding December 1997 acquisitions), all of which is for delivery during 1998, compared with backlog of approximately $456 million (excluding the Kirsch window treatment operation divested in May of 1997) at December 31, 1996. The following describes the business conducted by each of the Company's business segments. Additional information regarding the products, markets and distribution methods for each segment is set forth on the table at the end of this Item. Information concerning market conditions, as well as information concerning revenues and operating earnings for each segment is incorporated herein by reference to pages A-1 through A-12 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. Electrical Products The Electrical Products segment manufactures, markets and sells electrical and circuit protection products, including fittings, enclosures, plugs, receptacles, lighting fixtures, fuses, emergency lighting, fire detection systems and security products for use in residential, commercial and industrial construction, maintenance and repair applications. The segment also manufactures, markets and sells products for use by utilities and in industry for electrical power transmission and distribution, including distribution switchgear, transformers, transformer terminations and accessories, capacitors, voltage regulators, surge arresters, pole line hardware and other related power systems components. The principal raw material requirements include copper, tin, lead, plastics, insulating materials, pig iron, aluminum ingots, steel, aluminum and brass. These raw materials are available from and supplied by numerous sources located in the United States and abroad. -5- 6 Demand for Electrical Products follows general economic conditions and is generally sensitive to activity in the construction market, industrial production levels and spending by utilities for replacements, expansions and efficiency improvements. The segment's product lines are marketed directly to original equipment manufacturers and utilities and through major distributor chains and thousands of independent distributors to a variety of end users. Tools & Hardware The Tools & Hardware segment manufactures, markets and sells hand tools and chain and clamp products for industrial, construction and consumer markets; and air-powered and electric tools for general industry, primarily automotive and aerospace manufacturers. The principal raw material requirements include rolled coiled steel, wood, plastic pellets, flat and bar stock steel, brass, copper, tin plate, fiberglass, aluminum, iron castings and plastic sheet. These materials are available from and supplied by numerous sources in the United States and abroad. Demand for nonpowered hand tools, chain and clamp products and industrial power tools is driven by employment levels and industrial activity in major industrial countries and consumer spending. In addition, demand for industrial power tools is influenced by automotive and aerospace production. The segment's products are sold by a company salesforce, independent distributors and retailers. In May 1997, the Company completed the sale of its Kirsch window treatment operation (drapery hardware and custom window coverings) to Newell Co. In March 1998, the Company completed the acquisition of the INTOOL division of Global Industrial Technologies, Inc. INTOOL manufactures and sells pneumatic and electric industrial tools and assembly equipment used in industrial, automotive, aerospace and energy markets. Automotive Products The Automotive Products segment manufactures, markets and sells automotive and heavy-duty brakes, automotive lights, wire and cable, spark plugs, glow plugs, windshield wipers, steering, suspension and driveline products and other products for the automotive aftermarket; brake products, lights, spark plugs, glow plugs, ignition coils and windshield wipers for original equipment manufacturers; and aviation ignition components. The principal raw material requirements include steel, iron, nickel, glass, steel wool, fiberglass, carbon, aluminum, aluminum oxide, zinc, copper, rubber, plastic and chemicals. The materials are available from and supplied by numerous sources in the United States and abroad. Demand for automotive aftermarket products is driven by the age and number of vehicles on the road and the number of vehicle miles driven. Weather conditions may affect consumer demand on a year-to-year basis for certain replacement parts such as wiper blades. Demand for automotive products sold to original equipment manufacturers is driven by the number of vehicles produced. The segment's products are sold through distributors and wholesalers to aftermarket outlets and directly to original equipment manufacturers, retailers, mass merchandisers and national repair shop networks. -6- 7 In July 1997, the Company signed a letter of intent to exchange the temperature control business of its Automotive Products segment for the brake products business of Standard Motor Products, Inc. The transaction closed as of March 28, 1998. -7- 8 PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT ELECTRICAL PRODUCTS MAJOR PRODUCTS AND BRANDS ARROW HART wiring devices. BLESSING ELECTRONICS emergency lighting and power systems. BUSS electrical and electronic fuses. CAM-LOK electrical connectors. COILTRONICS inductors and transformers. COOPER POWER SYSTEMS distribution transformers, power capacitors, voltage regulators, surge arresters and pole line hardware. CROUSE-HINDS and CEAG electrical construction materials. ELECTROMEC DIN style fuses. FAIL-SAFE high abuse, clean room and vandal-resistant lighting fixtures. FULLEON and NUGELEC fire alarms. HALO recessed and track lighting fixtures. IRIS lighting systems. KARP, EDISON, MERCURY and B&S electrical fuses. KEARNEY fuses, connectors, tools and switches. KYLE distribution switchgear. LUMINOX emergency lighting and fire detection systems. MAGNUM terminal strips and disconnect blocks. MCGRAW-EDISON and LUMARK indoor and outdoor lighting. MENVIER-AMBERLEC central battery systems. METALUX fluorescent lighting. MWS modular wiring systems. MYERS electrical hubs. NOVA reclosers, sectionalizers and switches. RTE transformer components, cable accessories and fuses. SCANTRONIC security products. SURE-LITES and ATLITE exit and emergency lighting. SURGX ESD protection devices. THEPITT electrical outlet and switch boxes. VISTRAL low-profile emergency lights. TOOLS & HARDWARE MAJOR PRODUCTS AND BRANDS APEX screwdriver bits, impact sockets and universal ASSEMBLY SYSTEMS, BUCKEYE, DGD, DOLER, DOTCO GARDNER-DENVER and RECOULES industrial power tools and assembly equipment. CAMPBELL chain products. CRESCENT pliers and wrenches. DIAMOND farrier tools and horseshoes. EREM precision cutters and tweezers. LUFKIN measuring tapes. MASTER POWER industrial air tools. NICHOLSON files and saws. PLUMB hammers. STUHR finishing tools. UTICA torque measuring and controls. WELLER soldering equipment and torches. WISS and H.K. PORTER cutting products. XCELITE screwdrivers and nutdrivers. AUTOMOTIVE PRODUCTS MAJOR PRODUCTS AND BRANDS ABEX, LEE, GIBSON and WAGNER brake components, including friction material, hyddraulics, drums, rotors and hardware. ANCO and CHAMPION windshield wiper products. CHAMPION/POWER PATH ignition wire and battery cables. CHAMPION spark plugs and igniters. MOOG steering and suspension components. PRECISION universal joints. WAGNER, ZANXX and BLAZER lighting products. -8- 9 PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT (CONT'D.) ELECTRICAL PRODUCTS MAJOR MARKETS Fuses are sold to end-users in the construction, industrial, automotive and consumer markets and to manufacturers in the electrical, electronic and automotive industries. Lighting fixtures are utilized in residential construction, industrial and commercial building complexes, shopping centers, parking lots and sports facilities. Electrical power products are used in the utility and industrial markets. Electrical construction materials are used in commercial, residential and industrial projects, by utilities and wastewater treatment plants and in the process and energy industries. Fire detection and security systems are installed in commercial and industrial applications. PRINCIPAL DISTRIBUTION METHODS Through distributors for use in general construction, plant maintenance, utilities, process and energy applications, shopping centers, parking lots, sports facilities, and data processing and telecommunications systems; through distributors and direct to manufacturers for use in electronic equipment for consumer, industrial, government and military applications; and direct to original equipment manufacturers of appliances, tools, machinery and electronic equipment. TOOLS AND HARDWARE MAJOR MARKETS Power tools are used by general industrial manufacturers, particularly durable goods producers and original equipment manufacturers. Hand tools are used in a variety of industrial, electronics, agricultural, construction and consumer applications. PRINCIPAL DISTRIBUTION METHODS Through distributors and agents to general industry, particularly automotive, appliance and aircraft maintenance; through distributors and wholesalers to hardware stores, home centers, lumberyards, department stores and mass merchandisers; and direct to original equipment manufacturers, home centers, specialty stores, department stores, mass merchandisers and hardware outlets. AUTOMOTIVE PRODUCTS MAJOR MARKETS Under-hood parts serve as replacement parts in the automotive, industrial, small engine, recreational marine and aviation aftermarkets and as original equipment for manufacturers of cars, light- and heavy-duty trucks and their service networks. Under-car parts serve as replacement parts in the automotive and light- and heavy-duty truck aftermarkets. PRINCIPAL DISTRIBUTION METHODS Replacement parts--to professional service technicians and repair garages through warehouse distributors and jobbers; to do-it-yourself customers through warehouse distributors and jobbers, retailers and mass merchandisers; and to national repair shop networks. Original equipment parts--to original equipment manufacturers and through their respective service networks. Brand names that appear in bold type are registered trademarks of Cooper Industries, Inc. or its subsidiaries, except Assembly Systems, AtLite, B&S, Fail-Safe, Iris, Kearney, MWS, Myers, NOVA, Recoules, Stuhr and Thepitt, which are unregistered trademarks. Gardner-Denver and SurgX are registered trademarks of Gardner Denver Machinery Inc. and SurgX Corporation, respectively, and are used by Cooper Industries under license. -9- 10 ITEM 3. LEGAL PROCEEDINGS The Company is subject to various suits, legal proceedings and claims that arise in the normal course of business. While it is not feasible to predict the outcome of these matters with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of the shareholders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock (symbol - CBE) is listed on the New York Stock Exchange and the Pacific Exchange. Options for the Company's Common Stock are listed on the American Stock Exchange. As of March 2, 1998 there were 31,310 record holders of the Company's Common Stock. The high and low quarterly sales price for the past two years of the Company's Common Stock, as reported by Dow Jones & Company, Inc., are as follows:
Quarter ------- -------- ------- -------- 1 2 3 4 ------- -------- ------- -------- 1997 High $47.000 $53.750 $58.625 $55.875 Low 40.000 41.375 49.375 44.500 1996 High 39.875 44.625 43.375 44.125 Low 34.125 37.625 36.125 38.375
Annual cash dividends declared on the Company's Common Stock during 1997 and 1996 were $1.32 a share ($.33 a quarter). On February 11, 1998, the Board of Directors declared a quarterly dividend of $.33 a share, which will be paid April 1, 1998 to shareholders of record on March 2, 1998. -10- 11 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for Cooper for each of the five years in the period ended December 31, 1997. The selected historical financial information shown below has been derived from Cooper's audited consolidated financial statements. This information should be read in conjunction with Cooper's consolidated financial statements and notes thereto incorporated herein by reference to pages A-13 through A-38 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders.
Years Ended December 31, ------------------------------------------------------------------- 1997(1) 1996 1995 1994 1993 --------- --------- --------- --------- --------- (in millions, except per share data) INCOME STATEMENT DATA: Revenues $ 5,288.8 $ 5,283.7 $ 4,810.9 $ 4,512.5 $ 4,725.5 --------- --------- --------- --------- --------- Income from continuing operations $ 394.6 $ 315.4 $ 280.6 $ 292.8 $ 299.0 Income from discontinued operations, net of taxes -- -- -- .3 68.1 Charge for discontinued operations -- -- (186.6) (313.0) -- --------- --------- --------- --------- --------- Net income (loss) $ 394.6 $ 315.4 $ 94.0 $ (19.9) $ 367.1 ========= ========= ========= ========= ========= PER COMMON SHARE DATA: Basic - Income from continuing operations $ 3.36 $ 2.94 $2.52 $ 2.10 $ 2.15 Income (loss) from discontinued operations -- -- (1.67) (2.74) .60 --------- --------- --------- --------- --------- Net income (loss) $ 3.36 $ 2.94 $ .85 $ (.64) $ 2.75 ========= ========= ========= ========= ========= Diluted - Income from continuing operations $ 3.26 $ 2.77 $ 2.41 $ 2.10 $ 2.15 --------- --------- --------- --------- --------- Net income (loss) $ 3.26 $ 2.77 $ .96 $ (.64) $ 2.75 ========= ========= ========= ========= ========= BALANCE SHEET DATA (at the end of period): Total assets $ 6,052.5 $ 5,950.4 $ 6,063.9 $ 6,400.7 $ 6,361.7 Long-term debt 1,272.2 1,737.7 1,865.3 1,361.9 883.4 Shareholders' equity 2,576.6 1,890.2 1,716.4 2,741.1 3,009.6 CASH DIVIDENDS PER COMMON SHARE: $ 1.32 $ 1.32 $ 1.32 $ 1.32 $ 1.32
- --------------- (1) Includes the results of the Kirsch window treatment operation for the five-month period ended May 30, 1997, which was sold to Newell Co. on May 30, 1997. - --------------- In the fourth quarter of 1997, Cooper adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share. All prior period net income (loss) per Common share data has been restated in connection with the adoption of the new Standard. For additional information concerning the year-to-year comparability of the financial information set forth in the preceding table, see (i) Notes 1, 2, 3, 8, 9 and 18 of the Notes to Consolidated Financial Statements and (ii) Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated herein by reference to pages A-19 through A-21, A-25 through A-26, A-36 and A-1 through A-12 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. -11- 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to pages A-1 through A-12 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Incorporated by reference to "Interest Rate and Foreign Currency Risk" on pages A-11 through A-12 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to pages A-13 through A-38 of Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to pages 3 through 7 of the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to pages 10 through 19 of the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 2 and 8 of the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. -12- 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements and Other Financial Data (incorporated by reference to the pages shown below in Appendix A to the Cooper Proxy Statement for the 1998 Annual Meeting of Shareholders).
Page No. Report of Management......................................... A-13 Report of Independent Auditors............................... A-14 Cooper Industries, Inc.: Consolidated Income Statements for each of the three years in the period ended December 31, 1997..................................... A-15 Consolidated Balance Sheets as of December 31, 1997 and 1996............................ A-16 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997..................................... A-17 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1997..................................... A-18 Notes to Consolidated Financial Statements............ A-19 through A-38
Financial information with respect to subsidiaries not consolidated and 50 percent or less owned entities accounted for by the equity method has not been included since in the aggregate such subsidiaries and investments do not constitute a significant subsidiary. 2. Financial Statement Schedules Financial statement schedules are not included in this Form 10-K Annual Report because they are not applicable or the required information is shown in the financial statements or notes thereto. -13- 14 3. Exhibits 3.1 Twenty-Seventh Amended Articles of Incorporation of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company's Form 8-K dated August 5, 1997). 3.2 Code of Regulations (By-Laws), as amended, of Cooper Industries, Inc. 4.1 Rights Agreement, dated as of August 5, 1997, between the Company and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A dated August 14, 1997). 10.1 1989 Director Stock Option Plan (incorporated herein by reference to Exhibit 28.1 to Registration Statement No. 2-33-29302). 10.2 Cooper Industries, Inc. Directors Deferred Compensation Plan. 10.3 Cooper Industries, Inc. Directors Retirement Plan. 10.4 Cooper Industries, Inc. Executive Restricted Stock Incentive Plan. 10.5 Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan. 10.6 Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan. 10.7 Management Incentive Compensation Deferral Plan. 10.8 Crouse-Hinds Company Officers' Disability and Supplemental Pension Plan. 10.9 Cooper Industries, Inc. 1986 Stock Option Plan. 10.10 Form of Incentive Stock Option Agreement for Cooper Industries, Inc. 1986 Stock Option Plan. 10.11 Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc. 1986 Stock option Plan. 10.12 Cooper Industries, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit I to the Company's Proxy Statement for the Annual Meeting of Shareholders held April 30, 1996.) 10.13 Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan. 10.14 Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan. -14- 15 10.15 Form of Cooper Industries, Inc. Executive Stock Incentive Agreement (incorporated herein by reference to Exhibit 10.12 of the Company's Form 10-K for the year ended December 31, 1995). 10.16 Cooper Industries, Inc. Management Annual Incentive Plan and amendment thereto (incorporated herein by reference to Exhibits B and C to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1998). 10.17 Cooper Industries, Inc. Directors' Stock Plan (incorporated herein by reference to Exhibit III to the Company's Proxy Statement for the Annual Meeting of Shareholders held April 30, 1996). 10.18 Form of Directors' Nonqualified Stock Option Agreement for Directors' Stock Plan. 10.19 Cooper Industries, Inc. Directors' Retainer Fee Stock Plan (incorporated herein by referenced to Exhibit A to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 1998). 12.0 Computation of Ratios of Earnings to Fixed Charges for the Calendar years 1993 through 1997. 13.0 Text of Appendix A to Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1998. 21.0 List of Cooper Industries, Inc. Subsidiaries. 23.0 Consent of Ernst & Young LLP. 24.0 Powers of Attorney from members of the Board of Directors of Cooper Industries, Inc. Cooper will furnish to the Commission supplementally upon request a copy of any instrument with respect to long-term debt of the Company. Copies of the above Exhibits are available to shareholders of record at a charge of $.25 per page, minimum order of $10.00. Direct requests to: Cooper Industries, Inc. Attn: Corporate Secretary P.O. Box 4446 Houston, Texas 77210 (b) Reports on Form 8-K. During the last quarter of 1997, the Company filed a report on Form 8-K dated October 23, 1997, which included a copy of a press release containing the Company's financial results for the quarter ended September 30, 1997. -15- 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COOPER INDUSTRIES, INC. Date: March 30, 1998 By /s/H. JOHN RILEY, JR. ----------------------- ------------------------------- (H. John Riley, Jr., Chairman, President and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/H. JOHN RILEY, JR. Chairman, President and Chief March 30, 1998 - ------------------------------------------ Executive Officer (Principal (H. John Riley, Jr.) Executive Officer and Director) /s/D. BRADLEY MCWILLIAMS Senior Vice President and March 30, 1998 - ------------------------------------------ Chief Financial Officer (D. Bradley McWilliams) /s/TERRY A. KLEBE Vice President and Controller March 30, 1998 - ------------------------------------------ (Principal Accounting Officer) (Terry A. Klebe) *HAROLD S. HOOK Director March 30, 1998 - ------------------------------------------ (Harold S. Hook) *LINDA A. HILL Director March 30, 1998 - ------------------------------------------ (Linda A. Hill) *CONSTANTINE S. NICANDROS Director March 30, 1998 - ------------------------------------------ (Constantine S. Nicandros) *JOHN D. ONG Director March 30, 1998 - ------------------------------------------ (John D. Ong) *SIR RALPH H. ROBINS Director March 30, 1998 - ------------------------------------------ (Sir Ralph H. Robins) *JAMES R. WILSON Director March 30, 1998 - ------------------------------------------ (James R. Wilson) * By /s/DIANE K. SCHUMACHER - ------------------------------------------ (Diane K. Schumacher, as Attorney-In-Fact for each of the persons indicated)
-16- 17 Cooper Industries, Inc. 1997 Annual Report on Form 10-K Cross Reference Sheet
Page Reference Page Reference in Incorporated Item No. and Description in Form 10-K in 10-K Proxy Statement - ------------------------------------- -------------- ------------------- Item 1. Business 2 through 9 A-1 through A-12 A-21 A-23 through A-25 A-32 through A-34 A-36 Item 2. Properties 2 through 9 - Item 3. Legal Proceedings 10 - Item 4. Submission of Matters to a Vote of 10 - Security Holders Item 5. Market for Registrant's Common Equity and 10 - Related Stockholder Matters Item 6. Selected Financial Data 11 A-13 through A-38 Item 7. Management's Discussion and Analysis of 12 A-1 through A-12 Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures 12 A-11 through A-12 About Market Risk Item 8. Financial Statements and Supplementary 12 A-13 through A-38 Data Item 9. Changes in and Disagreements with 12 - Accountants on Accounting and Financial Disclosure Item 10. Directors and Executive Officers of the 12 3 through 7 Registrant Item 11. Executive Compensation 12 10 through 19 Item 12. Security Ownership of Certain Beneficial 12 2,8 Owners and Management Item 13. Certain Relationships and Related 12 - Transactions Item 14. Exhibits, Financial Statement Schedules, 13 through 15 A-13 through A-38 and Reports on Form 8-K
18 EXHIBIT INDEX
Exhibit Number Description ------ ----------- 3.1 Twenty-Seventh Amended Articles of Incorporation of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company's Form 8-K dated August 5, 1997). 3.2 Code of Regulations (By-Laws), as amended, of Cooper Industries, Inc. 4.1 Rights Agreement, dated as of August 5, 1997, between the Company and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A dated August 14, 1997). 10.1 1989 Director Stock Option Plan (incorporated herein by reference to Exhibit 28.1 to Registration Statement No. 2-33-29302). 10.2 Cooper Industries, Inc. Directors Deferred Compensation Plan. 10.3 Cooper Industries, Inc. Directors Retirement Plan. 10.4 Cooper Industries, Inc. Executive Restricted Stock Incentive Plan. 10.5 Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan. 10.6 Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan. 10.7 Management Incentive Compensation Deferral Plan. 10.8 Crouse-Hinds Company Officers' Disability and Supplemental Pension Plan. 10.9 Cooper Industries, Inc. 1986 Stock Option Plan. 10.10 Form of Incentive Stock Option Agreement for Cooper Industries, Inc. 1986 Stock Option Plan. 10.11 Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc. 1986 Stock option Plan. 10.12 Cooper Industries, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit I to the Company's Proxy Statement for the Annual Meeting of Shareholders held April 30, 1996.) 10.13 Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan. 10.14 Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan.
19 10.15 Form of Cooper Industries, Inc. Executive Stock Incentive Agreement (incorporated herein by reference to Exhibit 10.12 of the Company's Form 10-K for the year ended December 31, 1995). 10.16 Cooper Industries, Inc. Management Annual Incentive Plan and amendment thereto (incorporated herein by reference to Exhibits B and C to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1998). 10.17 Cooper Industries, Inc. Directors' Stock Plan (incorporated herein by reference to Exhibit III to the Company's Proxy Statement for the Annual Meeting of Shareholders held April 30, 1996). 10.18 Form of Directors' Nonqualified Stock Option Agreement for Directors' Stock Plan. 10.19 Cooper Industries, Inc. Directors' Retainer Fee Stock Plan (incorporated herein by referenced to Exhibit A to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 1998). 12.0 Computation of Ratios of Earnings to Fixed Charges for the Calendar years 1993 through 1997. 13.0 Text of Appendix A to Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1998. 21.0 List of Cooper Industries, Inc. Subsidiaries. 23.0 Consent of Ernst & Young LLP. 24.0 Powers of Attorney from members of the Board of Directors of Cooper Industries, Inc. 27 Financial Data Schedule (incorporated herein by referenced to Exhibit 27 to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 1998).
EX-3.2 2 BY-LAWS 1 EXHIBIT 3.2 AMENDED REGULATIONS OF COOPER INDUSTRIES, INC. AS ADOPTED APRIL 26, 1988 ARTICLE I MEETINGS OF SHAREHOLDERS SECTION 1. 1. Annual Meeting. The annual meeting of the shareholders of the Company for the election of directors and the transacting of such other business as shall be specified in the notice of the meeting shall be held on the last Tuesday in April of each year or on such other date as the directors may determine. SECTION 1.2. Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman of the Board, the President, or by a Vice President, or by action of the directors at a meeting, or by a writing signed by a majority of the directors in office, or by shareholders holding twenty-five percent or more of the outstanding shares entitled to vote thereat, or by such shareholders and in such manner as the Articles of Incorporation may provide. SECTION 1.3. Place of Meetings. All meetings of the shareholders shall be held at the principal office of the Company in the City of Mount Vernon, Ohio, or at such other place in or outside the State of Ohio, and at such time as may be designated by the Chairman of the Board or the President and specified in the notice of meeting. SECTION 1.4. Notice of Meetings. Written notice of each annual or special meeting of the shareholders, stating the time, place, and purposes thereof, shall be given to each shareholder of record as of the applicable record date who is entitled to vote thereat, by mailing the same, not less than ten days before the date of the meeting, to his address as it appears on the records of the Company. Any shareholder may waive any notice required to be given by law, the Articles, or the Regulations, and the 2 attendance of any shareholder at any meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by him of notice of such meeting. SECTION 1.5. Quorum. Unless the Articles of Incorporation otherwise provide, the holders of shares entitling them to exercise a majority of the voting power of the Company shall constitute a quorum to hold a meeting of the shareholders; provided that at any meeting duly called, whether or not a quorum is present, the holders of a majority of the voting shares represented thereat may adjourn such meeting from time to time without notice other than by announcement at such meeting. ARTICLE II BOARD OF DIRECTORS SECTION 2.1. Number; Election; Term. The number of directors shall be not less than nine nor more than fifteen, as determined by the affirmative vote of a majority of the shares present or represented and entitled to vote for directors at a duly called and held meeting. In addition to the authority of the shareholders to fix or change the number of directors, by a majority vote of the directors in office the directors of the Corporation may change the number of directors and may fill any director's office that is created by an increase in the number of directors. No reduction shall have the effect of shortening the term of any incumbent director and when so fixed such number shall continue to be the authorized number of directors until changed by the shareholders or by the directors by vote as aforesaid. The directors shall be divided into three classes, each class to consist of three or more directors as determined by the affirmative vote of a majority of the shares present or represented and entitled to vote for directors at a duly called and held meeting, but no reduction shall have the effect of shortening the term of any incumbent director and the number of directors in any class shall not exceed by more than two the number in any other class. The term of office of each director shall be until the third Annual Meeting following his election (but not in excess of 3 years) and until the election and qualification of his successor. In case of a vacancy among the directors of any class, the vacancy may be filled for the unexpired term by vote of a majority of the remaining directors, irrespective of class. During any vacancy in the Board of Directors, the remaining directors shall have full power to act as the Board of Directors of the Company. No director shall be removed without an 80% vote of the voting power of the Corporation in favor of such removal, unless a majority of the Board of Directors has previously voted in favor of said removal, in which case the shareholder voting requirements specified under the Ohio General Corporation Law shall apply. SECTION 2.2. Quorum. A majority of the directors in office at the time shall constitute a quorum for a meeting of the directors; provided that at any meeting duly called, whether or not a quorum is present, a majority of the directors present may adjourn such meeting from time to time and place to place 3 within or without the State of Ohio, without notice other than by announcement at the meeting. At such meeting of the directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of not less than a majority of the directors present. SECTION 2.3. Organization Meeting. Immediately after each annual meeting of the shareholders, or special meeting held in lieu thereof, the directors, if a quorum is present, shall hold an organization meeting at the place designated by the Chairman of the Board, the President or a Vice President, for the purpose of electing officers and transacting any other business. Notice of such meeting need not be given. If for any reason such organization meeting is not held at such time, a special meeting for such purpose shall be held as soon thereafter as practicable. SECTION 2.4. Regular Meetings. Regular meetings of the directors may be held at such times and places within or without the State of Ohio as may be provided for in by-laws or resolutions adopted by the directors and upon such notice, if any, as shall be so provided for. SECTION 2.5. Special Meetings. Special meetings of the directors may be held at any time within or without the State of Ohio upon call by the Chairman of the Board, the President, a Vice President, or at least one-third of the directors. Notice of each such meeting shall be given to each director by letter or telegram or in person not less than forty-eight hours prior to such meeting; provided, however, that such notice shall be deemed to have been waived by the directors attending such meeting, and may be waived in writing or by telegram by any director either before or after such meeting. Unless otherwise indicated in the notice thereof, any business may be transacted at any organization, regular, or special meeting. SECTION 2.6. Compensation. The directors are authorized to fix a reasonable compensation for directors and to provide a fee and reimbursement of expenses for attendance at any meeting of the directors to be paid to each director who is not otherwise a salaried officer or employee of the Company. ARTICLE III COMMITTEES SECTION 3. 1. The directors at any time may elect from their number an executive committee and other committees, each of which shall consist of not less than three directors. Each member of such committee shall hold office at the pleasure of the directors and may be removed by the directors at any time with or without cause. Vacancies occurring in the committee may be filled by the directors. During any vacancy on a committee, the remaining 4 members shall have full power to act as the committee. Each committee may prescribe its own rules for calling and holding meetings and its method of procedure, subject, however, to any rules prescribed by the directors, and, if no such rules shall have been prescribed, the rules applicable to calling and holding directors' meetings shall apply to the committee meetings. A quorum for any meeting of a committee shall consist of not less than a majority of the members in office at the time and at each meeting of the committee at which a quorum is present, all questions and business shall be determined by the affirmative vote of not less than a majority of the members present. Except as the executive committee's powers and duties may be limited or otherwise prescribed by the directors, the executive committee, during the intervals between the meetings of the directors, shall possess and may exercise all of the powers of the directors in the management and control of the business and property of the Company; and other committees shall have such powers of the directors as shall be from time to time delegated to them by the Board of Directors; provided, however, that no committee shall be empowered to elect directors to fill vacancies among the directors or on any committee of the directors. Subject to said exceptions, persons dealing with the Company shall be entitled to rely upon any action of a committee with the same force and effect as though such action had been taken by the directors. Subject to the rights of third persons, any action of a committee shall be subject to revision or alteration by the directors. The directors are authorized to fix a reasonable compensation for members of the committees. ARTICLE IV OFFICERS SECTION 4. 1. Officers Designated. The directors at their organization meeting shall elect a President, one or more Vice Presidents, a Secretary, a Treasurer, a Controller, and in their discretion a Chairman of the Board, an Assistant Secretary or Secretaries, an Assistant Treasurer or Treasurers, and such other officers as the directors may see fit. The President and the Chairman of the Board shall be, and the other officers may, but need not be, chosen from among the directors. Any two or more of such officers other than that of President and Vice President, or Secretary and Assistant Secretary, or Treasurer and Assistant Treasurer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. SECTION 4.2. Tenure of Office. The officers of the Company shall hold office until the next organization meeting of the directors and until their successors are chosen and qualified, except in case of resignation, death, or removal. The directors may remove any officer at any time with or without cause by a majority vote of the directors in office at the time. A vacancy in any office, however created, may be filled by election by the directors. 5 SECTION 4.3. Chairman of the Board. The Chairman of the Board, if any, shall have such powers and duties as appertain to that office and as may be prescribed by the directors. SECTION 4.4. President. The President shall have such powers and duties as appertain to that office and as may be prescribed by the directors. SECTION 4.5. Vice Presidents. The Vice Presidents in the order designated by the directors shall perform the duties of the President in case of the absence or disability of the latter, or when circumstances prevent the latter from acting, together with such other duties as the directors may prescribe. In case the President and such Vice Presidents are absent or unable to perform their duties, the directors may appoint a President pro tempore. SECTION 4.6. Secretary. The Secretary shall keep the minutes of all meetings of the shareholders and the directors. He shall keep such books as may be required by the directors, shall have charge of the seal, minute books and stock books of the Company, and shall give all notices of meetings of the shareholders and of the directors, and shall have such other powers and duties as the directors may prescribe. SECTION 4.7. Treasurer. The Treasurer shall receive and have in charge all money, bills, notes, bonds, shares in other corporations and similar property belonging to the Company, and shall do with the same as may be ordered by the directors. He shall formulate and administer credit and collection policies and procedures, and shall represent the Company in its relations with banks and other financial institutions, subject to instructions from the directors. On the expiration of his term of office, he shall turn over to his successor, or to the directors, all property, books, papers, and money of the Company in his hands. SECTION 4.8. Controller. The Controller shall be the chief accounting officer of the Company, and shall supervise the keeping of the financial accounts of the Company. SECTION 4.9. Other Officers. The other officers, if any, shall have such powers and duties as the directors may prescribe. 6 SECTION 4.10. Change in Power and Duties of Officers. Anything in this Article IV to the contrary notwithstanding, the Board of Directors may, from time to time, increase or reduce the powers and duties of the respective officers of the Company whether or not the same are set forth in this Code of Regulations and may permanently or temporarily delegate the duties of any officer to any other officer, agent or employee and may generally control the action of the officers and require performance of all duties imposed upon them. SECTION 4.11. Compensation. The directors are authorized to determine or to provide the method of determining the compensation of officers. SECTION 4.12. Bond. Any officer, if required by the directors, shall give bond for the faithful performance of his duties. Any surety on such bond shall be at the expense of the Company. SECTION 4.13. Signing Checks and Other Instruments. The directors are authorized to determine or provide the method of determining how checks, notes, bills of exchange and similar instruments shall be signed, countersigned, or endorsed. SECTION 4.14. Authority to Transfer and Vote Securities. The Chairman of the Board, the President, the Secretary or the Treasurer of the Company are each authorized to sign the name of the Company and to perform all acts necessary to effect a transfer of any shares, bonds, or other evidences of indebtedness or obligations, subscription rights, warrants, and other securities of another corporation owned by the Company and to issue the necessary powers of attorney for the same; and each such officer is authorized on behalf of the Company to vote such securities, to appoint proxies with respect thereto, and to execute consents, waivers and releases with respect thereto, or to cause any such action to be taken. ARTICLE V AMENDMENTS SECTION 5.1. The regulations may be altered, changed, or amended in any respect, or superseded by new regulations, in whole or in part, by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power of the Company with respect thereto at an annual or special meeting called for such purpose or without a meeting by the written consent of the holders of record of shares entitling them to exercise two-thirds of the voting power with respect thereto. 7 SECTION 5.2. Notwithstanding any other provisions of these Regulations or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of stock required by law or these Regulations, the affirmative vote of the holders of at least 80% of the Corporation's voting power shall be required to alter, amend or repeal Article 11, Section 2.1 of these Regulations. CERTIFICATE I hereby certify that the foregoing is a true and correct copy of the Regulations of Cooper Industries, Inc. at present in force. IN WITNESS WHEREOF, I have hereunto set my hand as ______________________ Secretary of said Company and have affixed its corporate seal this _______ day of ___________________, 19_____. ------------------------------------------------- Secretary of Cooper Industries, Inc. EX-10.2 3 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.2 COOPER INDUSTRIES, INC. DIRECTORS DEFERRED COMPENSATION PLAN 2 COOPER INDUSTRIES, INC. DIRECTORS DEFERRED COMPENSATION PLAN WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") has heretofore established a deferred compensation program, known as the Directors Compensation Deferral Plan, for certain of the members of its Board of Directors who wish to defer all, or a portion of, the fees payable for services as a member of such Board of Directors; and WHEREAS, the Company now desires to restate the aforementioned program to be known as the Cooper Industries, Inc. Directors Deferred Compensation Plan (hereinafter referred to as the "Plan"); NOW, THEREFORE, effective as of January 1, 1987, the Plan is amended and restated as hereinafter set forth. ARTICLE I DEFINITIONS 1.1 DEFINITIONS. Except as otherwise required by the context, the terms used in the Plan shall have the meaning hereinafter set forth. (a) BENEFICIARY. The term "BENEFICIARY" shall mean the person who, in accordance with the provisions of Article V, shall be entitled to receive a distribution of a Participant's interest, or portion thereof, under the Plan in the event a Participant dies prior to receiving distribution of his entire interest. (b) BOARD. The term "BOARD" shall mean the Board of Directors of Cooper Industries, Inc. (c) CODE. The term "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. -1- 3 (d) COMPANY. The term "COMPANY" shall mean Cooper Industries, Inc., an Ohio corporation, its corporate successors, and the surviving corporation resulting from any merger of Cooper Industries, Inc. with any other corporation or corporations. (e) COMPENSATION. The term "COMPENSATION" shall mean the total fees payable to a Director during a calendar year from the Company for services as a Director. (f) COOPER DEFERRAL PLAN. The term "COOPER DEFERRAL PLAN" shall mean the Cooper Industries, Inc. Management Incentive Compensation Deferral Plan, as amended from time to time. (g) DEFERRED ACCOUNT. The term "DEFERRED ACCOUNT" shall mean the account established pursuant to Article III to which a Participant's deferred Compensation and interest deemed to be earned thereon are credited. (h) DIRECTOR. The term "DIRECTOR" shall mean any member of the Board. (i) PARTICIPANT. The term "PARTICIPANT" shall mean any eligible Director who participates in the Plan pursuant to Article II of the Plan. (j) PLAN. The term "PLAN" shall mean the Cooper Industries, Inc. Directors Deferred Compensation Plan as herein set forth. (k) SECRETARY. The term "SECRETARY" shall mean the Secretary of the Company. 1.2 CONSTRUCTION. Where necessary or appropriate to the meaning hereof, the singular shall be deemed to include the plural, the plural to include the singular, the masculine to include the feminine, and the feminine to include the masculine. ARTICLE II ELIGIBILITY FOR PLAN PARTICIPATION Any Director who is not an employee of the Company or a related corporation shall become a Participant as of the date he first files a written election, on a form prescribed by the Secretary, which contains: (a) his authorization to reduce and defer his Compensation by a specific percentage or amount; -2- 4 (b) the date on which any amounts so reduced and deferred, along with interest earned thereon pursuant to the provisions of Article III, shall commence to be paid; and (c) the manner in which any such deferred amounts with interest shall be paid to the Participant or a Beneficiary. A Participant may change or terminate his election to defer Compensation by written notice delivered to the Secretary. Such change or termination shall become effective as of the end of the calendar year in which notice of termination is given with respect to Compensation for subsequent calendar years. Amounts credited to the Deferred Account of a Participant prior to the effective date of change or termination shall not be affected thereby and shall be paid in accordance with the provisions of Article IV. ARTICLE III DEFERRED ACCOUNTS AND AMOUNT OF PLAN BENEFITS Except as specified in Section 8.3, Compensation deferred at the election of a Participant shall be held in the general funds of the Company and shall be credited to a separate Deferred Account established in the name of such Participant. The funds represented by the Deferred Account of a Participant shall be deemed to earn interest in the manner and rate set forth in the Cooper Deferral Plan. The Plan benefit payable to a Participant shall be equal to the amount credited to such Participant's Deferred Account. ARTICLE IV PAYMENT OF PLAN BENEFITS The benefit set forth in Article III and payable under the Plan shall be distributed to a Participant in accordance with the terms of his current election form on file with the Secretary -3- 5 pursuant to the provisions of Article II. In the event a Participant dies prior to distribution of his entire Plan benefit, his remaining interest under the Plan shall be distributed to his Beneficiary. ARTICLE V BENEFICIARIES 5.1 DESIGNATION OF BENEFICIARY. A Participant may designate a Beneficiary to whom distribution shall be made hereunder in the event such Participant dies before his interest is distributed to him in full. Any such designation or change of designation shall be made in writing in the form prescribed by the Secretary and shall become effective only when filed by the Participant with the Secretary; provided, however, that any such designation or change of designation which is received by the Secretary after the death of the Participant or former Participant shall be disregarded. 5.2 BENEFICIARY IN ABSENCE OF A DESIGNATED BENEFICIARY. In the event that either no Beneficiary has been designated or no Beneficiary survives such Participant or former Participant, then the Beneficiary shall be the estate of such Participant. If any Beneficiary designated pursuant to Section 5.1 dies after becoming entitled to receive distributions hereunder and before such distributions are made in full, and if no other person or persons have been designated to receive the balance of such distributions upon the happening of such contingency, the estate of such deceased Beneficiary shall become the Beneficiary as to such balance. ARTICLE VI ADMINISTRATIVE PROVISIONS 6.1 ADMINISTRATION. The Plan shall be administered by the Secretary as an unfunded plan that is not intended to meet the qualification requirements of Section 401 of the Code. -4- 6 6.2 POWERS AND AUTHORITIES OF THE SECRETARY. The Secretary shall have full power and authority to interpret, construe and administer the Plan and such interpretations, construction, and actions, including the timing, form, amount, or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. The Secretary may delegate any of his powers, authorities, or responsibilities for the operation and administration of the Plan to any person or committee so designated in writing by him and may employ such attorneys, agents, and accountants as he may deem necessary or advisable to assist him in carrying out his duties hereunder. The Secretary shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. 6.3 INDEMNIFICATION. In addition to whatever rights of indemnification the Secretary or any other person or persons to whom any power, authority, or responsibility is delegated under the Plan, may be entitled under the articles of incorporation, regulations, or by-laws of the Company, under any provision of law, or under any other agreement, the Company shall satisfy any liability actually and reasonably incurred by the Secretary or such other person or persons, including expenses, attorneys' fees, judgments, fines, and amounts paid in settlement, in connection with any threatened, pending, or completed action, suit, or proceeding which is related to the exercise or failure to exercise by the Secretary or such other person or persons of any of the powers, authority, responsibilities, or discretion under the Plan. -5- 7 ARTICLE VII AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan at any time; provided, however, that no such action shall adversely affect any Participant who is receiving retirement benefits under the Plan or who has accrued a benefit under the Plan, unless an equivalent benefit is otherwise provided under another plan or program sponsored by the Company. ARTICLE VIII MISCELLANEOUS 8.1 NON-ALIENATION OF RIGHTS OR BENEFITS. No benefit under the Plan shall at any time be subject in any manner to alienation or encumbrance. If any Participant or Beneficiary shall attempt to, or shall, alienate or in any way encumber his benefits under the Plan, or any part thereof, or if by reason of his bankruptcy or other event happening at any time any such benefits would otherwise be received by anyone else or would not be enjoyed by him, his interest in all such benefits shall automatically terminate and the same shall be held or applied to or for the benefit of such person, his spouse, children, or other dependents as the Secretary may select. 8.2 PAYMENT OF BENEFITS TO OTHERS. If any Participant or Beneficiary to whom a Plan benefit is payable is unable to care for his affairs because of illness or accident, any payment due (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may be paid to the spouse, parent, brother, or sister, or any other individual deemed by the Secretary to be maintaining or responsible for the maintenance of such person. Any payment made in accordance with the provisions of this Section 8.2 shall be a complete discharge of any liability of the Plan with respect to the retirement benefit so paid. -6- 8 8.3 FUNDING. In order to provide a source of payment for its obligations under the Plan, the Company may establish a trust fund. Subject to the provisions of the trust agreement governing such trust fund, however, the obligation of the Company under the Plan to provide a Participant or a Beneficiary with a benefit shall constitute the unsecured promise of the Company to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Employer. 8.4 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any person, firm, or corporation any legal or equitable right as against the Company, its officers, employees, or Directors, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 8.5 SEVERABILITY. The invalidity or unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 8.6 GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. * * * EXECUTED at , this day of , 1987. COOPER INDUSTRIES, INC. By --------------------------------- Title: -7- EX-10.3 4 DIRECTORS RETIREMENT PLAN 1 EXHIBIT 10.3 COOPER INDUSTRIES, INC. DIRECTORS RETIREMENT PLAN 2 COOPER INDUSTRIES, INC. DIRECTORS RETIREMENT PLAN WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") has heretofore established a supplemental retirement plan, known as the Restated Director's Retirement Compensation Plan, for certain of the members of its Board of Directors; and WHEREAS, the Company now desires to restate the aforementioned plan to be known as the Cooper Industries, Inc. Directors Retirement Plan (hereinafter referred to as the "Plan"); NOW, THEREFORE, effective as of January 1, 1987, the Plan is amended and restated as hereinafter set forth. ARTICLE I DEFINITIONS 1.1 DEFINITIONS. Except as otherwise required by the context, the terms used in the Plan shall have the meaning hereinafter set forth. (a) BOARD. The term "BOARD" shall mean the Board of Directors of Cooper Industries, Inc. (b) CHANGE IN CONTROL. The term "CHANGE IN CONTROL" shall mean the occurrence of either of the following events: (1) When any "person" (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as such term is used in Rule 13d-3 under the Exchange Act) of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities and exercises, or indicates intent to exercise, such voting power on any issue contrary to the recommendations of management; or (2) When individuals who, at the beginning of any two-year period, constitute the Board of Directors of the Company cease for any reason to -1- 3 constitute at least three-fourths thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period. (c) CODE. The term "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (d) COMPANY. The term "COMPANY" shall mean Cooper Industries, Inc., an Ohio corporation, its corporate successors, and the surviving corporation resulting from any merger of Cooper Industries, Inc. with any other corporation or corporations. (e) COOPER SALARIED PLAN. The term "COOPER SALARIED PLAN" shall mean the Salaried Employees' Retirement Plan of Cooper Industries, Inc., as amended from time to time. (f) DIRECTOR. The term "DIRECTOR" shall mean any member of the Board. (g) PARTICIPANT. The term "PARTICIPANT" shall mean any eligible Director who participates in the Plan pursuant to Article II of the Plan. (h) PLAN. The term "PLAN" shall mean the Cooper Industries, Inc. Directors Retirement Plan as herein set forth. (i) PLANS ADMINISTRATION COMMITTEE. The term "PLANS ADMINISTRATION COMMITTEE" shall mean the Cooper Industries Plans Administration Committee established by the Board to oversee the administration of the Company's pension benefit plans. (j) SECRETARY. The term "SECRETARY" shall mean the Secretary of the Company. (k) TENURE POLICY. The term "TENURE POLICY" shall mean the Directors Tenure Policy as adopted by the Board on February 17, 1975, and as amended from time to time. 1.2 CONSTRUCTION. Where necessary or appropriate to the meaning hereof, the singular shall be deemed to include the plural, the plural to include the singular, the masculine to include the feminine, and the feminine to include the masculine. -2- 4 ARTICLE II ELIGIBILITY FOR PLAN PARTICIPATION Any Director who serves as a Director during at least ten calendar years (a fractional year shall be counted as a whole year) or who retires in accordance with the terms of the Tenure Policy, shall automatically become a Participant as of the date he serves such ten years or so retires. Notwithstanding the foregoing, in the event of a Change in Control, each Director who is a Director immediately prior to the Change in Control shall become a Participant on the day before the date on which the Change in Control is effective. ARTICLE III AMOUNT OF PLAN BENEFITS The amount of the annual benefit payable to a Participant pursuant to Article IV of the Plan shall be an amount equal to the basic annual retainer (exclusive any special amounts payable for services as a Committee Chairman or for attendance at Committee meetings or special Board meetings) payable to an outside Director as of the date such Participant ceases to be a Director. ARTICLE IV PAYMENT OF PLAN BENEFITS The annual benefit set forth in Article III and payable under the Plan with respect to the preceding calendar year, shall be paid to a Participant on the January 2nd immediately following the year in which such Participant ceases to be a Director and shall continue to be paid each subsequent January 2nd until the number of calendar years (a fractional year shall be counted as a whole year) such Participant was a Director of the Company elapses. In lieu of receiving payment of his benefit under the Plan in such foregoing manner and form, a Participant may elect to receive -3- 5 his Plan benefit in quarterly installments, commencing with the first day of the calendar year quarter immediately following the date on which such Participant ceases to be a Director and terminating with the quarter coinciding with the end of the period equal to the number of years (a fractional year shall count as a whole year) such Participant was a Director. Notwithstanding the foregoing provisions, no benefits shall be payable under the Plan for any period, or part thereof, following the death of a Participant. ARTICLE V ADMINISTRATIVE PROVISIONS 5.1 ADMINISTRATION. The Plan shall be administered by the Secretary as an unfunded plan that is not intended to meet the qualification requirements of Section 401 of the Code. 5.2 POWERS AND AUTHORITIES OF THE SECRETARY. The Secretary shall have full power and authority to interpret, construe, and administer the Plan and such interpretations, construction, and actions, including the timing, form, amount, or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. The Secretary may delegate any of his powers, authorities, or responsibilities for the operation and administration of the Plan to any person or committee so designated in writing by him and may employ such attorneys, agents, and accountants as he may deem necessary or advisable to assist him in carrying out his duties hereunder. The Secretary shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. 5.3 INDEMNIFICATION. In addition to whatever rights of indemnification the Secretary, a member of the Plans Administration Committee, or any other person or persons to whom any -4- 6 power, authority, or responsibility is delegated under the Plan, may be entitled under the articles of incorporation, regulations, or by-laws of the Company, under any provision of law, or under any other agreement, the Company shall satisfy any liability actually and reasonably incurred by the Secretary, a Plans Administration Committee member, or such other person or persons, including expenses, attorneys, fees, judgments, fines, and amounts paid in settlement, in connection with any threatened, pending, or completed action, suit, or proceeding which is related to the exercise or failure to exercise by the Secretary, a Plans Administration Committee member, or such other person or persons of any of the powers, authority, responsibilities, or discretion under the Plan. ARTICLE VI AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan at any time by action of the Plans Administration Committee; provided, however, that no such action shall adversely affect any Participant who is receiving retirement benefits under the Plan or who has accrued a benefit under the Plan, unless an equivalent benefit is otherwise provided under another plan or program sponsored by the Company. ARTICLE VII MISCELLANEOUS 7.1 NON-ALIENATION OF RETIREMENT RIGHTS OR BENEFITS. No benefit under the Plan shall at any time be subject in any manner to alienation or encumbrance. If any Participant or Beneficiary shall attempt to, or shall, alienate or in any way encumber his benefits under the Plan, or any part thereof, or if by reason of his bankruptcy or other event happening at any time any -5- 7 such benefits would otherwise be received by anyone else or would not be enjoyed by him, his interest in all such benefits shall automatically terminate and the same shall be held or applied to or for the benefit of such person, his spouse, children, or other dependents as the Secretary may select. 7.2 FUNDING. In order to provide a source of payment for its obligations under the Plan, the Company may establish a trust fund. Subject to the provisions of the trust agreement governing such trust fund, however, the obligation of the Company under the Plan to provide a Participant or a Beneficiary with a benefit shall constitute the unsecured promise of the Company to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Company. 7.3 CONTROLLING STATUS. No Participant shall be eligible for a benefit under the Plan unless such Participant is a Participant on the date of his retirement from the Board. 7.4 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any person, firm, or corporation any legal or equitable right as against the Company, its officers, employees, or Directors, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 7.5 SEVERABILITY. The invalidity or unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 7.6 GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. -6- 8 * * * EXECUTED at , this day of , 1987. COOPER INDUSTRIES, INC. By ----------------------------- Title: -7- EX-10.4 5 EXECUTIVE RESTRICTED STOCK INCENTIVE PLAN 1 EXHIBIT 10.4 COOPER INDUSTRIES, INC. EXECUTIVE RESTRICTED STOCK INCENTIVE PLAN (AS AMENDED BY THE BOARD OF DIRECTORS ON FEBRUARY 21, 1990) 1. Purposes of the Plan The Cooper Industries, Inc. Executive Restricted Stock Incentive Plan (the "Plan") is intended to provide a means whereby key policy-making employees of Cooper Industries, Inc., an Ohio corporation (the "Company"), and its subsidiaries may sustain a sense of proprietorship and personal involvement in the continued development and financial success of the Company, and to encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. Accordingly, the Company may award to certain employees shares of the $5.00 par value common stock of the Company ("Stock"), on the terms and conditions herein established. 2. Administration of the Plan The Plan shall be administered by a committee (the "Committee") of not less than three directors of the Company who shall be appointed by and serve at the pleasure of the Board of Directors of the Company. Members of the Committee shall be "disinterested persons" as such term is defined in the rules promulgated from time to time under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee shall have sole authority from time to time to select the employees from among those eligible to whom shares of Stock shall be awarded under the Plan, to establish the number of such shares which may be awarded to each such employee and the time when certificates for such shares shall be issued, and to prescribe the legend to be affixed to the certificate representing such shares. The Committee is authorized to interpret the Plan and may from time to time adopt such rules, regulations, forms and agreements, not inconsistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All decisions made by the Committee in administering the Plan shall be final. 3. Eligibility of Employees Shares of Stock may be awarded under the Plan only to individuals who are key employees (including officers and directors who are also key employees) of the Company or any subsidiary corporation (as defined in section 425 of the Internal Revenue Code of 1954) of the Company. Shares may be awarded to the same employee on more than one occasion. 1 2 4. Shares Subject to the Plan The aggregate number of shares of Stock which may be awarded to employees under the Plan shall not exceed 1,200,000 shares of Stock. Such shares may consist of authorized but unissued shares of Stock or previously issued shares reacquired by the Company. Any of such shares which remain unissued at the termination of the Plan shall cease to be subject to the Plan, but until termination of the Plan, the Company shall at all times make available a sufficient number of shares to meet the requirements of the Plan. If Restricted Shares (defined in Paragraph 5) or Unissued Shares (defined in Paragraph 12) are forfeited to the Company, such shares shall again become available for issuance under the Plan. The aggregate number of shares which may be awarded under the Plan may be adjusted to reflect a change in capitalization of the Company, such as a stock dividend or stock split. 5. Issuance of Shares and Forfeiture Restrictions Certificates for shares of Stock awarded to an employee under the Plan may be issued to an employee under this Paragraph 5 from time to time as determined by the Committee. The shares of Stock so issued to an employee shall not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of, and in the event of termination of the employee's employment with the Company for any reason (including death and disability, unless the Committee in its sole discretion decides to terminate the Forfeiture Restrictions following the death or disability of such employee) the employee shall be obligated, for no consideration, to forfeit and surrender such shares (to the extent then subject to the Forfeiture Restrictions) to the Company. The restrictions against disposition and the obligations to forfeit and surrender shares to the Company are herein referred to as the "Forfeiture Restrictions", and the shares which are then subject to the Forfeiture Restrictions are herein sometimes referred to as "Restricted Shares". Certificates representing Restricted Shares shall be appropriately legended to reflect the Forfeiture Restrictions. 6. Lapse of Forfeiture Restrictions and Issuance of Additional Shares (a) The Forfeiture Restrictions with respect to Restricted Shares and Unissued Shares shall lapse and be of no further force and effect upon the expiration of the period of time fixed by the Committee at the time it awards the shares which are subject to the Forfeiture Restrictions. In addition, upon such lapse of the Forfeiture Restrictions, the Company shall issue to the employee an additional number of shares of Stock, not subject to any Forfeiture Restrictions. The number of such additional shares of Stock shall be determined in accordance with a table adopted by the Committee at the time it makes an award of shares which are subject to the Forfeiture Restrictions. Such table shall relate the number of additional shares to be issued to the employee to the performance of the Company during a period including the fiscal year of the Company immediately preceding the award of shares subject to the Forfeiture Restrictions (the "Base Period") and ending with the fiscal year of the Company immediately preceding the lapse of the Forfeiture Restrictions; provided that in the event of a lapse of Forfeiture Restrictions pursuant to 2 3 Paragraph 7, the period will end on the most recent practicable date preceding the date a determination is made pursuant to Paragraph 7. (b) The Forfeiture Restrictions with respect to Restricted Shares and Unissued Shares shall lapse and be of no further force and effect upon the employee's retirement at or after reaching age 65. Upon such lapse of Forfeiture Restrictions, the Company shall issue to such employee any Unissued Shares (the initial grant) and, in the Committee's discretion, an additional number of shares of Stock based upon the Company's performance during a period beginning with the Base Period and ending with the first calendar quarter ending after the date of the employee's retirement. (c) Upon the issuance of such additional number of shares pursuant to subparagraphs (a) or (b) of this paragraph 6, the Company shall also pay to the employee in cash an amount equal to the aggregate amount of the cash dividends which the employee would have received had he been the owner of record of such additional number of shares during the period commencing with the date of award of shares subject to the Forfeiture Restrictions and ending upon the lapse of the Forfeiture Restrictions with respect to such Shares. 7. Reorganization, Recapitalization and Changes in Control The Forfeiture Restrictions shall not apply to the transfer of shares pursuant to a plan of reorganization of the Company, but the stock or securities received in exchange therefor, and any stock received as a result of a stock split or stock dividend with respect to shares so transferred shall also be subject to the Forfeiture Restrictions for all purposes of the Plan. Notwithstanding the foregoing, if (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all of the assets and business of the Company are to be sold, or (iv) there occurs a "change in control" of the Company, then, on or prior to the effective date of such merger, consolidation, dissolution and liquidation, or sale, and in the event of a change in control, at any time prior to or following the occurrence of such a change in control the Committee may, in its sole discretion, with respect to any portion of or all grants of Restricted Shares and Unissued Shares theretofore made and subject to Forfeiture Restrictions (a) fix a date (which date in the event of a change in control shall be the date of such change in control) on which date all Forfeiture Restrictions shall lapse and determine the number of additional shares earned pursuant to Paragraph 6 as of such date and (b) pay to the employee an amount in cash equal to the fair market value computed as of such date of all Unissued Shares and additional shares so determined or issue stock for all Unissued Shares and additional shares so determined or pay and issue a combination of cash and stock therefor and shall pay in cash the amount of cash dividends payable with respect to the additional shares pursuant to Paragraph 6. Paragraph 13 shall have no effect if Forfeiture Restrictions lapse under this Paragraph 7. For purposes hereof, a "change in control" of the Company shall be deemed to have occurred if (i) any "person" as such term is used in Section 13 (d) (3) and 14 (d) (2) of the Exchange Act is or becomes the "beneficial owner" (as such term is used in Rule 13d-3 issued under the Exchange Act) of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason 3 4 to constitute at least three-fourths thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. In the event that a change in control results in there being fewer than three members of the Committee who were members prior to the change, members of the Board of Directors who were members prior to the change and meet the requirements for Committee membership set forth in Paragraph 2 shall automatically be alternate members of the Committee to act under this Paragraph 7, and if there are not three such persons, then the Forfeiture Restrictions automatically shall lapse and additional shares automatically shall be determined pursuant to Paragraph 6 hereof and an amount in cash equal to the fair market value of all Unissued Shares, all additional shares and all dividends on additional shares pursuant to Paragraph 6 shall be paid in cash in full. 8. Term of Plan The Plan shall be effective upon the date of its last approval by the shareholders of the Company. Unless sooner terminated under the provisions of Paragraph 14, no further shares shall be awarded under the Plan after the expiration of ten years from the effective date of the Plan, and the Plan shall terminate when the Forfeiture Restrictions on any shares theretofore awarded under the Plan have lapsed and any additional shares with respect thereto have been issued under Paragraph 6. 9. Rights as Shareholder Upon delivery of Restricted Shares to an employee, except for the Forfeiture Restrictions, such employee shall have all of the rights of a shareholder of the Company with respect to such Restricted Shares, including the right to vote such Restricted Shares and to receive all dividends or other distributions paid with respect to such Restricted Shares. 10. Employment Relationship An employee shall be considered to be in the employment of the Company as long as he remains an employee of either the Company or a subsidiary Corporation of the Company. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee and its determination shall be final. Nothing herein shall confer on any employee the right to continued employment with the Company or affect the right of the Company to terminate such employment. 11. Withholding of Tax To the extent the award or issuance of shares of Stock or the lapse of Forfeiture Restrictions results in the receipt of compensation by an employee, the Company (or the employing subsidiary) is authorized to withhold from any other cash compensation then or thereafter payable to such employee any tax required to be withheld by reason of the receipt of 4 5 compensation resulting from the award or issuance of shares or the lapse of Forfeiture Restrictions. 12. Committee Discretion to Issue Share Certificates Notwithstanding any other provision hereof, the Committee has the absolute discretion to determine whether to issue share certificates for shares of Stock awarded to any employee pursuant to Paragraph 2 of the Plan. Shares of Stock awarded to an employee pursuant to Paragraph 2 but for which no share certificates are issued are herein sometimes called "Unissued Shares". An employee's interest in Unissued Shares shall be subject to the Forfeiture Restrictions in the same manner as Restricted Shares. The employee will be entitled to receive share certificates for Unissued Shares on the date upon which the Forfeiture Restrictions with respect to such shares lapse. In the event of termination of the employee's employment for any reason, none of the Unissued Shares shall be issued to the employee, except pursuant to Paragraph 6(b) or in the sole discretion of the Committee following the death or disability of such employee. Until share certificates with respect to Unissued Shares are delivered to the employee, the employee will have no rights as a shareholder of the Company except the employee shall have the right to receive an amount in cash equal to dividends and other distributions paid with respect to the Unissued Shares. Notwithstanding the foregoing, Unissued Shares shall be adjusted from time to time to reflect stock dividends and stock splits. 13. Election to Receive Cash for Shares Subject to the conditions set forth in this Paragraph 13, each employee who receives an award of Restricted Shares or Unissued Shares under the Plan shall, with respect to each such award, have the right to request that he be paid in cash an amount equal to the fair market value of a portion of the additional shares he would be entitled to receive pursuant to Paragraph 6. Such request shall be made by delivering to the Company at the office of its Secretary a notice setting forth that portion (expressed as a percentage) of additional shares for which the employee desires to receive cash. Said notice shall be delivered no later than the date designated by the Committee for this purpose. The Committee shall consider the employee's request and have absolute discretion to determine if and to what extent the request shall be approved. In no event may the employee receive under this Paragraph or Paragraph 6 cash for Restricted Shares or Unissued Shares or an amount of cash (including the cash otherwise payable to him pursuant to Paragraph 6) which is greater than 50% of the sum of (i) the fair market value of the Restricted Shares or Unissued Shares and additional shares to be received by the employee pursuant to Paragraph 6, and (ii) the aggregate amount of cash dividends to be received by the employee pursuant to Paragraph 6. For the purposes of this Paragraph 13, the fair market value of the Restricted Shares or Unissued Shares and additional shares shall be the average of the high and low trading prices of the Company's Stock on the New York Stock Exchange on the date that the Forfeiture Restrictions lapse. To the extent the employee's request is not approved, he shall nonetheless receive payment in accordance with Paragraph 6. 5 6 14. Amendment or Termination of the Plan The Board of Directors of the Company in its discretion may terminate the Plan at any time with respect to any Restricted Shares or Unissued Shares which have not theretofore been issued. The Board of Directors shall have the right to alter or amend the Plan or any part thereof from time to time; provided, that no change may be made which would impair the rights of an employee to whom Restricted Shares or Unissued Shares have theretofore been awarded without the consent of said employee; and provided, further, that the Board of Directors may not make any alteration or amendment which would materially increase the benefits accruing to participants under the Plan, increase the aggregate number of shares which may be issued under the Plan (other than an increase reflecting a change in capitalization of the Company), change the class of employees eligible to receive Stock under the Plan, or extend the term of the Plan, without the approval of the shareholders of the Company. 15. Election to Defer Shares Each employee shall have the right to elect to defer the issuance and receipt of all or a part of any shares to which such employee may become entitled pursuant to Paragraphs 12 (Unissued Shares) and 6 (additional shares) until either the employee's termination of employment with the Company or a calendar year specified by the employee. The dividend equivalent cash payment pursuant to Paragraph 6 with respect to deferred additional shares and similar cash dividend equivalents with respect to any deferred Unissued Shares pursuant to Paragraph 12 shall not be paid on or after the date when the Forfeiture Restrictions lapse, as provided, but instead shall be credited to the deferral account of the employee ("Employee Account"). The Employee Account shall be increased from time to time by the amount of cash dividends which the employee would have received had he been the owner of record of such deferred shares during the deferral period with respect to such shares. The balance from time to time of Employee Account shall bear interest in an amount equal to the average quarterly prime rate of interest charged by The Chase Manhattan Bank, N.A. The deferred shares shall be issued in three annual installments unless the Committee, in its discretion, determines to issue all of such deferred additional shares on the first installment date. Upon the issuance of any or all of such shares, the Company shall also pay to the employee in cash the portion of the Employee Account theretofore credited with respect to such issued shares together with accrued interest thereon as provided above. If the employee elects deferral until termination of employment, the first installment shall be made in January of the year following termination, if such termination is by reason of disability or retirement, or in the month following termination, if such termination is for any other reason other than death. If the employee elects deferral until a specified calendar year, the first installment shall be made in January of such year or in January of the year following the death of the employee, whichever is earlier. In the event an employee dies prior to issuance of any deferred shares or the payment of cash with respect thereto, all such shares shall be issued, and all such cash payments shall be made, in January of the year following death to such beneficiary or beneficiaries as such employee may designate by writing to the Company. A deferral election by an employee hereunder with respect to Restricted Shares or additional shares issuable by reason of the grant of Restricted 6 7 Shares must be made in writing to the Company on or before December 31 of the third calendar year of the forfeiture period related to the grant. The election to receive cash provided for in Paragraph 13 shall not be available with respect to shares the receipt of which is deferred under this Paragraph 15. 7 EX-10.5 6 SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN 1 Exhibit 10.5 COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN (August 1, 1990 Restatement) 2 COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN (August 1, 1990 Restatement) WHEREAS, Cooper Industries, Inc. (thereinafter referred to as the "Company") maintains the Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (hereinafter referred to as the "Plan") for the benefit of a select group of management employees of the Company and its subsidiaries; and WHEREAS, Champion Spark Plug Company, which was acquired by, and is a wholly-owned subsidiary of, the Company, maintains the Excess Benefit Plan for Participants in the Champion Spark Plug Company Salaried Employees' Retirement Income Plan (hereinafter referred to as the "Champion Excess Plan") and Champion Spark Plug Company Supplemental Benefit Plan (hereinafter referred to as the "Champion Supplemental Plan"); and WHEREAS, Cameron Iron Works USA, Inc., which maintained the Restoration of Retirement Income Plan for Certain Participants in the Cameron Iron Works, Inc. Retirement Plan for Salaried Employees (hereinafter referred to as the "Cameron Excess Plan"), was merged into the Company; and WHEREAS, the Company desires to merge the Champion Excess Plan, the Champion Supplemental Plan, and the Cameron Excess Plan into the Plan; NOW, THEREFORE, effective as of the close of business on July 31, 1990, the Champion Excess Plan and the Champion Supplemental Plan are hereby merged into and made part of the Plan, and effective as of the close of business on August 31, 1990, the Cameron Excess Plan is hereby merged into and made part of the Plan, and effective as of 3 August 1, 1990, the Plan is hereby amended and restated as hereinafter set forth. ARTICLE I DEFINITIONS 1.1 DEFINITIONS. Except as otherwise required by the context, the terms used in the Plan shall have the meaning hereinafter set forth. (a) BENEFICIARY. The term "BENEFICIARY" shall mean the person who, in accordance with the provisions of Article V, shall be entitled to receive distribution hereunder in the event a Participant dies before his interest under the Plan has been distributed to him in full. (b) CAMERON EXCESS PLAN. The term "CAMERON EXCESS PLAN" shall mean the Restoration of Retirement Income Plan for Certain Participants in the Cameron Iron Works, Inc. Retirement Plan for Salaried Employees as in effect on August 31, 1990. (c) CHAMPION EXCESS PLAN. The term "CHAMPION EXCESS PLAN" shall mean the Excess Benefit Plan for Participants in the Champion Spark Plug Company Salaried Employees' Retirement Income Plan as in effect on July 31, 1990. (d) CHAMPION SALARIED PLAN. The term "CHAMPION SALARIED PLAN" shall mean the Champion Spark Plug Company Salaried Employees' Retirement Income Plan which was merged with the Cooper Salaried Plan effective July 31, 1990. (e) CHAMPION SUPPLEMENTAL PLAN. The term "CHAMPION SUPPLEMENTAL PLAN" shall mean the Champion Spark Plug Company Supplemental Benefit Plan. (f) CODE. The term "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (g) COMPANY. The term "COMPANY" shall mean Cooper Industries, Inc., an Ohio corporation, its corporate successors, and the surviving corporation resulting from any merger of Cooper Industries, Inc. with any other corporation or corporations. (h) COOPER DEFERRAL PLAN. The term "COOPER DEFERRAL PLAN" shall mean the Cooper Industries, Inc. Management Incentive Compensation Deferral Plan, as amended from time to time. (i) COOPER SALARIED PLAN. The term "COOPER SALARIED PLAN" shall mean the Salaried Employees' Retirement Plan of Cooper Industries, Inc., as amended from time to -2- 4 time. (j) EMPLOYER. The term "EMPLOYER" shall mean the Company, and/or McGraw-Edison Company, and/or Champion Spark Plug Company, as well as any subsidiary of the Company which may adopt the Plan in accordance with the provisions of Article VIII. (k) LOCAL ADMINISTRATIVE COMMITTEE. The term "LOCAL ADMINISTRATIVE COMMITTEE" shall mean tile administrative committee that administers the Plan as set forth in Article VI. (1) MCGRAW DEFERRAL PLAN. The term "MCGRAW DEFERRAL PLAN" shall mean the McGraw-Edison Executive Deferred Compensation Plan or the McGraw-Edison Supplemental Executive Benefits Plan. (m) PARTICIPANT. The term "PARTICIPANT" shall mean any employee of an Employer who is eligible to participate in the Plan pursuant to Article II of the Plan. (n) PLAN. The term "PLAN" shall mean the Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan as set forth herein. (o) PLANS ADMINISTRATION COMMITTEE. The term "PLANS ADMINISTRATION COMMITTEE" shall mean the Cooper Industries Plans Administration Committee established pursuant to the Plans Management Procedure adopted by the Board of Directors of the Company to administer the Company's employee benefit plans. 1.2 CONSTRUCTION. Where necessary or appropriate to the meaning hereof, the singular shall be deemed to include the plural, the plural to include the singular, the masculine to include the feminine, and the feminine to include the masculine. ARTICLE II ELIGIBILITY FOR PLAN PARTICIPATION Any select management and highly compensated employee of an Employer: (i) whose retirement benefits under the Cooper Salaried Plan are limited by the provisions of Section 415 or Section 401(a)(17) of the Code; or (ii) who participates in the Cooper Salaried Plan as well as in the Cooper Deferral Plan or the McGraw Deferral Plan; or (iii) whose retirement benefits under the Cooper Salaried Plan are curtailed by the adoption of Alternative II D pursuant to provisions of IRS Notice 88-131 and who elects to receive such curtailed benefits under the Plan rather than under -3- 5 the Cooper Salaried Plan; shall become a Participant in the Plan automatically upon such limitation, participation, or election. Notwithstanding the foregoing, any individual who was a participant in the Champion Excess Plan on July 31, 1990, shall become a Participant as of August 1, 1990 and any individual who was a participant in the Cameron Excess Plan as of the close of business on August 31, 1990, shall become a Participant as of September 1, 1990. ARTICLE III AMOUNT OF PLAN BENEFITS Except as set forth below, the supplemental benefit payable to an eligible Participant under the Plan shall be an amount which when added to the retirement benefit payable to such Participant under the Cooper Salaried Plan or, if applicable, the Champion Salaried Plan, equals the retirement benefit which would have been payable under the Cooper Salaried Plan or, if applicable, the Champion Salaried Plan to the Participant, if (i) the limitations of Sections 401(a)(17) and 415 of the Code were not in effect; (ii) the provisions of Alternative II D were not in effect, provided that the Participant elected to receive any benefits curtailed due to the adoption of Alternative II D under the Plan; and/or (iii) the Participant had not deferred any compensation under the Cooper Deferral Plan or the McGraw Deferral Plan which would have been considered as compensation for benefit accrual purposes under the Cooper Salaried Plan and was not so considered due to such deferral. Notwithstanding the foregoing, the following benefits shall also be payable under the Plan: (a) The benefit payable under the Plan to any Participant who retired or separated from service prior to August 1, 1990 and who was covered under the Champion Excess Plan on July 31, 1990, shall be the amount which such Participant was eligible to receive under the terms of the Champion Excess Plan in effect as of the date of such retirement or separation from service. -4- 6 (b) The benefit payable under the Plan to any Participant who was a participant in the Champion Supplemental Plan on July 31, 1990, shall be an amount which such Participant would have received (i) under the Champion Spark Plug Company Salaried Employees' Retirement Income Plan (the "Champion Salaried Plan") if he was covered under such plan on July 31, 1990 and if all his service with Champion Spark Plug Company or a predecessor or subsidiary thereof had been covered under the Champion Salaried Plan, or (ii) under the DeVilbiss Company Salaried Employees Retirement Plan (the "DeVilbiss Salaried Plan") if all his service with the Company or a predecessor or subsidiary thereof had been covered under the DeVilbiss Salaried Plan, or (iii) under the Baron Drawn Steel Salaried Retirement Plan (the "Baron Salaried Plan") if all his service with the Company or a predecessor or subsidiary thereof had been covered under the Baron Salaried Plan; provided, however, that if such a Participant was covered under more than one of the aforementioned plans, his benefit shall be determined under the provisions of the plan which would produce the greatest benefit; and provided further, that the amount of any benefit payable to a Participant under any plan which is based on service that is used to determine a benefit hereunder shall reduce such Participant's Plan benefits; and (c) The benefit payable under the Plan to any Participant who had retired or separated from service prior to September 1, 1990 and who was covered under the Cameron Excess Plan on August 31, 1990, shall be the amount which such Participant was eligible to receive under the terms of the Cameron Excess Plan in effect as of the date of such retirement or separation from service; In addition, notwithstanding the foregoing, in the event that a Participant who retired or separated from service prior to August 1, 1990 and who was covered under the Champion Excess Plan on July 31, 1990, engages in competition with the Company, in the sole judgment of the Plans Administration Committee, all benefits otherwise payable hereunder to such Participant shall be forfeited immediately and that no further benefits under the Plan or otherwise shall be payable or due such Participant. In addition, payments made to a Participant while such Participant engaged in competition with the Company shall be refundable to the Company at its request. ARTICLE IV PAYMENT OF PLAN BENEFITS The supplemental benefits determined under Article III shall be paid to a Participant or his Beneficiary, if applicable, in the same manner and form as, and coincident with, the payment of the retirement benefits of such Participant, or Beneficiary, under the Cooper Salaried Plan, utilizing the factor or conditions applicable to a Participant's or a Beneficiary's -5- 7 benefit under the Cooper Salaried Plan. Notwithstanding the foregoing, any Plan benefit attributable to the curtailment of the Cooper Salaried Plan or, if applicable, the Champion Salaried Plan due to the adoption of the Alternative II-D, shall be paid upon the Participant's election to receive such curtailed benefit from the Plan rather than the Cooper Salaried Plan or the Champion Salaried Plan. Furthermore, any benefit determined under Article III that is attributable to the Champion Excess Plan, the Champion Supplemental Plan, or the Cameron Excess Plan shall be payable to an eligible Participant in the same manner and form, and coincident with, the benefits such Participant would have received under the Champion Excess Plan, the Champion Supplemental Plan, or the Cameron Excess Plan, as the case may be. ARTICLE V BENEFICIARIES In the event a Participant dies before his interest under the Plan has been distributed to him in full, any remaining interest, or portion thereof, shall be distributed pursuant to Article IV to his Beneficiary who shall be the person designated as his beneficiary under the Cooper Salaried Plan, or if such interest is attributable to the Champion Excess Plan, the Champion Supplemental Plan, or the Cameron Excess Plan, his Beneficiary shall be his beneficiary pursuant to the terms of the Champion Excess Plan, the Champion Supplemental Plan or the Cameron Excess Plan, as the case may be. ARTICLE VI ADMINISTRATIVE PROVISIONS 6.1 ADMINISTRATION. The Plan shall be administered by the Local Administrative -6- 8 Committee under the Cooper Salaried Plan which shall administer it in a manner consistent with the administration of the Cooper Salaried Plan, as from time to time amended, except that the Plan shall be administered as an unfunded plan not intended to meet the qualification requirements of Section 401 of the Code. 6.2 POWERS AND AUTHORITIES OF THE COMMITTEE. The Local Administrative Committee shall have full power and authority to interpret, construe and administer the Plan and its interpretations and construction hereof, and actions hereunder, including the timing, form, amount, or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. The Local Administrative Committee may delegate any of its powers, authorities, or responsibilities for the operation and administration of the Plan to any person or committee so designated in writing by it and may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist it in carrying out its duties hereunder. No member of the Local Administrative Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. Members of the Local Administrative Committee shall not participate in any action or determination regarding their own benefits, if any, payable under the Plan. 6.3 INDEMNIFICATION. In addition to whatever rights of indemnification a member of the Local Administrative Committee or the Plans Administration Committee, or any other person or persons to whom any power, authority, or responsibility is delegated pursuant to Section 6.2, may be entitled under the articles of incorporation, regulations, or by-laws of the Company, under any provision of law, or under any other agreement, the Company shall satisfy any liability actually and reasonably incurred by any such member or such other person -7- 9 or persons, including expenses, attorneys' fees, judgments, fines, and amounts paid in settlement, in connection with any threatened, pending, or completed action, suit, or proceeding which is related to the exercise or failure to exercise by such member or such other person or persons of any of the powers, authority, responsibilities, or discretion provided under the Plan. ARTICLE VII AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan at any time by action of the Plans Administration Committee; provided, however, that no such action shall adversely affect any Participant who is receiving supplemental benefits under the Plan or who has accrued a supplemental benefit under the Plan, unless an equivalent benefit is otherwise provided under another plan or program sponsored by the Company. ARTICLE VIII ADOPTION BY SUBSIDIARIES Any subsidiary of the Company which at the time is not an Employer may, with the consent of the Company, adopt the Plan and become an Employer hereunder by causing an appropriate written instrument evidencing such adoption to be executed pursuant to the authority of its Board of Directors and filed with the Company. -8- 10 ARTICLE IX MISCELLANEOUS 9.1 Non-Alienation of Retirement Rights or Benefits. No benefit under the Plan shall at any time be subject in any manner to alienation or encumbrance. If any Participant or Beneficiary shall attempt to, or shall, alienate or in any way encumber his rights or benefits under the Plan, or any part thereof, or if by reason of his bankruptcy or other event happening at any time any such benefits would otherwise be received by anyone else or would not be enjoyed by him, his interest in all such benefits shall automatically terminate and the same shall be held or applied to or for the benefit of such person, his spouse, children, or other dependents as the Local Administrative Committee may select. 9.2 PAYMENT OF BENEFITS TO OTHERS. If any Participant or Beneficiary to whom a retirement benefit is payable is unable to care for his affairs because of illness or accident, any payment due (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may be paid to the spouse, parent, brother, or sister, or any other individual deemed by the Local Administrative Committee to be maintaining or responsible for the maintenance of such person. Any payment made in accordance with the provisions of this Section 9.2 shall be a complete discharge of any liability of the Plan with respect to the benefit so paid. 9.3 PLAN NON-CONTRACTUAL. Nothing contained herein shall be construed as a commitment or agreement on the part of any person employed by an Employer to continue his employment with an Employer, and nothing herein contained shall be construed as a commitment on the part of an Employer to continue the employment or the annual rate of compensation of any such person for any period, and all Participants shall remain subject to -9- 11 discharge to the same extent as if the Plan had never been established. 9.4 FUNDING. In order to provide a source of payment for its obligations under the Plan, the Company may establish a trust fund. Subject to the provisions of the trust agreement governing such trust fund, the obligation of an Employer under the Plan to provide a Participant or a Beneficiary with a benefit constitutes the unsecured promise of such Employer to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Employer. 9.5 CONTROLLING STATUS. No Participant shall be eligible for a supplemental retirement benefit under the Plan unless such Participant is a Participant on the date of his retirement, death, or other termination of employment. 9.6 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any person, firm or corporation any legal or equitable right as against an Employer, its officers, employees, or directors, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 9.7 SEVERABILITY. The invalidity or unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 9.8 GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. -10- 12 * * * EXECUTED at Houston, TX, this 27th day of February, 1992. COOPER INDUSTRIES, INC. By /s/Lawrence H. Polsky --------------------------------- Title: -11- 13 FIRST AMENDMENT TO THE COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN WHEREAS, Cooper Industries, Inc. ("Cooper") maintains the Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (the "Plan"), which is a supplemental retirement plan for the benefit of a select group of management employees employed by Cooper; and WHEREAS, Cooper and Belden Wire & Cable Company ("BW&C") entered into a certain Asset Transfer Agreement on July 26, 1993, under which certain assets of Cooper were to be transferred to BW&C and in conjunction therewith certain liabilities under the Plan for employees of BW&C and certain active and former employees of Cooper were to be transferred and spun-off to by a separate plan maintained by BW&C known as the Belden Wire & Cable Company Supplemental Excess Defined Benefit Plan as of August 1, 1993; NOW, THEREFORE, the Plan is hereby amended, as of August 1, 1993, in the respects hereinafter set forth to reflect such spin-off. 1. Section 1.1(j) of the Plan is hereby amended by the addition of the following sentence at the end thereof to provide as follows: As of August 1, 1993, such term shall not include Belden Wire & Cable Company. 2. Article II of the Plan is hereby amended by the addition of the following sentence at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, as of August 1, 1993, the participation of any employee of the Belden Wire & Cable Company and any former employee of the Belden Electrical Wire Products Division of the Company who was last employed at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky 14 facility, or a related sales office shall cease and any such employee or former employee shall no longer be a Participant in the Plan. 3. Article III of the Plan is hereby amended by the addition of the following paragraph at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, any supplemental benefit credited or payable, as of August 1, 1993, to a Participant who is an employee of Belden Wire & Cable Company or a former employee of the Belden Electrical Wire Products Division of the Company who was last employed at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office shall not be credited under the Plan but instead shall be credited under the Belden Wire & Cable Company Supplemental Excess Defined Benefits Plan. 4. Article IV of the Plan is hereby amended by the addition of the following paragraph at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, any supplemental benefit credited or payable, as of August 1, 1993, to a Participant who is an employee of Belden Wire & Cable Company or a former employee of the Belden Electrical Wire Products Division of the Company who was last employed at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office shall not be payable from the Plan but instead shall be payable from the Belden Wire & Cable Company Supplemental Excess Defined Benefits Plan. 5. Article VIII of the Plan is hereby amended by the addition of the following sentence at the end thereof to provide as follows: As of August 1, 1993, Belden Wire & Cable Company shall no longer be a participating employer in the Plan. 6. Article IX of the Plan is hereby amended by the addition of the following Section 9.9 to provide as follows: 9.9 Discontinuance of Coverage and Transfer of Liabilities with Respect to Belden Employees. As of August 1, 1993, coverage under the Plan is closed to any individual employed by Belden Wire & Cable Company at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky -2- 15 facility, the Tompkinsville, Kentucky facility or a related sales office (a "Belden Employee") and thereafter no Belden Employee shall become covered by the Plan. Moreover, as of August 1, 1993, liabilities attributable to Belden Employees and any individual who terminated employment prior to said date from the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office of the Company or Belden Wire & Cable Company shall be transferred to and assumed by Belden Wire & Cable Company under the Belden Wire & Cable Supplemental Excess Defined Benefit Plan to be held, administered and governed thereunder. Executed at Houston, Texas this 8th day of September, 1993. COOPER INDUSTRIES, INC. By: /s/ Alan E. Riedel -------------------------- Title: -3- 16 SECOND AMENDMENT TO THE COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN (AUGUST 1, 1990 RESTATEMENT) WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") maintains the Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (hereinafter referred to as the "Plan") for the benefit of a select group of management employees of the Company and its subsidiaries; and WHEREAS, the Plan was amended and restated as of August 1, 1990; and WHEREAS, the Company desires to amend the Plan to establish certain minimum benefits as of December 31, 1993; NOW, THEREFORE, Article II of the Plan is hereby amended by the addition thereto of the following provision. Notwithstanding the foregoing, as of December 31, 1993 the Participants listed below shall be one hundred percent (100%) vested in the applicable lump sum amount listed below. Moreover, said Participants and all other Participants shall be vested in their benefits under the plan (except for the lump sum amounts listed below) upon separating from service provided they are vested in benefits under the Cooper Salaried Plan. 17 NAME SOCIAL MINIMUM BENEFIT SECURITY NUMBER (LUMP SUM) W.D. BREWER $ 32,000.00 J. BUCKLEY 28,800.00 W. CALLAHAN 61,800.00 J.0. CAMPBELL 8,600.00 T. CAMPBELL 50,600.00 R. CIZIK 3,225,000.00 J. COPPOLA 60,900.00 D.D. CROSS 177,500.00 J. GETHIN 8,000.00 J. GODWIN 28,100.00 K. HARDCASTLE 6,400.00 A. HILL 8,300.00 R. JACKSON 19,300.00 H. LABRUN 16,000.00 R. MATZ 4,200.00 D. MCWILLIAMS 50,900.00 J. MONTER 1,900.00 C. PLESNICHER 31,500.00 L. POLSKY 3,100.00 A.E. RIEDEL 1,355,000.00 J. RILEY 271,900.00 D. SCHUMACHER 1,400.00 M. SEBASTIAN 239,800.00 N. SHAHAN 64,000.00 D. SHELEY 6,800.00 K. STEVENSON 71,100.00 N. TESHOIAN 22,700.00 D. THOMSON 80,500.00 W. TUCK 30,300.00 T. WALL 2,000.00 D. WHITE, JR. 22,600.00 Executed at Houston, Texas this 20th day of December, 1993. COOPER INDUSTRIES, INC. By: /s/Carl J. Plesnicher, Jr. ------------------------------- Title: 18 THIRD AMENDMENT TO COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN (AUGUST 1, 1990 RESTATEMENT) WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the"Company") maintains the Cooper Industries, Inc Supplemental Excess Defined Benefit Plan (hereinafter referred to as the "Plan") for the benefit of a select group of management employees of the Company and its subsidiaries; and WHEREAS, the Plan was amended and restated as of August 1, 1990; and WHEREAS, the Plan was amended subsequently on two occasions; and WHEREAS, the Company desires to amend the Plan again; NOW, THEREFORE, the Plan is hereby amended, effective as or January 1, 1994, in the manner hereinafter set forth: 1. Section 1.1(j) of the Plan is hereby amended by the addition of the sentence at the end thereof to provide as follows: As of January 1, 1994, such term shall not include Gardner Denver Machinery Inc. 2. Article II of the Plan is hereby amended by the addition of the sentence at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, as of January 1, 1994, the participation of any employee of Gardner Denver Machinery Inc. and any former employee of the Gardner Denver Division of the Company who was last employed at the Quincy, Illinois facility, the LaGrange, Missouri facility, the Compton, California facility, or a related sales office shall cease and any such employee or former employee shall not longer be a Participant in the Plan. 3. Article III of the Plan is hereby amended by the addition of the paragraph at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, any supplemental benefit credited or payable, as of January 1, 1994, to a 19 Participant who is an employee of Gardner Denver Machinery Inc. or a former employee of the Gardner Denver Division of the Company who was last employed at the Quincy, Illinois facility, the LaGrange, Missouri facility, the Compton, California facility or a related sales office shall not be so credited or payable under the Plan but rather shall be credited and payable under the Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan. 4. Article IV of the Plan is hereby amended to provide as follows: ARTICLE IV PAYMENT OF PLAN BENEFITS Except as other provided herein, the supplemental benefits determined under Article III shall be paid to a Participant or his Beneficiary, if applicable, in the same manner and form as, and coincident with, the payment of the retirement benefits of such Participant, or Beneficiary, under the Cooper Salaried Plan, utilizing the factors or conditions applicable to a Participant's benefit or a Beneficiary's benefit, as the case may be, under the Cooper Salaried Plan; provided, however, that benefits payable hereunder to any Participant whose accrued benefit under the Cooper Salaried Plan is subject to the tax on excess distributions pursuant to Section 4980A of the Code shall be paid in any manner and form as benefits under the Cooper Salaried Plan are payable as of the retirement date of such Participant with no requirement that benefits payable hereunder be distributed in the same manner, form, or time as the benefits of such Participant are payable under the Cooper Salaried Plan. Notwithstanding the foregoing, any benefit determined under Article III that is attributable to the Champion Excess Plan, the Champion Supplemental Plan, or the Cameron Excess Plan shall be payable to an eligible Participant in the same manner and form, and coincident with, the benefits such Participant would have received under the Champion Excess Plan, the Champion Supplemental Plan, or the Cameron Excess Plan, as the case may be. Notwithstanding any other provision of the Plan to the contrary, any supplemental benefit credited or payable: (i) as of August 1, 1993, to a Participant who is an employee of Belden Wire & Cable Company or a former employee of the Belden Electrical Wire Products Division Of the Company who was last employed at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office shall not be payable from the Plan but instead shall be payable from the Belden Wire & Cable Company Supplemental Express Defined Benefits Plan and (ii) as of January 1, 1994, to a Participant who is an employee of Gardner Denver Machinery Inc. or a former employee of the Gardner Denver Division of the Company who was last employed at the Quincy, Illinois facility, the LaGrange, Missouri facility, the Compton, California facility or a related sales office shall not be payable from the Plan but instead shall be payable from the Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan. -2- 20 5. Article VIII of the Plan is hereby amended by the addition of the sentence at end thereof to provide as follows: As of January 1, 1994, Gardner Denver Machinery Inc. shall no longer be a participating employer in the Plan. 6. Article IX of the Plan is hereby amended by the addition of the Section 9.10 to provide as follows: 9. 10 Discontinuance of Coverage and Transfer of Liabilities with Respect to Gardner Denver Employees. As of January 1, 1994, coverage under the Plan is closed to any individual employed by Gardner Denver Machinery Inc. at the Quincy, Illinois facility, the LaGrange, Missouri facility, the Compton, California facility or a related sales office (a "Gardner Denver Employee") and thereafter no Gardner Denver Employee shall become covered by the Plan. Moreover, as of January 1, 1994, liabilities attributable to Gardner Denver Employees and any individual who terminated employment prior to said date from the Quincy, Illinois facility, the LaGrange, Missouri facility, the Compton, California facility or a related sales office of the Company or Gardner Denver Machinery Inc. shall be transferred to and assumed by Gardner Denver Machinery Inc. under the Gardner Denver Machinery Inc. Supplement Excess Defined Benefit Plan to be held, administered and governed thereunder. Executed at Houston, Texas this 28th day of February, 1994. COOPER INDUSTRIES, INC. By: /s/Carl J. Plesnicher, Jr. --------------------------- Title: -3- 21 FOURTH AMENDMENT TO COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN (AUGUST 1, 1990 RESTATEMENT) WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") maintains the Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (hereinafter referred to as the "Plan") which is a supplemental retirement plan for the benefit of a select group of management employees of the Company and its subsidiaries; and WHEREAS, the Plan was amended and restated as of August 1, 1990; and WHEREAS, the Plan was amended subsequently on three occasions; and WHEREAS, the Company desires to amend the Plan again to provide for the cessation of active participation in the Plan by employees of Cameron Forged Products Company as of May 26, 1994; NOW, THEREFORE, the Plan is hereby amended, effective as of May 26, 1994, in the respects hereinafter set forth. 1. Section 1.1(j) of the Plan is hereby amended by the addition of a new sentence at the end thereof to provide as follows: As of May 26, 1994, such term shall not include Cameron Forged Products Company. 2. Article II of the Plan is hereby amended by the addition of two sentences at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, as of May 26, 1994, the active participation of any employee of Cameron Forged Products Company shall cease and thereafter no employee of Cameron Forged Products Company shall become covered by the Plan. 3. Article IV of the Plan is hereby amended by the addition of the following sentences at the end thereof to provide as follows: Notwithstanding any provision of the Plan to the contrary, in no event shall any benefit of a Participant who is employed by Cameron Forged Products Company, or a successor thereof, be distributed to such Participant prior to 22 termination of employment with Cameron Forged Products Company, or successor thereof, by such Participant. 4. Article VIII of the Plan is hereby amended by the addition of the sentence at the end thereof to provide as follows: As of May 26, 1994, the Cameron Forged Products Company shall no longer be a participating employer in the Plan. Executed at Houston, Texas this 25th day of May, 1994. COOPER INDUSTRIES, INC. By: /s/Carl S. Plesnicher, Jr. ------------------------------ Title: Senior Vice President Human Resources -2- 23 FIFTH AMENDMENT TO COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED BENEFIT PLAN (AUGUST 1, 1990 RESTATEMENT) WHEREAS, Cooper Industries, Inc. (hereinafter referred to as "Cooper") maintains the Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (hereinafter referred to as the "Plan") which is a supplemental retirement plan for the benefit of a select group of management employees of Cooper and its subsidiaries; and WHEREAS, Cooper acquired the stock of Moog Automotive, Inc. on October 1, 1992, and in conjunction therewith assumed the Moog Automotive, Inc. Executive Supplemental Pension Plan (hereinafter referred to as the "Moog SERP"); and WHEREAS, Cooper desires to amend the Plan to reflect the merger of the Moog SERP into the Plan as of January 1, 1994; and WHEREAS, Cooper and Cooper Cameron Corporation (hereinafter referred to as "Cooper Cameron") have determined to transfer and spin-off as of January 1, 1995, certain liabilities under the Plan for employees of Cooper Cameron who were former employees of Cooper as well as liabilities for certain former employees of Cooper to a separate plan maintained by Cooper Cameron known as the Cooper Cameron Corporation Supplemental Excess Defined Benefit Plan; NOW, THEREFORE, effective as of January 1, 1994, the Plan is hereby amended in the respects hereinafter set forth to reflect such spin-off. 1. Section 1.1(j) of the Plan is hereby amended to provide as follows: (j) Employer. The term "Employer" shall mean the Company, McGraw- 24 Edison Company, Champion Spark Plug Company, Cameron Iron Works, Inc., and Moog Automotive, Inc. as well as any subsidiary of the Company which may adopt the Plan in accordance with the provisions of Article VIII. Notwithstanding the foregoing, effective as of the applicable date hereinafter set forth, the following subsidiaries shall not be included as an Employer under the Plan. Effective Date Subsidiary -------------- ---------- [S] [C] August 1, 1993 Belden Wire & Cable Company January 1, 1994 Gardner Denver Machinery Inc. May 26, 1994 Cameron Forged Products Company January 1, 1995 Cooper Cameron Corporation 2. Section 1.1 of the Plan is hereby amended by the addition of a new paragraph (p) at the end thereto to provide as follows: (p) Moog SERP. The term "Moog SERP" shall mean the Moog Automotive, Inc. Executive Supplemental Plan. 3. Article II of the Plan is hereby amended to provide as follows: 2.1 Eligibility of Active Employees. Any select management and highly compensated employee of an Employer: (i) whose retirement benefits under the Cooper Salaried Plan are limited by the provisions of Section 415 or Section 401(a)(17) of the Code; or (ii) who participates in the Cooper Salaried Plan as well as in the Cooper Deferral Plan or the McGraw Deferral Plan; shall become a Participant in the Plan automatically upon such limitation or participation. 2.2 Participation of Certain Employees. Notwithstanding the provisions of Section 2.1, but subject to the provisions of Section 2.3, individuals who were participants in a plan set forth below as of the applicable effective date shall become a Participant in the Plan as of the applicable participation date set forth below: Plan Participation Plan Effective Date Date ---- -------------- ----------------- Champion Excess Plan July 31, 1990 August 1, 1990 Cameron Excess Plan August 31, 1990 September 1, 1990 Moog SERP December 31, 1993 January 1, 1994 -2- 25 2.3 Termination of Participation. Notwithstanding the provisions of Sections 2.1 and 2.2 effective as of the applicable date hereinafter set forth, Participants last employed at the following facilities shall cease to be covered by the Plan. Employer Facility Effective Date - -------- -------- -------------- 1. Belden Wire & Cable Richmond, Indiana August 1, 1993 Company Clinton, Arkansas Essex Junction, Vermont Franklin, North Carolina Monticello, Kentucky Tompkinsville, Kentucky Related Sales Offices 2. Gardner Denver Quincy, Illinois January 1, 1994 Machinery Inc. LaGrange, Missouri Compton, California Related Sales offices 3. Cooper Cameron Houston, Texas January 1, 1995 Corporation Berwick, Louisiana Katy, Texas Liberty, Texas Missouri City, Texas Oklahoma City, Oklahoma Patterson, Louisiana Richmond, Texas Ville Platte, Louisiana Related Sales and Services Facilities 4. Cooper Energy Service Mount Vernon, Ohio January 1, 1995 Operations Grove City, Pennsylvania Springfield, Ohio Oklahoma City, Oklahoma Wheat Ridge, Colorado Alameda, California Tulsa, Oklahoma Related Sales Offices -3- 26 5. Cooper Turbocompressor Buffalo, New York January 1, 1995 Sales Offices 6. Wheeling Machine Pine Bluff, Arkansas January 1, 1995 Products Company 4. Article III of the Plan is hereby amended to provide as follows: ARTICLE III AMOUNT OF PLAN BENEFITS 3.1 Benefit Payable to Active Participants. Except as set forth below, the supplemental benefit payable to an eligible Participant under the Plan who is credited with service for benefit accrual purposes under the Cooper Salaried Plan, shall be an amount which when added to the retirement benefit payable to such Participant under the Cooper Salaried Plan equals the retirement benefit which would have been payable under the Cooper Salaried Plan to the Participant, if (i) the limitations of Sections 401(a)(17) and 415 of the Code were not in effect; and/or (ii) the Participant had not deferred any compensation under the Cooper Deferral Plan or the McGraw Deferral Plan which would have been considered as compensation for benefit accrual purposes under the Cooper Salaried Plan and was not so considered. Notwithstanding the foregoing, in no event shall the supplemental benefit of a Participant who formerly participated in the Moog SERP and who is listed below (a "Former Moog SERP Participant") be less than the amount hereinafter set forth, reduced, however, by 3/12ths of one percent for each month that commencement of benefits precedes attainment of age 60. Former Moog SERP Monthly Single Life Annuity Payable Participant at or after Age 60 ----------- ----------------------------------- L. W. McCurdy $ 2,213.47 J. A. Passante $ 628.67 J. F. Collins $ 698.34 T. M. Smith $ 297.17 J. C. Corey $ 688.81 G. Holler $ 436.97 K. G. Mullen $ 1,020.42 3.2 Benefit Payable to Participants Formerly Covered By Another Nonqualified Plan. The supplemental benefit payable to a Participant who was not credited with service for benefit accrual purposes under the Cooper Salaried Plan -4- 27 shall be an amount determined as follows: (a) The benefit payable under the Plan to any Participant who retired or separated from service prior to August 1, 1990, and who was covered under the Champion Excess Plan on July 31, 1990, shall be the amount which such Participant was eligible to receive under the terms of the Champion Excess Plan in effect as of the date of such retirement or separation from service. (b) The benefit payable under the Plan to any Participant who was a Participant in the Champion Supplemental Plan on July 31, 1990, shall be an amount which such Participant would have received (i) under the Champion Spark Plug Company Salaried Employees' Retirement Income Plan (the "Champion Salaried Plan") if he had been covered under such plan on July 31, 1990 and if all his service with Champion Spark Plug Company or a predecessor or subsidiary thereof had been covered under the Champion Salaried Plan, or (ii) under the DeVilbiss Company Salaried Employees Retirement Plan (the "DeVilbiss Salaried Plan") if all his service with the Company or a predecessor or subsidiary thereof had been covered under the DeVilbiss Salaried Plan, or (iii) under the Baron Drawn Steel Salaried Retirement Plan (the "Baron Salaried Plan") if all his service with the Company or a predecessor or subsidiary thereof had been covered under the Baron Salaried Plan; provided, however, that if such a Participant was covered under more than one of the aforementioned plans, his benefit shall be determined under the provisions of the plan which would produce the greatest benefit; and provided further, that the amount of any benefit payable to a Participant under any plan which is based on service that is used to determine a benefit hereunder shall reduce such Participant's Plan benefits. (c) The benefit payable under the Plan to any Participant who had retired or separated from service prior to September 1, 1990 and who was covered under the Cameron Excess Plan on August 31, 1990, shall be the amount which such Participant was eligible to receive under the terms of the Cameron Excess Plan in effect as of the date of such retirement or separation from service. (d) The benefit payable under the Plan to any Participant who retired or separated from service prior to October 1, 1992, and who was covered under the Moog SERP on September 30, 1992, shall be the amount which such Participant was eligible to receive under the terms of the Moog SERP in effect as of the date of such retirement or separation from service. -5- 28 3.3 Cessation of Benefits to Certain Participants. Notwithstanding the foregoing, benefits otherwise payable under the Plan to certain Participants listed below shall cease as of the applicable effective date (a) In the event that a Participant who retired or separated from service prior to August 1, 1990 and who was covered under the Champion Excess Plan on July 31, 1990, engages in competition with the Company, in the sole judgment of the Plans Administration Committee, all benefits otherwise payable hereunder to such Participant shall be forfeited immediately and that no further benefits under the Plan or otherwise shall be payable or due such Participant. In addition, payments made to a Participant while such Participant engaged in competition with the Company shall be refundable to the Company at its request. (b) Any supplemental benefit credited or payable as of January 1, 1995, to a Participant who is an employee of Cooper Cameron Corporation or a former employee of the Company who was last employed by the Cooper Tool Oil Division, the Cooper Energy Services Operations, the Cooper Turbocompressor Division, or Wheeling Machine Products Company and who was not employed by the Company on January 1, 1995, shall not be so credited or payable under the Plan but rather shall be credited and payable under the Cooper Cameron Corporation Supplemental Excess Defined Benefit Plan. 5. Article IV of the Plan is hereby amended to provide as follows: ARTICLE IV PAYMENT OF PLAN BENEFITS Except as specifically provided hereinafter, the supplemental benefits determined under Article III shall be paid to a Participant or his Beneficiary, if applicable, in the same manner and form as, and coincident with, the payment of the retirement benefits of such Participant, or Beneficiary, under the Cooper Salaried Plan, utilizing the factor or conditions applicable to the benefit of such Participant or Beneficiary under the Cooper Salaried Plan. Notwithstanding the foregoing: (i) Any supplemental benefit that is determined pursuant to the provisions of Section 3.2 and that is being paid thereunder to a Participant who is, or was, not credited with benefit accrual service under the Cooper Salaried Plan and who is, or was, eligible to such Plan benefit due to the merger of the Champion Excess Plan, the Champion Supplemental Plan, the Cameron -6- 29 Excess Plan, or the Moog Automotive, Inc. Executive Supplemental Plan (a "Merged Plan") into the Plan, shall be payable to such Participant in the same manner, form, time, and duration applicable to the benefits of such Participant under the Merged Plan formerly covering such Participant. (ii) Any supplemental benefit that is payable to a Participant who is a Former Moog SERP Participant pursuant to the provisions of Section 3.1 shall be payable to such Participant either in a single sum or in the same manner, form, time and duration applicable to the benefits of such Participant under the Moog SERP as of December 31, 1993. (iii) In no event shall any benefit of a Participant who is employed by Cameron Forged Products Company, or a successor thereof, be distributed to such Participant prior to his termination of employment with Cameron Forged Products Company, or successor thereof. (iv) Any supplemental benefit credited or payable: (a) as of August 1, 1993, to a Participant who is an employee of Belden Wire & Cable Company or a former employee of the Belden Electrical Wire Products Division of the Company who was last employed at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office shall not be payable from the Plan but instead shall be payable from the Belden Wire & Cable Company Supplemental Excess Defined Benefits Plan; (b) as of January 1, 1994, to a Participant who is an employee of Gardner Denver Machinery Inc. or a former employee of the Gardner Denver Division of the Company who was last employed at the Quincy, Illinois facility, the LaGrange, Missouri facility, the Compton, California facility or a related sales office shall not be payable from the Plan but instead shall be payable from the Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan; and (c) as of January 1, 1995, to a Participant who is an employee of Cooper Cameron Corporation or a former employee who was last employed by the Cooper Oil Tool Division, the Cooper Energy Services Operations, the Cooper Turbocompressor Division, or Wheeling Machine Products Company, shall not be payable from the Plan but instead shall be payable from the Cooper Cameron Corporation Supplemental Excess Defined Benefit Plan. -7- 30 6. Article VIII of the Plan is hereby amended provide as follows: ARTICLE VIII ADOPTION BY SUBSIDIARIES Any subsidiary of the Company which at the time is not an Employer may, with the consent of the Company, adopt the Plan and become an Employer hereunder. Notwithstanding the foregoing, effective as of the effective date hereinafter set forth, the following subsidiaries shall not be included as an Employer under the Plan. Effective Date Subsidiary -------------- ---------- August 1, 1993 Belden Wire & Cable Company January 1, 1994 Gardner Denver Machinery Inc. May 26, 1994 Cameron Forged Products Company January 1, 1995 Cooper Cameron Corporation 7. Article IX of the Plan is hereby amended by the addition of Section 9.11 at the end thereof to provide as follows: 9.11 Discontinuance of Coverage and Transfer of Liabilities with Respect to Cooper Cameron Employees. As of January 1, 1995, coverage under the Plan is closed to any individual employed by Cooper Cameron Corporation (a "Cooper Cameron Employee") and thereafter no Cooper Cameron Employee shall become covered by the Plan. Moreover, as of January 1, 1995, liabilities under any Plan attributable to any individual employed by Cooper Cameron Employee or any individual who terminated employment prior to said date from the Houston, Texas facility, the Berwick, Louisiana plant, the Katy, Texas plant, the Liberty, Texas plant, the Missouri City, Texas plant, the Oklahoma City, Oklahoma plant, the Patterson, Louisiana plant, the Richmond, Texas foundry, the Ville Platte, Louisiana plant, and the sales and service locations of the former Cooper Oil Tool Division; the Mount Vernon, Ohio plant, the Cooper-Bessemer Reciprocating Products Division facility in Grove City, Pennsylvania, the Ajax-Superior facility in Springfield, Ohio, the Compressor Packaging Plant in Oklahoma City, Oklahoma, the Branch Offices in Oklahoma City, Oklahoma and Wheat Ridge, Colorado, the Enterprise Engine Services facility in Alameda, California, the Cooper Bessemer Rotating Products Division plants in Mount Vernon, Ohio and Tulsa, Oklahoma, and the sales offices of the former Cooper Energy Services Operations; the Buffalo, New York facility and sales offices of the former Cooper Turbocompressor Division; and the Pine Bluff, Arkansas plant of the former Wheeling Machine Products Company, shall be transferred to the -8- 31 Cooper Cameron Corporation Supplemental Excess Defined Benefit Plan to be held, administered and governed thereunder. Executed at Houston, Texas this 28th day of February, 1995. COOPER INDUSTRIES, INC. By: /s/Carl J. Plesnicher, Jr. -------------------------- Title: Senior Vice President Human Resources -9- EX-10.6 7 SUPPLEMENTAL EXCESS DEFINED CONTRIBUTION PLAN 1 Exhibit 10.6 COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED CONTRIBUTION PLAN 2 COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED CONTRIBUTION PLAN WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") desires to establish a supplemental retirement plan for the benefit of a select group of management employees employed by the Company or a subsidiary thereof whose benefits under the Cooper Industries, Inc. Employees' Savings Plan are limited by the provisions of Section 415 of the Internal Revenue Code of 1986 (hereinafter referred to as the "Code") or are reduced otherwise due to participation in a deferred compensation program, or who are subject to a tax on excess distributions under Section 4981 of the Code, as amended by Section 1133 of the Tax Reform Act of 1986; NOW, THEREFORE, effective as of January 1, 1987, the Company hereby establishes the Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (hereinafter referred to as the "Plan") to provide benefits not otherwise provided due to such limitation and excess distribution tax as hereinafter set forth. ARTICLE I DEFINITIONS 1.1 DEFINITIONS. Except as otherwise required by the context, the terms used in the Plan shall have the meaning hereinafter set forth. (a) BENEFICIARY. The term "BENEFICIARY" shall mean the person who, in accordance with the provisions of Article VI, shall be entitled to receive distribution hereunder in the event a Participant dies before his interest under the Plan has been distributed to him in full. (b) CODE. The term "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code shall include such section and any 3 comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (c) COMPANY. The term "COMPANY" shall mean Cooper Industries, Inc., an Ohio corporation, its corporate successors, and the surviving corporation resulting from any merger of Cooper Industries, Inc. with any other corporation or corporations. (d) COMPENSATION. The term "COMPENSATION" shall mean the total wages and salary, including overtime payments, commissions, severance pay, and other monetary remuneration, if any, which is included in a Participant's gross pay with respect to a month for services rendered to an Employer, but excluding any relocation expense reimbursements as well as foreign service premiums and allowances, plus Basic Contributions made on behalf of such Participant under the Cooper Savings Plan and Supplemental Basic Contributions credited to such Participant under Section 3.2 of the Plan. (e) COOPER DEFERRAL PLAN. The term "COOPER DEFERRAL PLAN" shall mean the Cooper Industries, Inc. Management Incentive Compensation Deferral Plan, as amended from time to time. (f) COOPER SALARIED PLAN. The term "COOPER SALARIED PLAN" shall mean the Salaried Employees' Retirement Plan of Cooper Industries, Inc., as amended from time to time. (g) COOPER SAVINGS PLAN. The term "COOPER SAVINGS PLAN" shall mean the Cooper Industries, Inc. Employees' Savings Plan, as amended from time to time. (h) EMPLOYER. The term "EMPLOYER" shall mean the Company, and/or McGraw-Edison Company, a wholly-owned subsidiary of the Company, as well as any subsidiary of the Company which may adopt the Plan in accordance with the provisions of Article IX. (i) LOCAL ADMINISTRATIVE COMMITTEE. The term "LOCAL ADMINISTRATIVE COMMITTEE" shall mean the administrative committee that administers the Plan as set forth in Article VII. (j) MCGRAW DEFERRAL PLAN. The term "MCGRAW DEFERRAL PLAN" shall mean the McGraw-Edison Executive Deferred Compensation Plan or the McGraw Edison Supplemental Executive Benefits Plan. (k) PARTICIPANT. The term "PARTICIPANT" shall mean any employee of an Employer who participates in the Plan pursuant to Article II of the Plan. (l) PLAN. The term "PLAN" shall mean the Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan as set forth herein. -2- 4 (m) PLANS ADMINISTRATION COMMITTEE. The term "PLANS ADMINISTRATION COMMITTEE" shall mean the Cooper Industries Plans Administration Committee established by the Board of Directors of the Company to oversee the administration of the Company pension benefit plans. (n) SEPARATE ACCOUNT. The term "SEPARATE ACCOUNT" shall mean each of the accounts maintained in the name of a Participant pursuant to Section 4.1. (o) SUPPLEMENTAL BASIC ACCOUNT. The term "SUPPLEMENTAL BASIC ACCOUNT" shall mean the Separate Account to which Supplemental Basic Contributions are credited in accordance with the provisions of Sections 3.2 and 4.1. (p) SUPPLEMENTAL BASIC CONTRIBUTIONS. The term "SUPPLEMENTAL BASIC CONTRIBUTIONS" shall mean the contributions credited to a Participant under the Plan pursuant to Section 3.2. (q) SUPPLEMENTAL MATCHING ACCOUNT. The term "SUPPLEMENTAL MATCHING ACCOUNT" shall mean the Separate Account to which Supplemental Matching Contributions are credited in accordance with the provisions of Sections 3.1 and 4.1. (r) SUPPLEMENTAL MATCHING CONTRIBUTIONS. The term "SUPPLEMENTAL MATCHING CONTRIBUTIONS" shall mean the Employer contributions credited to a Participant under the Plan pursuant to Section 3.1. (s) SUPPLEMENTAL TAX ACCOUNT. The term "SUPPLEMENTAL TAX ACCOUNT" shall mean the Separate Account to which an amount equal to any excess distribution tax is credited in accordance with the provisions of Sections 3.3 and 4.1. (t) SUPPLEMENTAL TAX CONTRIBUTIONS. The term "SUPPLEMENTAL TAX CONTRIBUTIONS" shall mean the contributions credited to a Participant under the Plan pursuant to Section 3.3. 1.2 CONSTRUCTION. Where necessary or appropriate to the meaning hereof, the singular shall be deemed to include the plural, the plural to include the singular, the masculine to include the feminine, and the feminine to include the masculine. ARTICLE II ELIGIBILITY FOR PLAN PARTICIPATION Any select management and highly compensated employee of an Employer (i) whose retirement benefits are limited under the Cooper Savings Plan by the provisions of Section 415 of -3- 5 the Code, (ii) who participates in the Cooper Deferral Plan or the McGraw Deferral Plan, as well as the Cooper Savings Plan, or (iii) who is subject to an excess distributions tax with respect to any benefit payable from the Cooper Salaried Plan and/or the Cooper Savings Plan shall become a Participant in the Plan automatically upon such limitation, participation, or tax imposition. ARTICLE III SUPPLEMENTAL CONTRIBUTIONS 3.1 SUPPLEMENTAL MATCHING CONTRIBUTIONS. As of the last day of each month, the Supplemental Matching Account of each Participant shall be credited with Supplemental Matching Contributions equal to the sum of: (a) the amount with respect to which Matching Contributions under the Cooper Savings Plan are limited for such month due to the provisions of Section 415 of the Code; and (b) the amount that would have been contributed by an Employer under the Cooper Savings Plan for such month if the Participant had not participated in the Cooper Deferral Plan or the McGraw Deferral Plan and had made contributions under the Cooper Savings Plan with respect to the compensation deferred under the Cooper Deferral Plan or McGraw Deferral Plan in accordance with his election in effect for such month under the Cooper Savings Plan and the provisions of the Cooper Savings Plan in effect for such month without regard to any limitations imposed by Section 415 of the Code. 3.2 SUPPLEMENTAL BASIC CONTRIBUTIONS. As of the last day of each month, the Supplemental Basic Accounts (pre-tax and post-tax) of each Participant shall be credited with Supplemental Basic Contributions (pre-tax and post-tax, respectively) equal to the Basic Contributions that would have been contributed to the Cooper Savings Plan on his behalf for such month except for the provisions of Section 415 of the Code and that were deferred or deducted -4- 6 from his Compensation in accordance with a duly executed and filed Compensation reduction or deduction authorization form; provided, however, that in no event shall Supplemental Basic Contributions when added to the amount of Basic Contributions of such Participant for such month under the Cooper Savings Plan exceed six percent of such Participant's Compensation. 3.3 SUPPLEMENTAL TAX CONTRIBUTIONS. In the event a Participant receives an annuity or single sum distribution from the Cooper Salaried Plan and/or the Cooper Savings Plan which is subject to an excess distributions tax under Section 4981 of the Code, as amended by Section 1133 of the Tax Reform Act of 1986, the Supplemental Tax Account of such Participant shall be credited with a Supplemental Tax Contribution equal to the pro-rata amount of such tax, attributable to any such distribution, upon presentation by the Participant to the Committee of written documentation evidencing payment of such tax. ARTICLE IV SEPARATE ACCOUNTS 4.1 TYPES OF SEPARATE ACCOUNTS. Each Participant shall have established in his name Separate Accounts which shall reflect the type of contributions as well as interest thereon credited to him pursuant to Article III and Section 4.2. Such Separate Accounts shall be as follows: (a) a Supplemental Matching Account which shall reflect the Supplemental Matching Contributions credited to a Participant pursuant to Section 3.1 and any interest credited thereon pursuant to Section 4.2; (b) a Supplemental Basic Account (pre-tax) which shall reflect the pre-tax Supplemental Basic Contributions credited to a Participant pursuant to Section 3.2 and any interest credited thereon pursuant to Section 4.2; (c) a Supplemental Basic Account (post-tax) which shall reflect the post-tax Supplemental Basic Contributions credited to a Participant pursuant to Section 3.2 and any interest credited thereon pursuant to Section 4.2; and -5- 7 (d) a Supplemental Tax Account which shall reflect the amount of any Supplemental Tax Contributions credited to a Participant pursuant to Section 3.3 and any interest credited thereon pursuant to Section 4.2. 4.2 INTEREST. Each month, the Separate Account of a Participant shall be deemed to earn, and, as of the last day of such month, shall be credited with, a rate of interest equal to the average rate earned in the Fixed Income Fund of the Cooper Savings Plan during such month. ARTICLE V DISTRIBUTION 5.1 ELIGIBILITY FOR DISTRIBUTION. The entire balance credited to a Participant's Supplemental Matching and Supplemental Basic Accounts shall be distributed to such Participant or his Beneficiary as soon as practicable after termination of such Participant's employment with the Employers and related corporations. Any balance credited to a Participant's Supplemental Tax Account shall be distributed to such Participant or his Beneficiary as soon as practicable after presentation of documentation evidencing payment of any excess distributions tax as set forth in Section 3.3. 5.2 METHOD OF DISTRIBUTION. The benefits payable under the Plan from a Participant's Supplemental Matching and Supplemental Basic Accounts shall be paid to the same person in the same manner and form as, and coincident with, the payment of the benefits of such Participant are payable under the Cooper Savings Plan. The benefits payable under the Plan from a Participant's Supplemental Tax Account shall be paid in a single sum to such Participant or his Beneficiary, if applicable. -6- 8 ARTICLE VI BENEFICIARIES In the event a Participant dies before his interest under the Plan has been distributed to him in full, any remaining interest shall be distributed pursuant to Article V to his Beneficiary who shall be the person designated as his beneficiary under the Cooper Savings Plan. ARTICLE VII ADMINISTRATIVE PROVISIONS 7.1 ADMINISTRATION. The Plan shall be administered by the Local Administrative Committee under the Cooper Savings Plan which shall administer it in a manner consistent with the administration of the Cooper Savings Plan, as from time to time amended, except that the Plan shall be administered as an unfunded plan not intended to meet the qualification requirements of Section 401 of the Code. 7.2 POWERS AND AUTHORITIES OF THE COMMITTEE. The Local Administrative Committee shall have full power and authority to interpret, construe and administer the Plan and its interpretations and construction hereof, and actions hereunder, including the timing, form, amount or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. The Local Administrative Committee may delegate any of its powers, authorities, or responsibilities for the operation and administration of the Plan to any person or committee so designated in writing by it and may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist it in carrying out its duties hereunder. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct -7- 9 or lack of good faith. Members of the Committee shall not participate in any action or determination regarding their own benefits, if any, payable under the Plan. 7.3 INDEMNIFICATION. In addition to whatever rights of indemnification a member of the Local Administrative Committee, or any other person or persons to whom any power, authority, or responsibility is delegated pursuant to Section 7.2, may be entitled under the articles of incorporation, regulations, or by-laws of the Company, under any provision of law, or under any other agreement, the Company shall satisfy any liability actually and reasonably incurred by any such member of such other person or persons, including expenses, attorneys' fees, judgments, fines, and amounts paid in settlement, in connection with any threatened, pending, or completed action, suit, or proceeding which is related to the exercise or failure to exercise by such member or such other person or persons of any of the powers, authority, responsibilities, or discretion provided under the Plan. ARTICLE VIII AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan at any time by action of the Plans Administration Committee; provided, however, that no such action shall adversely affect any Participant who is receiving supplemental benefits under the Plan or whose Separate Accounts are credited with any contributions thereto, unless an equivalent benefit is provided under another plan or program sponsored by an Employer. -8- 10 ARTICLE IX ADOPTION BY SUBSIDIARIES Any subsidiary of the Company which is not an Employer may, with the consent of the Company, adopt the Plan and become an Employer hereunder by causing an appropriate written instrument evidencing such adoption to be executed pursuant to the authority of its Board of Directors and filed with the Company. ARTICLE X MISCELLANEOUS 10.1 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall at any time be subject in any manner to alienation or encumbrance. If any Participant or Beneficiary shall attempt to, or shall, alienate or in any way encumber his benefits under the Plan, or any part thereof, or if by reason of his bankruptcy or other event happening at any time any such benefits would otherwise be received by anyone else or would not be enjoyed by him, his interest in all such benefits shall automatically terminate and the same shall be held or applied to or for the benefit of such person, his spouse, children, or other dependents as the Local Administrative Committee may select. 10.2 PAYMENT OF BENEFITS TO OTHERS. If any Participant or Beneficiary to whom a benefit is payable is unable to care for his affairs because of illness or accident, any payment due (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may be paid to the spouse, parent, brother, or sister, or any other individual deemed by the Local Administrative Committee to be maintaining or responsible for the maintenance of such person. Any payment made in accordance with the provisions of this Section 10.2 shall be a complete discharge of any liability of the Plan with respect to the benefit so paid. -9- 11 10.3 PLAN NON-CONTRACTUAL. Nothing herein contained shall be construed as a commitment or agreement on the part of any person employed by an Employer to continue his employment with an Employer, and nothing herein contained shall be construed as a commitment on the part of an Employer to continue the employment or the annual rate of compensation of any such person for any period, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been established. 10.4 FUNDING. In order to provide a source of payment for its obligations under the Plan, the Company may establish a trust fund. Subject to the provisions of the trust agreement governing such trust fund, the obligation of an Employer under the Plan to provide a Participant or a Beneficiary with a benefit constitutes the unsecured promise of such Employer to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Employer. 10.5 CONTROLLING STATUS. No Participant shall be eligible for a benefit under the Plan unless such Participant is a Participant on the date of his retirement, death, or other termination of employment. 10.6 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any person, firm or corporation any legal or equitable right as against an Employer, its officers, employees, or directors, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 10.7 SEVERABILITY. The invalidity or unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. -10- 12 10.8 GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. * * * EXECUTED at Houston, Texas, this 4th day of November, 1987. COOPER INDUSTRIES, INC. By Alan E. Riedel -------------------------- Title: -11- 13 FIRST AMENDMENT TO THE COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED CONTRIBUTION PLAN WHEREAS, Cooper Industries, Inc. ("Cooper") maintains the Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (the "Plan"), which is a supplemental retirement plan for the benefit of a select group of management employees employed by Cooper; and WHEREAS, Cooper and Belden Wire & Cable Company ("BW&C") entered into a certain Asset Transfer Agreement on July 26, 1993, under which certain assets of Cooper were transferred to BW&C and in conjunction therewith certain liabilities under the Plan for employees of BW&C and certain active and former employees of Cooper were to be transferred and spun-off to a separate plan maintained by BW&C known as the Belden Wire & Cable Company Supplemental Excess Defined Contribution Plan as of August 1, 1993; NOW, THEREFORE, the Plan is hereby amended, as of August 1, 1993, in the respects hereinafter set forth to reflect such spin-off. 1. Section 1.1(h) of the Plan is hereby amended by the addition of the following sentence at the end thereof to provide as follows: As of August 1, 1993, such term shall not include Belden Wire & Cable Company. 2. Article II of the Plan is hereby amended by the addition of the following sentence at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, as of August 1, 1993, the participation of any employee of the Belden Wire & Cable Company and any former employee of the Belden Electrical Wire Products Division of the Company who was last employed at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office shall cease and any such employee or former employee shall no longer be a Participant in the Plan as of such date. 14 3. Article IX of the Plan is hereby amended by the addition of the following sentence at the end thereof to provide as follows: As of August 1, 1993, Belden Wire & Cable Company shall no longer be a participating employer in the Plan. 4. Article X of the Plan is hereby amended by the addition of the following Section 10.9 to provide as follows: 10.9 Discontinuance of Coverage and Transfer of Liabilities with Respect to Belden Employees. As of August 1, 1993, coverage under the Plan is closed to any individual employed by Belden Wire & Cable Company at the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office (a "Belden Employee") and thereafter no Belden Employee shall become covered by the Plan. Moreover, as of August 1, 1993, liabilities under Plan Accounts of Belden Employees and any individual who terminated employment prior to said date from the Richmond, Indiana facility, the Clinton, Arkansas facility, the Essex Junction, Vermont facility, the Franklin, North Carolina facility, the Monticello, Kentucky facility, the Tompkinsville, Kentucky facility or a related sales office of the Company or Belden Wire & Cable Company shall be transferred to the Belden Wire & Cable Company Supplemental Excess Defined Contribution Plan to be held, administered and governed thereunder. Executed at Houston, Texas, this 8th day of September, 1993. COOPER INDUSTRIES, INC. By: /s/ Alan E. Riedel -------------------------------- Title: 15 SECOND AMENDMENT TO THE COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED CONTRIBUTION PLAN WHEREAS, Cooper Industries, Inc. (hereinafter referred to as "Cooper") maintains the Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (hereinafter referred to as the "Plan"), which is a supplemental retirement plan for the benefit of a select group of management employees employed by Cooper; and WHEREAS, Cooper and Gardner Denver Machinery, Inc. (hereinafter referred to as "GDM") determined to transfer and spin-off certain liabilities under the Plan for employees of GDM and certain active and former employees of Cooper to a separate plan maintained by GDM known as the Gardner Denver Machinery, Inc. Supplemental Excess Defined Contribution Plan as of March 1, 1994; NOW, THEREFORE, the Plan is hereby amended, as of March 1, 1994, in the respects hereinafter set forth to reflect such spin-off. 1. Section 1.1(h) of the Plan is hereby amended by the addition of the following sentence at the end thereof: As of March 1, 1994, such term shall not include Gardner Denver Machinery, Inc. 2. Article II of the Plan is hereby amended by the addition of the following sentence at the end thereof: Notwithstanding any other provision of the Plan to the contrary, as of March 1, 1994, the participation of any employee of Gardner Denver Machinery, Inc. and any former employee of Gardner Denver Division of the Company who was last employed at the LaGrange, Missouri facility; the Compton, California facility; the Quincy, Illinois facility; or a related sales office shall cease and any such employee or former employee shall no longer be a Participant in the Plan as of such date. 3. Section 5.2 of the Plan is hereby amended by the addition of the following at the end thereof: Notwithstanding the foregoing, benefits payable hereunder to any Participant whose accrued benefit under the Cooper Savings Plan is subject to the tax on excess distributions pursuant to Section 4980A of the Code shall be paid in any manner and form as benefits under the Cooper Savings Plan are payable as 16 of the retirement date of such Participant with no requirement that benefits payable hereunder be distributed in the same manner, form, or time or to the same beneficiary as the benefits of such Participant are payable under any other retirement plan, qualified or nonqualified, maintained by the Company. 4. Article IX of the Plan is hereby amended by the addition of the following sentence at the end thereof: As of March 1, 1994, Gardner Denver Machinery, Inc. shall no longer be a participating Employer in the Plan. 5. Article X of the Plan is hereby amended by the addition of the following Section 10.10: 10.10 Discontinuance of Coverage and Transfer of Liabilities with Respect to Gardner Denver Employees. As of March 1, 1994, coverage under the Plan is closed to any individual employed by Gardner Denver Machinery, Inc. at the Quincy, Illinois facility; the LaGrange, Missouri facility; the Compton, California facility; or a related sales office (a "Gardner Denver Employee") and thereafter no Gardner Denver Employee shall become covered by the Plan. Moreover, as of March 1, 1994, liabilities under Separate Accounts of Gardner Denver Employees and any individual who terminated employment prior to said date from the Quincy, Illinois facility; the LaGrange, Missouri facility; the Compton, California facility; or a related sales office of the Company or Gardner Denver Machinery, Inc. shall be transferred to and assumed by Gardner Denver Machinery, Inc. Supplemental Excess Defined Contribution Plan to be held, administered, and governed thereunder. Executed at Houston, Texas, this 28th day of February, 1994. COOPER INDUSTRIES, INC. By: /s/ Carl J. Plesnicher, Jr. ---------------------------------- Title: 2 17 THIRD AMENDMENT TO THE COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED CONTRIBUTION PLAN WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") maintains the Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (hereinafter referred to as the "Plan") which is a supplemental retirement plan for the benefit of a select group of management employees of the Company and its subsidiaries; and WHEREAS, the Plan has been amended subsequently on two occasions; and WHEREAS, the Company desires to amend the Plan again to provide for the cessation of active participation in the Plan by employees of Cameron Forged Products Company as of May 26, 1994; NOW, THEREFORE, the Plan is hereby amended, effective as of May 26, 1994, in the respects hereinafter set forth. 1. Section 1.1(h) of the Plan is hereby amended by the addition of a new sentence at the end thereof to provide as follows: As of May 26, 1994, such term shall not include Cameron Forged Products Company. 2. Article II of the Plan is hereby amended by the addition of two sentences at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, as of May 26, 1994, the active participation of any employee of Cameron Forged Products Company shall cease and no employee of Cameron Forged Products Company shall become covered by the Plan on or after such date. 3. Section 5.1 of the Plan is hereby amended by the addition of a new sentence at the end thereof to provide as follows: Notwithstanding any provision of the Plan to the contrary, in no event shall the Separate Accounts of a Participant who is employed by Cameron Forged Products Company, or a successor thereof, be distributed to such Participant prior to the termination of employment with Cameron Forged Products Company, or successor thereof, by such Participant. 18 4. Article IX of the Plan is hereby amended by the addition of the sentence at the end thereof to provide as follows: As of May 26, 1994, Cameron Forged Products Company shall no longer be a participating employer in the Plan. Executed at Houston, Texas, this 25th day of May, 1994. COOPER INDUSTRIES, INC. By: /s/ Carl J. Plesnicher, Jr. ----------------------------------- Title: Senior Vice President Human Resources 2 19 FOURTH AMENDMENT TO THE COOPER INDUSTRIES, INC. SUPPLEMENTAL EXCESS DEFINED CONTRIBUTION PLAN WHEREAS, Cooper Industries, Inc. ("Cooper") maintains the Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (the "Plan") which is a supplemental retirement plan for the benefit of a select group of management employees employed by Cooper; and WHEREAS, Cooper and Cooper Cameron Corporation ("Cooper Cameron") have determined to transfer and spin-off, as of January 1, 1995, certain liabilities under the Plan for employees of Cooper Cameron who were former employees of Cooper as well as liabilities for certain former employees of Cooper to a separate plan maintained by Cooper Cameron known as the Cooper Cameron Corporation Supplemental Excess Defined Contribution Plan; NOW, THEREFORE, effective as of January 1, 1995, the Plan is hereby amended, as of January 1, 1995, in the respects hereinafter set forth to reflect such spin-off. 1. Section 1.1(h) of the Plan is hereby amended to provide as follows: (h) Employer. The term "Employer" shall mean the Company as well as McGraw Edison Company and any subsidiary of the Company which may adopt the Plan in accordance with the provisions of Article IX. Notwithstanding the foregoing, effective as of the applicable date hereinafter set forth, the following subsidiaries shall not be included as an Employer under the Plan. Effective Date Subsidiary August 1, 1993 Belden Wire & Cable Company March 1, 1994 Gardner Denver Machinery Inc. May 26, 1994 Cameron Forged Products Company January 1, 1995 Cooper Cameron Corporation 20 2. Section 1.1 of the Plan is hereby amended by the addition of two new paragraphs at the end thereof to provide as follows: (a) Supplemental Post-Tax Account. The term "Supplemental Post-Tax Account" shall mean the Separate Account in which Supplemental Post-Tax Contributions are credited in accordance with the provisions of Sections 3.3 and 4.1 of the Plan. (b) Supplemental Post-Tax Contributions. The term "Supplemental Post-Tax Contributions" shall mean the contributions credited to a Participant under the Plan pursuant to Section 3.3. 3. Article II of the Plan is hereby amended by the addition of the following sentence at the end thereof to provide as follows: Notwithstanding any other provision of the Plan to the contrary, as of January 1, 1995, no employee of the Cooper Cameron Corporation who was last employed at the Houston, Texas facility, the Berwick, Louisiana plant, the Katy, Texas plant, the Liberty, Texas plant, the Missouri City, Texas plant, the Oklahoma City, Oklahoma plant, the Patterson, Louisiana plant, the Richmond, Texas foundry, the Ville Platte, Louisiana plant, and the sales and service locations of the former Cooper Oil Tool Division; the Mount Vernon, Ohio plant, the Cooper-Bessemer Reciprocating Products Division facility in Grove City, Pennsylvania, the Ajax-Superior facility in Springfield, Ohio, the Compressor Packaging Plant in Oklahoma City, Oklahoma, the Branch Offices in Oklahoma City, Oklahoma and Wheat Ridge, Colorado, the Enterprise Engine Services facility in Alameda, California, the Cooper Bessemer Rotating Products Division plants in Mount Vernon, Ohio and Tulsa, Oklahoma, and the sales offices of the former Cooper Energy Services Operations; the Buffalo, New York facility and the sales offices of the former Cooper Turbocompressor Division; and the Pine Bluff, Arkansas plant of the former Wheeling Machine Products Company, shall be a Participant in the Plan as of such date. 4. Section 3.1 of the Plan is hereby amended by deleting the reference to "Section 415" and substituting in place thereof the words "Sections 401(a)(17) and (415)". 5. Section 3.2 of the Plan is hereby amended to provide as follows: 3.2 Supplemental Basic Contributions. As of the last day of each month, the Supplemental Basic Account of each Participant shall be credited with Supplemental Basic Contributions equal to the Basic Contributions and Supplemental Contributions deemed to be Basic Contributions for purposes of 2 21 Matching Contributions (if any) that would have been contributed to the Cooper Savings Plan on his behalf for such month except for the provisions of Sections 401 (a)(17) and 415 of the Code and that were deferred or deducted from his Compensation in accordance with a duly executed and filed Compensation reduction or deduction authorization form; provided, however, that in no event shall Supplemental Basic Contributions when added to the amount of Basic Contributions and Supplemental Contributions deemed to be Basic Contributions for purposes of Matching Contributions (if any) for such month under the Cooper Savings Plan exceed six percent of such Participant's Compensation. Supplemental Basic Contributions attributable to Basic Contributions and on and after January 1, 1994, Supplemental Basic Contributions attributable to Supplemental Contributions deemed to be Basic Contributions shall be credited to the pre-tax Supplemental Basic Account of the Participant and prior to January 1, 1994, Supplemental Basic Contributions attributable to Supplemental Contributions deemed to be Basic Contributions shall be credited to the post-tax Supplemental Basic Account of the Participant. 6. Section 3.3 of the Plan is hereby renumbered as Section 3.4 and a new Section 3.3 is added to provide as follows: 3.3 Supplemental Post-Tax Contributions. As of the last day of each month, the Supplemental Post-Tax Account of each Participant shall be credited with Supplemental Post-Tax Contribution equal to the Supplemental Contributions (excluding these deemed to be Basic Contributions for purposes of Matching Contributions) that would have been contributed to the Cooper Cameron Savings Plan on his behalf for such month except for the provisions of Sections 401(a)(17) and Section 415 of the Code and that were deducted from his Compensation in accordance with a duly executed and filed Compensation deduction authorization form; provided, however, that in no event shall Supplemental Post-Tax Contributions when added to Supplemental Contributions (excluding those deemed to be Basic Contributions for purposes of Matching Contributions) exceed four percent of such Participant's Compensation. 7. Paragraph (d) of Section 4.1 of the Plan is hereby amended to provide as follows: (d) a Supplemental Post-Tax Account which shall reflect the Supplemental Post-Tax Contributions credited to a Participant pursuant to Section 3.3 and any interest credited thereon pursuant to Section 4.2; and 8. Section 4.1 of the Plan is hereby amended by the addition of a new paragraph 3 22 (e) at the end thereof to provide as follows: (e) a Supplemental Tax Account which shall reflect the amount of any Supplemental Tax Contributions credited to a Participant pursuant to Section 3.4 and any interest credited thereon pursuant to Section 4.2. 9. Article IX of the Plan is hereby amended to provide as follows: ARTICLE IX ADOPTION BY SUBSIDIARIES Any subsidiary of the Company which at the time is not an Employer may, with the consent of the Company, adopt the Plan and become an Employer hereunder. Notwithstanding the foregoing, effective as of the applicable date hereinafter set forth, the following subsidiaries shall not be included as an Employer under the Plan. Effective Date Subsidiary August 1, 1993 Belden Wire & Cable Company March 1, 1994 Gardner Denver Machinery Inc. May 26, 1994 Cameron Forged Products Company January 1, 1995 Cooper Cameron Corporation 10. Article X of the Plan is hereby amended by the addition of the following Section 10.11 to provide as follows: 10.11 Discontinuance of Coverage and Transfer of Liabilities with Respect to Cooper Cameron Employees. As of January 1, 1995, coverage under the Plan is closed to any individual employed by Cooper Cameron Corporation (a "Cooper Cameron Employee") and thereafter no Cooper Cameron Employee shall become covered by the Plan. Moreover, as of January 1, 1995, assets and liabilities under any Plan attributable to any individual employed by Cooper Cameron Corporation or any individual who terminated employment prior to said date from the Houston, Texas facility, the Berwick, Louisiana plant, the Katy, Texas plant, the Liberty, Texas plant, the Missouri City, Texas plant, the Oklahoma City, Oklahoma plant, the Patterson, Louisiana plant, the Richmond, Texas foundry, the Ville Platte, Louisiana plant, and the sales and service locations of the former Cooper Oil Tool Division; the Mount Vernon, Ohio plant, the Cooper-Bessemer Reciprocating Products Division facility in Grove City, Pennsylvania, the Ajax-Superior facility in Springfield, Ohio, the Compressor Packaging Plant in Oklahoma City, Oklahoma, the Branch Offices in Oklahoma City, Oklahoma 4 23 and Wheat Ridge, Colorado, the Enterprise Engine Services facility in Alameda, California, the Cooper Bessemer Rotating Products Division plants in Mount Vernon, Ohio and Tulsa, Oklahoma, and the sales offices of the former Cooper Energy Services Operations; Buffalo, New York facility and the sales offices of the former Cooper Turbocompressor Division; and the Pine Bluff, Arkansas plant of the former Wheeling Machine Products Company, shall be transferred to the Cooper Cameron Corporation Supplemental Excess Defined Contribution Plan to be held, administered and governed thereunder. Executed at Houston, Texas, this 28th day of February, 1995. COOPER INDUSTRIES, INC. By: /s/ Carl J. Plesnicher, Jr. ----------------------------------- Title: Senior Vice President Human Resources 5 EX-10.7 8 MANAGEMENT INCENTIVE COMPENSATION DEFERRAL PLAN 1 Exhibit 10.7 COOPER INDUSTRIES, INC. MANAGEMENT INCENTIVE COMPENSATION DEFERRAL PLAN 1. Purposes of the Plan The Cooper Industries, Inc. Management Incentive Compensation Deferral Plan (the "Plan") is intended to provide a method for attracting and retaining key employees of Cooper Industries, Inc., an Ohio corporation (the "Company") and its subsidiaries, and to encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. 2. Administration of the Plan The Plan shall be administered by a committee (the "Committee") of not less than three directors of the Company who shall be appointed by and serve at the pleasure of the Board of Directors of the Company. Members of the Committee shall not be eligible, and shall not have been eligible at any time within one year prior to their appointment to the Committee, to participate in the Plan or in any other deferred compensation plan of the Company or any of its affiliates. The Committee shall have sole authority from time to time to select the employees eligible to participate in the Plan from among those within the eligible class described in Subparagraph 3(a). The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, consistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All decisions made by the Committee shall be final. All expenses incurred in connection with the administration of the Plan shall be borne by the Company. 3. Participation in the Plan (a) Eligible Class. All employees of the Company and its subsidiaries who are eligible to earn an "Incentive Award" during a calendar year shall be within the class of employees eligible to participate in the Plan with respect to that Incentive Award. "Incentive Award" shall mean compensation or bonus earned by a key employee (including officers and directors who are also key employees) during and awarded to the employee for a calendar year (the "Award Year") under the Cooper Industries, Inc. Annual Management Incentive Plan, which except for participation in this Plan would become payable in one lump sum in the calendar year next following the Award Year. 2 (b) Eligible Employees. Those employees within the eligible class described in Subparagraph (a) above who have been selected for eligibility by the Committee, from time to time, shall be eligible employees for purposes of the Plan. (c) Election to Participate. An eligible employee may elect to become a participant in the Plan ("Participant") with respect to the Incentive Award to be earned by such employee during any Award Year by filing with the Committee an election to defer the receipt of a portion or all of such employee's Incentive Award for that Award Year. The preceding sentence to the contrary notwithstanding, with respect to the 1980 Award Year, a Participant may not elect to defer more than 10/12ths of such Participant's Incentive Award for that Award Year. The election to participate in the Plan shall specify either (i) the integral percentage (from 1% to 100%), (ii) a certain dollar amount or (iii) the amount in excess of a certain dollar amount of the Participant's Incentive Award for the Award Year which the Participant elects to defer in accordance with the terms of the Plan. The amount of Incentive Award so deferred for an Award Year is referred to herein as the "Deferred Compensation" for that Award Year. (d) Election of Payment of Deferred Compensation. Payment of the Deferred Compensation for an Award Year shall be made or shall commence on March l of the calendar year next following the Award Year (the "Designated Date") or on an anniversary of the Designated Date (the Designated Date and any anniversary thereof is sometimes referred to as a "Designated Date Anniversary"). Each Participant who elects to defer an Incentive Award for an Award Year shall also elect the calendar year in which the payment of the Deferred Compensation for that Award Year shall be made or shall commence. Any such calendar year so elected may be either during the Participant's active employment or after termination of the Participant's employment for any reason and may be elected either by specifying a particular calendar year or by selecting a calendar year following the occurrence of a specified event, such as termination of employment. The Participant shall receive his Deferred Compensation for an Award Year either in one lump sum or in installments for a period certain on or commencing on the Designated Date Anniversary elected by the Participant, the determination of which shall be in the sole discretion of the Committee and may be determined by the Committee at any time prior to such Designated Date Anniversary. (e) Time of Making Elections. Any election which may be made by a Participant under this Paragraph 3 must be made not later than December 31 of the calendar year preceding the Award Year during which the Incentive Award to which such election relates is earned; provided, that any election with respect to the Incentive Award earned during the 1980 Award Year must be made not later than February 29, 1980. All elections shall be made in the manner and form prescribed by the Committee. (f) Nature of Elections. Any election which may be made by a Participant under this Paragraph 3 with respect to the Participant's Incentive Award for an Award Year shall be -2- 3 irrevocable once made. Plan provisions to the contrary not withstanding, any election which may be made by a Participant under this Paragraph 3 with respect to the Participant's Incentive Award for an Award Year, unless changed by the Participant prior to the expiration of the time for making such election with respect to the Participant's Incentive Awards for each subsequent Award Year, shall be deemed to have been made with respect to the Participant's Incentive Awards for each subsequent Award Year, respectively. 4. Crediting of Deferred Compensation to Plan Accounts (a) Establishment of Plan Accounts. The Committee shall establish a "Plan Account" for each Participant in the Plan, and on the Designated Date following each Award Year the Committee shall credit to the Participant's Plan Account the Participant's Deferred Compensation for that Award Year. (b) Crediting of Interest Equivalents. On each anniversary of the Designated Date on which Deferred Compensation was credited to a Participant's Plan Account, the Committee shall credit to that Participant's Plan Account as additional Deferred Compensation a dollar amount equal to simple interest, at a rate of interest equal to the average of the Chase Manhattan Bank Average Quarterly Prime Rates for the preceding calendar year, on the Deferred Compensation (including any interest previously credited pursuant to this Paragraph) in the Participant's Plan Account on the preceding Designated Date Anniversary. 5. Payment of Deferred Compensation Amounts (a) Payment Generally. Except as otherwise provided in this Paragraph 5, the Deferred Compensation credited to a Participant's Plan Account with respect to an Award Year shall be paid in cash to the Participant either in one lump sum or in installments for a period certain, as determined by the Committee, on or commencing on the Designated Date Anniversary elected by the Participant. In the event the Participant is to receive the Deferred Compensation in installments, the amount of each such installment shall be equal to a fraction of the amount of the Deferred Compensation remaining to be paid with respect to the Deferred Compensation for that Award Year, the numerator of which is one and the denominator of which is the number of installments of the Deferred Compensation for that Award Year remaining to be paid. The installments of the Deferred Compensation remaining to be paid shall continue to bear interest with respect to Deferred Compensation as provided in Paragraph 4(b). (b) Payment of Simultaneous Deferred Compensation Amounts. It is recognized that a Participant may elect to defer Incentive Awards with respect to more than one Award Year, so that Deferred Compensation is credited to the Participant's Plan Account with respect to more than one Award Year and the payment of Deferred Compensation with respect to more than one -3- 4 Award Year may become payable to the Participant in the same year on different Designated Date Anniversaries. (c) Termination of Employment. Regardless of the Participant's election of the Designated Date Anniversary on which payment of the Deferred Compensation for any Award Year is to be paid or commence, in the event a Participant's employment with the Company and its subsidiaries terminates prior to the first Designated Date Anniversary elected by the Participant for any reason (including death), cash payment of that Deferred Compensation shall be accelerated by being made on or commencing on the first Designated Date Anniversary following the Participant's termination of employment, either in one lump sum or in installments for a period certain, as determined by the Committee. (d) Hardship. Regardless of the Participant's Designated Date Anniversary on which payment of the Deferred Compensation for any Award Year is to be paid or commence, in the event of hardship of the Participant or his beneficiaries, as determined in the sole discretion of the Committee, cash payment of that Deferred Compensation shall be accelerated by being made on the first Designated Date Anniversary following the Committee's determination of hardship, in one lump sum. For this purpose, hardship shall mean any emergency or necessity affecting the personal or family affairs of the Participant having a significant financial effect. (e) Change in Purpose. Regardless of the Participants' Designated Date Anniversaries on which payment of Deferred Compensation for Award Years is to be paid or commence, in the event of a major tax law change or other reason, as determined in the sole discretion of the Committee, which makes the continued deferral of Incentive Awards undesirable, cash payment of all of the Participants' Deferred Compensation shall be accelerated by being made on the first Designated Date Anniversary following the Committee's determination to discontinue deferrals, in one lump sum. (f) Merger or Liquidation. If the Company is to be merged into or consolidated with one or more corporations and the Company will not be the surviving corporation, if the Company is to be dissolved and liquidated or if substantially all of the assets and business of the Company are to be sold, the Committee or the Board of Directors of the Company may fix a date, on or prior to the effective date of such merger, consolidation, dissolution and liquidation or sale, on which all remaining Deferred Compensation then credited to Participants' Plan Accounts may be paid in cash in one lump sum. For this purpose, the Company shall not be considered to be the surviving corporation in a merger the result of which is a change in the ownership of more than 50% of the outstanding shares of common stock of the Company. (g) Death of Participant. A Participant, by written instrument filed with the Committee in such manner and form as it may prescribe, may designate one or more beneficiaries to receive payment of the Participant's Deferred Compensation in the event of the death of the Participant. Any such beneficiary designation may be changed from time to time prior to the death of the Participant in the absence of a beneficiary designation on file with the Committee at -4- 5 the time of the Participant's death, the Deferred Compensation remaining to be paid to the Participant shall be paid as it becomes due under the Plan to the executors or administrator of the Participant's estate. (h) No Forfeiture of Deferred Compensation. All Deferred Compensation credited to a Participant's Plan Account shall, in all cases, be nonforfeitable. (i) Debiting of Plan Accounts. Once an amount of Deferred Compensation has been paid, such amount shall be debited from the Participant's Plan Account and shall cease to exist. 6. Prohibition Against Assignment or Encumbrance No right, title, interest or benefit hereunder shall ever be liable for or charged with any of the torts or obligations of a Participant or any person claiming under a Participant, or be subject to seizure by any creditor of a Participant or any person claiming under a Participant. Except as provided in Paragraph 5(g), no Participant or any person claiming under a Participant shall have the power to anticipate or dispose of any right, title, interest or benefit hereunder in any manner until the same shall have been actually distributed free and clear of the terms of the Plan. 7. Nature of the Plan The Company at its election may fund the payment of Deferred Compensation under the Plan by setting aside and investing, in an account on the Company's books, such funds as the Company may from time to time determine. Neither the establishment of the Plan, the crediting of Deferred Compensation, nor the setting aside of any funds shall be deemed to create a trust. Legal and equitable title to any funds set aside pursuant to the Plan shall remain in the Company, and no Participant shall have any security or other interest in such funds. Any funds so set aside or acquired shall remain subject to the claims of the creditors of the Company, present and future. 8. Employment Relationship A Participant shall be considered to be in the employment of the Company and its subsidiaries as long as he remains an employee of either the Company, any subsidiary corporation of the Company, or any corporation to which substantially all of the assets and business of the Company are transferred. For this purpose, a subsidiary corporation of the Company is any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, as of the date such determination is to be made, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Nothing in the adoption of this Plan nor the crediting of Deferred Compensation shall confer on any Participant the right to continued employment by the Company or a subsidiary corporation of the Company, or affect in any way the right of the Company or such subsidiary to terminate his -5- 6 employment at any time. Any question as to whether and when there has been a termination of a Participant's employment, and the cause of such termination, shall be determined by the Committee, and its determination shall be final. 9. Effective Date, Amendment and Termination of Plan The Plan shall be effective as of January l, 1980. The Committee or the Board of Directors of the Company may terminate the Plan at any time with respect to Deferred Compensation which has not theretofore been credited to Plan Accounts. The Committee or the Board of Directors of the Company shall have the right to alter or amend the Plan or any part thereof from time to time, except that neither the Committee nor the Board of Directors of the Company shall make any alteration or amendment which would impair the rights of a Participant with respect to Deferred Compensation theretofore credited to that Participant's Plan Account. If not sooner terminated under the provisions of this Paragraph 9, the Plan shall terminate as of the date on which all Deferred Compensation theretofore credited to Plan Accounts has been paid. 10. Laws Governing This Plan shall be construed in accordance with and governed by the laws of the State of Texas. -6- 7 FIRST AMENDMENT TO THE MANAGEMENT INCENTIVE COMPENSATION DEFERRAL PLAN ---------------------------------- WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") established the Management Incentive Compensation Deferral Plan (hereinafter referred to as the "Plan") effective as of January 1, 1980 for the purpose of providing certain executives an opportunity to defer the payment of all or any desired portion of any bonus awarded by the Management Development and Compensation Committee of the Board of Directors (hereinafter referred to as the "Committee"); and WHEREAS, the Committee, pursuant to the provisions of Section 9 of the Plan, has the right to alter or amend the Plan or any part thereof from time to time, except to the extent that any alteration or amendment would impair the rights of a Participant with respect to Deferred Compensation theretofore credited to that Participant's Plan Account; and WHEREAS, the Committee desires to amend Section 5(f) of the Plan. NOW THEREFORE, effective as of November 1, 1988, the Plan is hereby amended as hereinafter set forth. 1. Section 5(f) of the Plan is hereby amended to provide as follows: 5(f) Change in Control (1) In the case of Incentive Awards for which elections were irrevocable as of November 1, 1988, if (i) the Company is to be merged into or consolidated with one or more corporations and the Company will not be the surviving corporation, (ii) the Company is to be dissolved and liquidated, or (iii) substantially all of the assets and business of the Company are to be sold, then the Committee or the Board of Directors of the Company may fix a date, on or prior to the effective date of such merger, consolidation, dissolution and liquidation or sale, on which all remaining Deferred Compensation then credited to Participants' Plan Accounts may be paid in cash in one lump sum. For this purpose, the Company shall not be considered to be the surviving corporation in a merger the result of which is a change in the ownership of more than 50% of the outstanding shares of common stock of the Company. (2) In the case of Incentive Awards for which elections were not made or irrevocable as of November 1, 1988, if (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all of the assets and business of the Company are to be sold, or (iv) there occurs a "change in control" of the Company, then the Committee or the Board of Directors of the Company shall fix a date on or prior to the effective 8 date of such merger, consolidation, dissolution and liquidation, sale or change in control, on which all remaining Deferred Compensation then credited to Participants' Plan Accounts shall be paid in cash in one lump sum. For purposes hereof, a "change in control of the Company" shall be deemed to have occurred if (i) any "person", as such term is used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the "beneficial owner" (as such term is used in Rule 13d-3 issued under the Exchange Act), of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least three-fourths thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (3) For years after 1988, if an event described in Section 5(f)(2)(i)-(iv) occurs during a year, notwithstanding any election previously made, no Incentive Award payable for or in that year shall be deferred. If any amount has been deferred in that year prior to such an event occurring, the deferral shall terminate and the amount deferred plus interest shall be paid in cash. 2. All other terms and conditions of the Plan shall remain in full force and effect and are hereby preserved and ratified. Executed this 1st day of November, 1988. COOPER INDUSTRIES, INC. By /s/John D. Ong ------------------------------- Chairman, Management Development and Compensation Committee -2- 9 SECOND AMENDMENT TO THE MANAGEMENT INCENTIVE COMPENSATION DEFERRAL PLAN ---------------------------------- WHEREAS, Cooper Industries, Inc. (hereinafter referred to as the "Company") established the Management Incentive Compensation Deferral Plan (hereinafter referred to as the "Plan") effective as of January 1, 1980, and amended the Plan effective as of November 1, 1988, for the purpose of providing certain executives an opportunity to defer the payment of all or any desired portion of any bonus awarded by the Management Development and Compensation Committee of the Board of Directors (hereinafter referred to as the "Committee"); and WHEREAS, the Committee, pursuant to the provisions of Section 9 of the Plan, has the right to alter or amend the Plan or any part thereof from time to time, except to the extent that any alteration or amendment would impair the rights of a Participant with respect to Deferred Compensation theretofore credited to that Participant's Plan Account; and WHEREAS, the Committee desires to amend Sections 2 and 3(b) of the Plan. NOW, THEREFORE, effective as of November 5th, 1990, the Plan is hereby amended as hereinafter set forth. 1. Section 2 of the Plan is hereby amended to provide as follows: 2. Administration of the Plan The Plan shall be administered by a committee (the "Committee") of not less than three directors of the Company who shall be appointed by and serve at the pleasure of the Board of Directors of the Company. Members of the Committee shall not be eligible, and shall not have been eligible at any time within one year prior to their appointment to the Committee, to participate in the Plan. The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, consistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All decisions made by the Committee shall be final. All expenses incurred in connection with the administration of the Plan shall be borne by the Company. 2. Section 3(b) of the Plan is hereby amended to provide as follows: 3(b) Participation in the Plan: Eligible Employees. Those employees within the eligible class described in subparagraph (a) above who either are officers of the Company or who have been selected for eligibility by the Chief Executive Officer of the Company, from time to time, shall be eligible employees for purposes of the Plan. -1- 10 3. All other terms and conditions of the Plan, as amended, shall remain in full force and effect and are hereby preserved and ratified. Executed this ______ day of November, 1990. COOPER INDUSTRIES, INC. By ------------------------------------ Chairman, Management Development and Compensation Committee -2- EX-10.8 9 CROUSE-HINDS OFFICERS' DISABILITY & SUPPLEMENT 1 EXHIBIT 10.8 CROUSE-HINDS COMPANY OFFICERS' DISABILITY AND SUPPLEMENTAL PENSION PLAN In order to provide additional retirement benefits for those key Officers of Crouse-Hinds Company (the "Company") whose anticipated pension under the Company's qualified pension plan is deemed not to be commensurate with their current earnings or responsibilities because of insufficient tenure or governmental regulations, and in order to provide disability benefits to such Officers, if necessary, the Board of Directors has authorized the establishment of this OFFICERS' DISABILITY AND SUPPLEMENTAL PENSION PLAN (the "Plan") to provide as follows: 1. Eligibility The Participants in the Plan shall be Officers of the Company elected to office by the Board of Directors and domiciled in the United States who have completed at least five (5) years of employment as an Officer of the Company (hereinafter referred to as "Participants"). 2. Normal Retirement A Participant who retires at any time on or after the last day of the month in which occurs such Participant's 65th birthday (such Participant's "Normal Retirement Date") shall be entitled to an annual retirement pension payable monthly (on the 15th day of each month) in the form of a life annuity equal to 50% of such Participant's final average earnings, reduced in any year by the sum of (a) any benefit to which such Participant is entitled under the Company's qualified pension plan and (b) primary Social Security benefits payable to such Participant. 3. Post-Retirement Death Benefit In the event of a retired Participant's death, there shall be payable monthly to such -1- 2 Participant's surviving spouse, if any, but only for as long as such spouse shall remain unmarried, an annual death benefit in the form of a life annuity in an amount equal to 75% of the annual benefit to which the Participant was entitled under Paragraph 1 hereof prior to death. Except in the case of each spouse of an Officer of the Company who was such a spouse on August 1, 1978, in the event of the Participant's spouse being more than ten (10) years younger than the Participant, the benefit payable under this Paragraph shall be actuarially reduced in accordance with the table set forth in Schedule A annexed hereto. 4. Pre-Retirement Death Benefit In the event of a Participant's death prior to retirement, there shall be payable monthly to such Participant's surviving spouse, if any, but only for as long as such spouse shall remain unmarried, an annual death benefit in the form of a life annuity equal to 37 1/2% of such Participant's final average earnings, reduced in any year by the sum of (a) any benefit payable to such spouse under the Company's qualified pension plan and (b) any Social Security benefit payable to such spouse an account of such Participant's death. Except in the case of each spouse of an Officer of the Company who was such a spouse on August 1, 1978, in the event of the Participant's spouse being more than ten (10) years younger than the Participant, the benefit payable under this Paragraph shall be actuarially reduced in accordance with the table set forth in Schedule A annexed hereto. 5. Cost-of-Living Adjustments The amount of pension or death benefit payable under Paragraphs 2, 3, and 7 hereof shall be subject to increase by a cost-of-living adjustment on the second anniversary of the Participant's Normal Retirement Date and at two-year interval anniversaries thereafter. The amount of death -2- 3 benefit payable under Paragraph 4 hereof shall be subject to increase by such an adjustment on the second anniversary of the Participant's death and at two-year interval anniversaries thereafter. In each case the amount of the adjustment shall be related to the amount by which the increase in the CPI in effect at the applicable two-year anniversary date exceeds 3% per annum in each year since the earlier of the Participant's death or Normal Retirement Date and shall be determined by multiplying the pension or death benefit payable hereunder determined as of the Participant's death or Normal Retirement Date, as the case may be, by the fraction C where: --------- A+(.03AxB) A is the CPI in effect on the earlier of the Participant's death or Normal Retirement Date; B is the number of years since the earlier of the Participant's death or Normal Retirement Date; and C is the CPI on the applicable two-year anniversary date, subsequent to the earlier of the Participant's death or Normal Retirement Date. 6. Disability In the event a Participant becomes totally disabled, as hereinafter defined, while actively employed by the Company, such Participant shall be entitled to receive such Participant's full salary as in effect on the date of disability for a period of six (6) months, and shall thereafter be entitled to an annual disability pension equal to 70% of such Participant's annual rate of compensation as in effect an the date of disability (including in such rate for this purpose such Participant's base salary rate then in effect and the annualized rate of any bonus received by such Participant during the year ended on the date such Participant became totally disabled) until such -3- 4 Participant's death or Normal Retirement Date. Should such disabled Participant die prior to such Participant's Normal Retirement Date, such Participant's surviving spouse shall receive the annual death benefit described in Paragraph 4 hereof. After such Participant's Normal Retirement Date, such Participant shall receive the retirement pension described in Paragraph 1 hereof, and, after such Participant's death following such Participant's Normal Retirement Date, the surviving spouse of such Participant shall receive the annual death benefit described in Paragraph 3 hereof. Any disability pension payable hereunder shall be reduced by the sum of any of the following amounts that may be payable to the Participant: (a) disability benefits payable under the Company's qualified pension plan, (b) Workmen's Compensation benefits, (c) Social Security benefits, and (d) State Disability Funds. 7. Vesting In the event a Participant's employment by the Company as an Officer terminates after such Participant has been an Officer of the Company for at least ten (10) years but prior to such Participant's Normal Retirement Date for a reason other than such Participant's voluntary termination of employment with the Company, death, total disability, or discharge by the Company on account of malfeasance in the performance of such Participant's duties (such malfeasance to be determined in the sole and uncontrolled discretion of the Board), the Participant shall be considered a former Participant and shall be entitled to receive commencing on such former Participant's Normal Retirement Date an annual retirement pension equal to (i) that amount which is 50% of such former Participant's final average earnings multiplied by the fraction which is the number of whole years of such former Participant's service as an Officer of the Company divided by the number of whole years from the date such Participant became an Officer -4- 5 of the Company to such former Participant's Normal Retirement Date, reduced in any year by (ii) the sum of (a) any benefit to which such former Participant is entitled under the Company's qualified pension plan and (b) primary Social Security benefits payable to such former Participant. The surviving spouse of such a former Participant shall be entitled after such former Participant's Normal Retirement Date to an annual death benefit, but only for so long as such spouse shall remain unmarried, in the form of a life annuity in an amount equal to 75% of the annual benefit to which such former Participant was or would have become (had such former Participant not predeceased such spouse) entitled under this Paragraph 7. Except in the case of each spouse of an Officer of the Company who was such a spouse on August 1, 1978 , in the event of the Participant's spouse being more than ten (10) years younger than the Participant, the benefit payable under this Paragraph shall be actuarially reduced in accordance with the table set forth in Schedule A annexed hereto. 8. Certain Definitions (a) Totally Disabled. A Participant shall be considered as totally disabled for purposes of the Plan for the first two (2) years of such Participant's disability if such Participant is unable to perform the duties of such Participant's own occupation. Such Participant shall be considered as totally disabled thereafter for purposes of the Plan if such Participant is unable to perform any and every duty of any occupation for which such Participant is or may reasonably become qualified by virtue of such Participant's training, education, or experience. (b) CPI shall mean the national average Consumer Price Index (1967 = 100%), all items, as determined by the Bureau of Labor Statistics. -5- 6 (c) Final average earnings shall mean the average of the Participant's basic annual salary and bonuses from the Company during the last five (5) years of the Participant's employment. 9. Funding The Company shall not be obligated to fund the benefits provided under the Plan. -6- 7 SCHEDULE A FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTINGENT ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT
BENEFICIARY'S BENEFICIARY'S AGE AT AGE AT PENSIONER'S MALE PENSIONER WHOSE RETIREMENT AGE IS: PENSIONER'S RETIREMENT RETIREMENT MALE FEMALE 60 61 62 63 64 65 66 67 MALE FEMALE - ---- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ 15 21 .622 .606 .591 .574 .558 .541 .525 .508 15 21 16 22 .623 .608 .592 .576 .560 .543 .526 .509 16 22 17 23 .625 .610 .594 .578 .561 .544 .528 .511 17 23 18 24 .627 .611 .596 .579 .563 .546 .529 .512 18 24 19 25 .629 .613 .597 .581 .565 .548 .531 .514 19 25 20 26 .631 .615 .599 .583 .567 .550 .533 .516 20 26 21 27 .633 .617 .601 .585 .568 .552 .535 .518 21 27 22 28 .635 .620 .604 .587 .571 .554 .537 .520 22 28 23 29 .638 .622 .606 .590 .573 .556 .539 .522 23 29 24 30 .640 .624 .608 .592 .575 .558 .541 .524 24 30 25 31 .643 .627 .611 .594 .578 .560 .543 .526 25 31 26 32 .646 .630 .614 .597 .580 .563 .546 .528 26 32 27 33 .649 .633 .616 .600 .583 .566 .548 .531 27 33 28 34 .652 .636 .619 .603 .586 .560 .551 .534 28 34 29 35 .655 .639 .623 .606 .589 .571 .554 .536 29 35 30 36 .658 .642 .626 .609 .592 .574 .557 .539 30 36 31 37 .662 .646 .629 .612 .595 .578 .560 .542 31 37 32 38 .665 .649 .633 .616 .599 .581 .563 .546 32 38 33 39 .669 .653 .637 .620 .602 .505 .567 .549 33 39 34 40 .673 .657 .641 .624 .606 .589 .571 .553 34 40 35 41 .678 .661 .645 .628 .610 .593 .575 .557 35 41 36 42 .682 .666 .649 .632 .615 .597 .579 .561 36 42 37 43 .687 .670 .654 .637 .619 .601 .583 .565 37 43 38 44 .691 .675 .658 .641 .624 .606 .588 .569 38 44 39 45 .696 .680 .663 .646 .629 .611 .592 .574 39 45 40 46 .702 .685 .669 .651 .634 .616 .597 .579 40 46 41 47 .707 .691 .674 .657 .639 .621 .603 .584 41 47 42 48 .713 .696 .680 .662 .645 .626 .608 .589 42 48 43 49 .719 .702 .686 .668 .650 .632 .614 .595 43 49 44 50 .725 .708 .692 .674 .656 .630 .620 .601 44 50 45 51 .731 .715 .698 .681 .663 .644 .626 .607 45 51 ------ ------ ------ ------ ------ ------ ------ ------ 66 67 68 69 70 71 72 73 BENEFICIARY'S BENEFICIARY'S AGE AT AGE AT PENSIONER'S MALE PENSIONER WHOSE RETIREMENT AGE IS: PENSIONER'S RETIREMENT RETIREMENT MALE FEMALE 68 69 70 71 72 73 74 75 MALE FEMALE - ---- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ 15 21 .491 .475 .459 .443 .427 .412 .396 .381 15 21 16 22 .493 .476 .460 .444 .428 .413 .398 .382 16 22 17 23 .494 .478 .461 .445 .430 .414 .399 .383 17 23 18 24 .496 .479 .463 .447 .431 .415 .400 .384 18 24 19 25 .497 .481 .464 .448 .432 .417 .401 .386 19 25 20 26 .499 .482 .466 .450 .434 .418 .403 .387 20 26 21 27 .501 .484 .468 .451 .435 .420 .404 .388 21 27 22 28 .503 .486 .469 .453 .437 .421 .406 .390 22 28 23 29 .505 .488 .471 .455 .439 .423 .407 .391 23 29 24 30 .507 .490 .473 .457 .441 .425 .409 .393 24 30 25 31 .509 .492 .475 .459 .443 .427 .411 .395 25 31 26 32 .511 .494 .477 .461 .445 .429 .413 .397 26 32 27 33 .514 .497 .480 .463 .447 .431 .415 .399 27 33 28 34 .516 .499 .482 .466 .449 .433 .417 .401 28 34 29 35 .519 .502 .485 .468 .452 .435 .419 .403 29 35 30 36 .522 .505 .487 .471 .454 .438 .422 .405 30 36 31 37 .525 .508 .490 .473 .457 .441 .424 .408 31 37 32 38 .528 .511 .493 .476 .460 .443 .427 .410 32 38 33 39 .531 .514 .497 .480 .463 .446 .430 .413 33 39 34 40 .535 .517 .500 .483 .466 .449 .433 .416 34 40 35 41 .539 .521 .504 .486 .469 .453 .436 .419 35 41 36 42 .543 .525 .507 .490 .473 .456 .439 .422 36 42 37 43 .547 .529 .511 .494 .477 .460 .443 .426 37 43 38 44 .551 .533 .515 .498 .481 .464 .446 .429 38 44 39 45 .556 .538 .520 .502 .485 .468 .450 .433 39 45 40 46 .561 .542 .524 .507 .489 .472 .455 .437 40 46 41 47 .566 .547 .529 .511 .494 .476 .459 .441 41 47 42 48 .571 .553 .534 .516 .499 .481 .464 .446 42 48 43 49 .577 .558 .540 .522 .504 .486 .469 .451 43 49 44 50 .582 .564 .545 .527 .509 .492 .474 .456 44 50 45 51 .588 .570 .551 .533 .515 .497 .479 .461 45 51 ------ ------ ------ ------ ------ ------ ------ ------ 74 75 76 77 78 79 80 81
FEMALE PENSIONER WHOSE RETIREMENT AGE IS: INTEREST - 5.50% MORTALITY - 1971 TPF/C FORECAST MORTALITY TABLE 8 SCHEDULE A Page Two FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTINGENT ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT
BENEFICIARY'S BENEFICIARY'S AGE AT AGE AT PENSIONER'S MALE PENSIONER WHOSE RETIREMENT AGE IS: PENSIONER'S RETIREMENT RETIREMENT MALE FEMALE 60 61 62 63 64 65 66 67 MALE FEMALE - ---- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ 45 51 .731 .715 .698 .681 .663 .644 .626 .607 45 51 46 52 .737 .721 .704 .687 .669 .651 .632 .614 46 52 47 53 .744 .728 .711 .694 .676 .658 .639 .620 47 53 48 54 .751 .735 .719 .701 .683 .665 .646 .627 48 54 49 55 .757 .742 .725 .708 .690 .672 .653 .634 49 55 50 56 .764 .749 .732 .715 .697 .679 .660 .642 50 56 51 57 .772 .756 .740 .723 .705 .687 .668 .649 51 57 52 58 .779 .764 .747 .731 .713 .695 .676 .657 52 58 53 59 .786 .771 .755 .738 .721 .703 .684 .665 53 59 54 60 .794 .779 .763 .747 .729 .711 .693 .674 54 60 55 61 .802 .787 .771 .755 .738 .720 .701 .682 55 61 56 62 .809 .795 .779 .763 .746 .729 .710 .691 56 62 57 63 .817 .803 .788 .772 .755 .738 .719 .701 57 63 58 64 .825 .811 .796 .781 .764 .747 .729 .710 58 64 59 65 .833 .820 .805 .790 .773 .756 .738 .720 59 65 60 66 .841 .828 .814 .799 .783 .766 .748 .730 60 66 61 67 .849 .836 .822 .808 .792 .775 .758 .740 61 67 62 68 .857 .844 .831 .817 .801 .785 .768 .751 62 68 63 69 .865 .853 .840 .826 .811 .795 .779 .761 63 69 64 70 .873 .861 .848 .835 .821 .805 .789 .772 64 70 65 71 .880 .869 .857 .844 .830 .815 .799 .783 65 71 66 72 .888 .877 .865 .853 .839 .825 .809 .793 66 72 67 73 .895 .885 .874 .862 .849 .835 .820 .804 67 73 68 74 .902 .892 .882 .870 .858 .844 .830 .815 68 74 69 75 .908 .898 .889 .878 .866 .853 .839 .825 69 75 70 76 .915 .906 .897 .886 .875 .862 .849 .835 70 76 71 77 .821 .913 .904 .894 .883 .871 .858 .845 71 77 72 78 .927 .919 .910 .901 .891 .879 .867 .854 72 78 73 79 .932 .925 .917 .908 .898 .888 .876 .864 73 79 74 80 .937 .931 .923 .915 .906 .895 .884 .873 74 80 75 81 .942 .936 .929 .921 .913 .903 .893 .881 75 81 ------ ------ ------ ------ ------ ------ ------ ------ 66 67 68 69 70 71 72 73 BENEFICIARY'S BENEFICIARY'S AGE AT AGE AT PENSIONER'S MALE PENSIONER WHOSE RETIREMENT AGE IS: PENSIONER'S RETIREMENT RETIREMENT MALE FEMALE 68 69 70 71 72 73 74 75 MALE FEMALE - ---- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ 45 51 .588 .570 .551 .533 .515 .497 .479 .461 45 51 46 52 .595 .576 .557 .539 .521 .503 .485 .466 46 52 47 53 .601 .583 .564 .545 .527 .509 .491 .472 47 53 48 54 .608 .589 .570 .552 .533 .515 .497 .478 48 54 49 55 .615 .596 .577 .559 .540 .522 .503 .484 49 55 50 56 .623 .604 .585 .566 .547 .529 .510 .491 50 56 51 57 .630 .611 .593 .573 .554 .536 .517 .498 51 57 52 58 .638 .619 .600 .581 .562 .543 .524 .505 52 58 53 59 .646 .627 .608 .589 .570 .551 .532 .513 53 59 54 60 .655 .636 .616 .597 .578 .559 .540 .520 54 60 55 61 .663 .644 .625 .606 .587 .568 .548 .527 55 61 56 62 .673 .653 .634 .615 .596 .577 .557 .537 56 62 57 63 .682 .663 .644 .624 .605 .586 .566 .546 57 63 58 64 .692 .673 .653 .634 .615 .596 .575 .556 58 64 59 65 .701 .683 .663 .644 .625 .606 .585 .566 59 65 60 66 .712 .693 .674 .655 .636 .616 .597 .576 60 66 61 67 .722 .704 .685 .666 .647 .627 .607 .587 61 67 62 68 .733 .714 .696 .677 .658 .639 .619 .598 62 68 63 69 .744 .725 .707 .688 .669 .650 .630 .610 63 69 64 70 .755 .737 .718 .700 .681 .662 .643 .622 64 70 65 71 .766 .748 .730 .712 .693 .674 .655 .635 65 71 66 72 .777 .760 .742 .724 .706 .687 .669 .648 66 72 67 73 .788 .771 .754 .736 .718 .700 .681 .661 67 73 68 74 .799 .782 .765 .748 .731 .712 .693 .674 68 74 69 75 .810 .794 .777 .760 .743 .725 .707 .687 69 75 70 76 .820 .805 .789 .772 .755 .738 .720 .700 70 76 71 77 .830 .816 .800 .784 .768 .751 .733 .714 71 77 72 78 .841 .826 .811 .796 .780 .763 .745 .727 72 78 73 79 .850 .837 .822 .807 .792 .775 .758 .740 73 79 74 80 .860 .847 .833 .818 .804 .788 .771 .754 74 80 75 81 .869 .857 .844 .830 .815 .800 .784 .767 75 81 ------ ------ ------ ------ ------ ------ ------ ------ 74 75 76 77 78 79 80 81
FEMALE PENSIONER WHOSE RETIREMENT AGE IS: INTEREST - 5.50% MORTALITY - 1971 TPF/C FORECAST MORTALITY TABLE 9 SCHEDULE A Page 3
BENEFITS WILL BE BENEFITS WILL BE CHANGED FROM 75% TO CHANGED FROM 37 1/2% TO THE FOLLOWING THE FOLLOWING SPOUSE YOUNGER PERCENTAGE WHEN PERCENTAGE WHEN THAN PARTICIPANT PAYABLE UNDER PAYABLE UNDER BY (YEARS) PARAGRAPHS 3 & 7 PARAGRAPH 4 ------------ ---------------- ----------- 11 66.5 33.25 12 65.8 32.90 13 65.1 32.55 14 64.4 32.20 15 63.8 31.90 16 63.2 31.60 17 62.6 31.30 18 62.1 31.05 19 61.6 30.80 20 61.1 30.55 21 60.6 30.30 22 60.1 30.05 23 59.7 29.85 24 59.3 29.65 25 58.9 29.45 26 58.5 29.25 27 58.1 29.05 28 57.8 28.90 29 57.4 28.70 30 57.1 28.55 31 56.8 28.40 32 56.6 28.30 33 56.3 28.15 34 56.0 28.00 35 55.8 27.90 36 55.6 27.80 37 55.4 27.70 38 55.2 27.60 39 55.0 27.50 40 54.8 27.40
10 -------------------------------------------------------- COOPER INDUSTRIES, INC. PLANS ADMINISTRATION COMMITTEE -------------------------------------------------------- ACTION IN WRITING CONCERNING CROUSE-HINDS OFFICERS' SUPPLEMENTAL PENSION PLAN -------------------------------------------------------- FEBRUARY 23, 1983 WHEREAS, Crouse-Hinds Company ("Crouse-Hinds") became a wholly-owned subsidiary of Cooper Industries, Inc. ("Company"), effective as of April 29, 1981 ("Acquisition Date"); WHEREAS, immediately prior to the Acquisition Date, Crouse-Hinds maintained the "Crouse-Hinds Company Officers' Disability and Supplemental Pension Plan" ("Plan") for a select group of its employees; WHEREAS, upon the Acquisition Date, the Company agreed with Crouse-Hinds that the Plan would remain in effect in amended form, providing for the limitation of participation under the Plan to certain named individuals, who were notified of their participation in the Plan; WHEREAS, by written action dated November 23, 1982, the Board of Directors of Crouse-Hinds confirmed the adoption of the Company's Plans Management Procedure for the management and administration of all employee benefit plans maintained by it, including the Plan, all effective as of the Acquisition Date; and WHEREAS, pursuant to the Company's Plans Management Procedure, the Plans Administration Committee of the Company ("Committee") is responsible, among other things, for approving amendments to employee benefit plans, and the Committee does hereby desire to approve and confirm the amendments implemented with respect to the Plan as of the Acquisition Date; NOW, THEREFORE, in consideration of the foregoing, the Committee hereby adopts the foregoing recitals and the following resolutions, as evidenced by the signatures of all of its members below: -1- 11 RESOLVED, that the Plan, as in effect immediately prior to the Acquisition Date, is hereby continued in effect from and after such Date subject to its terms and the further amendatory provisions set forth below: (1) From and after the Acquisition Date, the only Participants in the Plan shall be the following named individuals: F. M. Egan J. W. Perdiue E. J. Dunphy G. R. Raisbeck A. O. Halstead H. J. Riley, Jr. F. F. House R. R. Schlichting R. K. McCabe P. J. Vassallo H. H. Meyer, Jr. R. L. Walker, M.D. E. G. Mogren Notwithstanding the eligibility provisions of the Plan, participation in the Plan from and after the Acquisition Date shall be limited to those individuals listed above, and no new participants shall become eligible to participate in the Plan from and after such Date, irrespective of their date of hire or job position. (2) Any benefit payable under the Plan with respect to a participant in the Plan prior to the Acquisition Date, who had terminated employment or otherwise become eligible for a benefit prior to such Date, shall be payable in accordance with the terms of the Plan in effect as of the date of the event giving rise to such benefit. (3) The participants in the Plan from and after the Acquisition Date shall be eligible to receive benefits (if any) under the Plan in accordance with the terms of the Plan, as modified herein or subsequent hereto. For purposes of determining such participant's eligibility for a benefit and the amount thereof, the participant's employment with Cooper Industries, Inc., or any of its affiliated companies, shall be considered as employment with Crouse-Hinds Company or its successor. (4) The Plan may be terminated or amended in any respect and at any time by action of the Plans Administration Committee of Cooper Industries, Inc. Any such action may provide for a retroactive or prospective effective date, and may be taken without notice or approval of any participant in the Plan. (5) All determinations relating to eligibility for benefits, benefit calculations, benefit commencement and all other determinations and interpretations under the Plan shall be made by and in the sole discretion of the Plans Administration Committee. All actions of such Committee shall be final and conclusive with respect to any party making a claim under the Plan. RESOLVED, that the actions taken by the Committee herein are taken in confirmation of the actions previously implemented by Crouse-Hinds and the Company effective as of the Acquisition Date, which actions are hereby approved, all effective as of the Acquisition Date. -2- 12 RESOLVED, that the appropriate officers of Crouse-Hinds and the Company, and company personnel directed by them, are hereby authorized to do and perform all such acts and things, and to take all other steps as they, or any of them may deem necessary, advisable, convenient or proper to carry out and effect the actions taken herein. Dated: February 23, 1983 /s/ Roger A. Scott --------------------------- Roger A. Scott /s/ Carl J. Plesnicher, Jr. --------------------------- Carl J. Plesnicher, Jr. /s/ Laurence H. Polsky --------------------------- Laurence H. Polsky /s/ Stephen V. O'Neill --------------------------- Stephen V. O'Neill Secretary Approval: /s/DHB -------- -3- EX-10.9 10 1986 STOCK OPTION PLAN 1 Exhibit 10.9 COOPER INDUSTRIES, INC. 1986 STOCK OPTION PLAN 1. Purpose of Plan. The purpose of this Plan is to advance the interests of Cooper Industries, Inc. (the "Company") and its shareholders by providing a means whereby key employees of the Company and its subsidiaries may be furnished with an additional incentive by being given an opportunity to purchase shares of the Company's common stock, par value $5.00 per share (hereinafter called "shares") pursuant to options granted under this Plan to the end that the Company may retain present personnel upon whose judgment, initiative, and efforts the successful conduct and development of the business of the Company largely depends, and the Company may attract new personnel. The options granted under this Plan may be either "nonstatutory" options or options which are intended to qualify as "incentive stock options" under Section 422A of the Internal Revenue Code of 1954, as amended (the "Code"), or any successor provision. 2. Shares Subject to the Plan. The aggregate number of shares of the Company for which options may be granted under this Plan shall be 6,600,000*; provided, however, that the number of shares reserved for issuance pursuant to this Plan at the time of any stock split, stock dividend or other change in the Company's capitalization shall be appropriately adjusted to reflect such stock dividend, stock split or other change in capitalization. Shares shall be made available from authorized but unissued or reacquired shares of the Company. Any shares for which an option is granted hereunder that are released from such option shall be available for other options to be granted under this Plan. 3. Administration of the Plan. This Plan shall be administered by a committee of the Board of Directors (the "Committee") consisting of not less than three directors of the Company who shall be appointed by the Board of Directors to serve as the Committee at the pleasure of the Board of Directors. No member of the Committee at the time he exercises discretion in administering this Plan shall be eligible or shall have been eligible at any time within one year prior thereto to be allocated stock or to be granted stock options or stock appreciation rights under this Plan or any other plan of the Company or any of its affiliates. Any action taken by a majority of the Committee at a meeting or by a writing signed by all of its members shall constitute action of the Committee. Subject to the express provisions of this Plan, the Committee shall have conclusive Authority to construe and interpret this Plan and any stock option agreement entered into thereunder and establish, amend, and rescind rules and regulations for its administration and shall have such additional authority as the Board of Directors may from time to time determine to be necessary or desirable. 4. Granting of Options. The Committee from time to time shall designate from among the full-time key employees of the Company or of a subsidiary corporation (as defined in *As adjusted for 2 for 1 stock split and increase in Plan shares. 2 Section 425 of the Code) those employees to whom options shall be granted under this Plan, the types of options - whether nonstatutory or incentive or both - and the number of shares which shall be subject to each option so granted. The Committee also may authorize the granting of options to prospective employees. In the case of a prospective employee, grant of the option shall be upon the condition of employment by the Corporation or a subsidiary in a key position, and the date of the grant of the option shall be the date such employment begins or such later date as the Committee may have specified when authorizing the grant. All actions of the Committee under this Paragraph shall be conclusive; provided, however, the aggregate fair market value (determined as of the date the option is granted) of the stock with respect to which incentive stock options become exercisable for the first time by an employee during any calendar year (under all incentive stock option plans) shall not exceed $100,000. 5. Option Period. No option granted under this Plan shall be exercised later than five (5) years from the date of grant. 6. Option Price. The option price shall be fixed by the Committee and set forth in the option agreement, and shall not be less than the fair market value of the optioned shares on the date the option is granted, which shall be the date on which the Committee acts on the granting of an option or such later date as the Committee may specify. The option agreement may provide for the option price to be payable in cash or previously acquired shares or a combination of cash and shares and may set forth the method of valuing the Company's shares for such purpose. 7. Option Agreement. The option agreement in which option rights are granted to an employee shall be in the applicable form approved by the Committee and shall be signed on behalf of the Company by an officer of the Company designated by the Committee for this purpose and shall be dated as of the date of grant of the option. No option shall be transferable by the optionee except by will or the laws of descent and distribution, and options may be exercised during the employee's lifetime only by him. 8. Reorganization and Changes in Control. If (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all of the assets and business of the Company are to be sold, or (iv) there occurs a "change in control" of the Company, then the Committee may, in its sole discretion, with respect to any or all options then outstanding under this Plan both (a) at any time on or prior to the effective date of such merger, consolidation, dissolution and liquidation, or sale, and, at any time on or after a change in control cause the option or any portion thereof to become exercisable forthwith in full regardless of any provisions in the option concerning vesting and (b) at any time during the 20-day period ending on the effective date of such merger, consolidation, dissolution or sale, or during the 20-day period beginning on the date of a change in control or, if later, the date the Company has notice thereof, cancel any option in whole or in part by payment in cash to the optionee of an amount equal to the excess, but only if the amount is positive, of the fair market value of the Company's Common Stock on the date of said cancellation over the option price per share times the number of shares covered by the option or portion thereof so cancelled. For purposes hereof, a "change in control of the Company" shall be deemed to have occurred if (i) any "person", as such term is 3 used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the "beneficial owner" (as such term is used in Rule 13d-3 issued under the Exchange Act), of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least three-fourths thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. In the event that a change in control results in there being fewer than three members of the Committee who were members prior to the change, members of the Board of Directors who were members prior to the change and meet the requirements of the Committee membership set forth in Paragraph 3 shall automatically be alternate members of the Committee to act under this Paragraph 8, and if there are not three such persons, then acceleration of vesting of options as contemplated herein shall occur automatically. 9. Amendment and Termination of Plan. The Company, by action of its Board of Directors, reserves the right at any time to amend, modify, suspend, or terminate this Plan, or by action of the Committee with the consent of the employee to amend, modify or terminate any outstanding option agreement except that the Company may not, without further shareholder approval, materially increase the total number of shares for which options may be granted under this Plan (except increases attributable to the adjustments authorized in Paragraph 2 hereof), materially modify the requirements as to eligibility for participation in this Plan, or materially increase the benefits accruing to participants under this Plan. 10. Effective Date of Plan. This Plan shall be effective upon its adoption by the Board of Directors. This Plan shall be submitted to the shareholders of the Company for approval within 12 months after its adoption by the Board of Directors and, if this Plan shall not be approved by the shareholders within said period, the Plan shall be void and of no effect. Any options granted under this Plan prior to the date of approval by the shareholders shall be void if such shareholder approval is not obtained. 11. Expiration of Plan. Options may be granted under this Plan at any time prior to February 18, 1996, on which date this Plan shall expire but without affecting any options then outstanding. EX-10.10 11 FORM OF INCENTIVE STOCK OPTION AGMT 1 Exhibit 10.10 Cooper Industries, Inc. Incentive Stock Option Agreement Granted to: _______________________________ Grant Date ________________________________ Number of Shares of Cooper Industries Common Stock _____________________________ Option Price Per Share ____________________ Employee Number ___________________________ Expiration Date ___________________________ Division __________________________________ This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the 1986 Stock Option Plan (the "Plan"), the Company grants to the Employee an incentive stock option to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this option (the "Grant Date"), whereupon such rights shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, which percentage shall increase to 66 2/3% after two years, and 100% after three years from the Grant Date. (b) During the lifetime of the Employee, the option rights are exercisable only by him, and, except as otherwise provided in Sections 2 and 3 below, only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The option rights shall expire at the end of the period of five years commencing with the Grant Date, or upon such earlier expiration or termination dates as may be provided by Sections 2 and 3 hereof or by cash payments made in complete or partial cancellation hereof pursuant to Section 8, and such option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, his option rights shall terminate immediately; provided, however, that (a) if such cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee at any time following such retirement (but before the Expiration Date) may exercise the option rights; and (b) if such cessation of employment is occasioned by the Employee's disability, 2 then the Employee at any time within one year following such cessation of employment (but before the Expiration Date) may exercise the option rights to the extent he was entitled to exercise the same immediately prior to such cessation of employment, and no more. 3. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company or while retired under Section 2(a), or shall die within the one-year period available to him upon disability, then within the year next succeeding hid death (but before the Expiration Date), the person entitled by will or the applicable laws of descent and distribution may exercise the option rights to the extent that the Employee was entitled to exercise the same immediately prior to his death, and no more. 4. The option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary, or if he is the employee concerned, then to the attention of the President or a Vice President) a written notice, signed by the Employee or a person entitled by will or the laws of descent and distribution to exercise the option, as the case may be, of the election to exercise the option and stating the number of Shares in respect of which it is then being exercised. The option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the option, the Company shall issue in the name of the person exercising the option, and deliver to such person, a certificate for the Shares purchased. The Employee agrees that as holder of the option he shall have no rights as shareholder in respect of any of the Shares as to which the option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 5. This option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. 3 Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a commitment in writing by the person exercising the option that at the time of such exercise it is his intention to acquire such Shares for his own account for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid commitment and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 6. In consideration of the granting of this option by the Company, the Employee agrees that he will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 7. This option and the option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than by will or by the laws of descent and distribution. 8. Reorganization and Changes in Control. If (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all of the assets and business of the Company are to be sold, or (iv) there occurs a "change in control" of the Company, then the Committee of the Board of Directors that administers the Plan (the "Committee") may, in its sole discretion, with respect to any or all options then outstanding under this Agreement both (a) at any time on or prior to the effective date of such merger, consolidation, dissolution and liquidation, or sale, and, at any time on or after a change in control cause the option or any portion thereof to become exercisable forthwith in full regardless of any provisions in this Agreement concerning vesting and (b) at any time during the 20-day period ending on the effective date of such merger, consolidation, dissolution and liquidation, or sale or during the 20-day period beginning on the date of a change in control or, if later, the date the Company has notice thereof, cancel any option in whole or in part by payment in cash to the Employee of an amount equal to the excess, but only if the amount is positive, of the fair market value of the Company's Common Stock on the date of said cancellation over the option price per Share times the number of Shares covered by the option or portion thereof so cancelled. For purposes hereof, a "change in control" of the Company shall be as defined in Section 8 of the Plan. 9. For purposes of this Agreement, employment by a parent or subsidiary of or a successor 4 to the Company shall be considered employment by the Company. 10. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 11. The Employee hereby agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to this option within a period of one year from their acquisition. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Employee as a result thereof. 12. Notwithstanding any provisions hereof, this Agreement and the option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. Cooper Industries, Inc. By -------------------------------------- Employee Signature ----------------------- Social Security No. ---------------------- Home Address ----------------------------- ----------------------------------------- ----------------------------------------- EX-10.11 12 1986 NONQUALIFIED STOCK OPTION AGREEMENT 1 Exhibit 10.11 Cooper Industries, Inc. Nonqualified Stock Option Agreement Granted to: ______________________________ Grant Date _______________________________ Number of Shares of Cooper Industries Common Stock ____________________________ Option Price Per Share ___________________ Employee Number __________________________ Expiration Date __________________________ Division _________________________________ This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the 1986 Stock Option Plan (the "Plan"), the Company grants to the Employee an incentive stock option to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this option (the "Grant Date"), whereupon such rights shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, which percentage shall increase to 66 2/3% after two years, and 100% after three years from the Grant Date. (b) During the lifetime of the Employee, the option rights are exercisable only by him, and, except as otherwise provided in Sections 2 and 3 below, only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The option rights shall expire at the end of the period of five years commencing with the Grant Date, or upon such earlier expiration or termination dates as may be provided by Sections 2 and 3 hereof or by cash payments made in complete or partial cancellation hereof pursuant to Section 8, and such option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, his option rights shall terminate immediately; provided, however, that (a) if such cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee at any time following such retirement (but before the Expiration Date) may exercise the option rights; and (b) if such cessation of employment is occasioned by the Employee's disability, 2 then the Employee at any time within one year following such cessation of employment (but before the Expiration Date) may exercise the option rights to the extent he was entitled to exercise the same immediately prior to such cessation of employment, and no more. 3. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company or while retired under Section 2(a), or shall die within the one-year period available to him upon disability, then within the year next succeeding hid death (but before the Expiration Date), the person entitled by will or the applicable laws of descent and distribution may exercise the option rights to the extent that the Employee was entitled to exercise the same immediately prior to his death, and no more. 4. The option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary, or if he is the employee concerned, then to the attention of the President or a Vice President) a written notice, signed by the Employee or a person entitled by will or the laws of descent and distribution to exercise the option, as the case may be, of the election to exercise the option and stating the number of Shares in respect of which it is then being exercised. The option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the option, the Company shall issue in the name of the person exercising the option, and deliver to such person, a certificate for the Shares purchased. The Employee agrees that as holder of the option he shall have no rights as shareholder in respect of any of the Shares as to which the option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 5. This option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. 3 Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a commitment in writing by the person exercising the option that at the time of such exercise it is his intention to acquire such Shares for his own account for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid commitment and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 6. In consideration of the granting of this option by the Company, the Employee agrees that he will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 7. This option and the option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than by will or by the laws of descent and distribution. 8. Reorganization and Changes in Control. If (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all of the assets and business of the Company are to be sold, or (iv) there occurs a "change in control" of the Company, then the Committee of the Board of Directors that administers the Plan (the "Committee") may, in its sole discretion, with respect to any or all options then outstanding under this Agreement both (a) at any time on or prior to the effective date of such merger, consolidation, dissolution and liquidation, or sale, and, at any time on or after a change in control cause the option or any portion thereof to become exercisable forthwith in full regardless of any provisions in this Agreement concerning vesting and (b) at any time during the 20-day period ending on the effective date of such merger, consolidation, dissolution and liquidation, or sale or during the 20-day period beginning on the date of a change in control or, if later, the date the Company has notice thereof, cancel any option in whole or in part by payment in cash to the Employee of an amount equal to the excess, but only if the amount is positive, of the fair market value of the Company's Common Stock on the date of said cancellation over the option price per Share times the number of Shares covered by the option or portion thereof so cancelled. For purposes hereof, a "change in control" of the Company shall be as defined in Section 8 of the Plan. 9. For purposes of this Agreement, employment by a parent or subsidiary of or a successor 4 to the Company shall be considered employment by the Company. 10. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 11. Notwithstanding any provisions hereof, this Agreement and the option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. Cooper Industries, Inc. By ------------------------------------- Employee Signature --------------------- Social Security No. --------------------- Home Address ---------------------------- EX-10.13 13 INCENTIVE STOCK OPTION AGREEMENT 1 Exhibit 10.13 Cooper Industries, Inc. Incentive Stock Option Agreement Granted to: _____________________________ Grant Date ______________________________ Number of Shares Of Cooper Industries Common Stock _________________________ Option Price Per Share___________________ Employee Number _________________________ Expiration Date__________________________ Division_________________________________ This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the Cooper Industries, Inc. Stock Incentive Plan (the "Plan"), the Company grants to the Employee an Incentive Stock Option ("Option") to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this Option (the "Grant Date"). The Option shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, after one year, 66 2/3% after two years, and 100% after three years from the Grant Date. (b) During the lifetime of the Employee, the Option rights are exercisable only by the Employee, and, except as otherwise provided in Sections 2, 3 and 4 below, only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The Option rights shall expire at the end of the period of 10 years commencing with the Grant Date, or upon such earlier expiration or termination date as may be provided by Sections 2, 3, 4 or 9 hereof and such Option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, disability or retirement, the Option rights shall terminate immediately. If cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee may exercise the Option rights following such retirement for a period of five years after retirement or until the Expiration Date, whichever is lesser. 2 3. If, after the expiration of one year from the Grant Date, the Employee shall cease employment as the direct result of disability (as defined in the Company's qualified Salaried Pension Plan), all outstanding options granted to the Employee become exercisable immediately and the Employee may exercise such outstanding options for a period of one year after the cessation of employment resulting from disability or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 4. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company, or while retired with exercisable Options under Section 2, all outstanding options granted to the Employee become exercisable immediately and the person entitled by will or the applicable laws of descent and distribution may exercise such outstanding Options for a period of one year after the date of death or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 5. The Option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary or Assistant Secretary) a written notice, signed by the Employee or a person entitled by will or the laws of descent and distribution to exercise the Option, as the case may be, of the election to exercise the Option and stating the number of Shares in respect of which it is then being exercised. The Option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the Option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the Option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the Option, the Company shall issue in the name of the person exercising the Option, and deliver to such person, a certificate for the Shares purchased. The Employee agrees that as holder of the Option he or she shall have no rights as shareholder in respect of any of the Shares as to which the Option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the Option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 6. This Option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing 3 requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this Option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a written statement that the Employee is acquiring such Shares for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid statement and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 7. In consideration of the granting of this Option by the Company, the Employee agrees that he or she will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his or her employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 8. This Option and the Option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than by will or by the laws of descent and distribution. 9. In the event of a reorganization, recapitalization or other change in the capital stock, corporate structure or business of the Company, the Board of Directors shall make appropriate adjustments to the number of Shares subject to the Option and the exercise price so as to maintain the proportionate interest of the Employee and preserve the value of the Option. In the event of a Change in Control of the Company, outstanding Options shall be settled by a cash payment in accordance with Section 18.2 of the Plan. 10. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered employment by the Company. 11. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the 4 Committee under the provisions of this paragraph shall be conclusive for all purposes. 12. The Employee hereby agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to this Option within a period of one year from their acquisition. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Employee as a result thereof. 13. Notwithstanding any provisions hereof, this Agreement and the Option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. Cooper Industries, Inc. By ------------------------------------- Employee Signature --------------------- Social Security No. --------------------- Home Address --------------------------- ---------------------------------------- ---------------------------------------- EX-10.14 14 NONQUALIFIED STOCK OPTION AGMT FOR INCENTIVE PLAN 1 EXHIBIT 10.14 Cooper Industries, Inc. Nonqualified Stock Option Agreement Granted to: -------------------------------- Grant Date --------------------------------- Number of Shares of Cooper Industries Common Stock ------------------------------ Option Price Per Share --------------------- Employee Number ---------------------------- Expiration Date ---------------------------- Division ----------------------------------- This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the Cooper Industries, Inc. Stock Incentive Plan (the "Plan"), the Company grants to the Employee an Incentive Stock Option ("Option") to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this Option (the "Grant Date"). The Option shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, after one year, 66 2/3% after two years, and 100% after three years from the Grant Date. (b) During the lifetime of the Employee, the Option rights are exercisable only by the Employee, and, except as otherwise provided in Sections 2, 3 and 4 below, only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The Option rights shall expire at the end of the period of 10 years commencing with the Grant Date, or upon such earlier expiration or termination date as may be provided by Sections 2, 3, 4 or 9 hereof and such Option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, disability or retirement, the Option rights shall terminate immediately. If cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee may exercise the Option rights following such retirement for a period of five years after retirement or until the Expiration Date, whichever is lesser. 2 3. If, after the expiration of one year from the Grant Date, the Employee shall cease employment as the direct result of disability (as defined in the Company's qualified Salaried Pension Plan), all outstanding options granted to the Employee become exercisable immediately and the Employee may exercise such outstanding options for a period of one year after the cessation of employment resulting from disability or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 4. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company, or while retired with exercisable Options under Section 2, all outstanding options granted to the Employee become exercisable immediately and the person entitled by will or the applicable laws of descent and distribution may exercise such outstanding Options for a period of one year after the date of death or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 5. The Option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary or Assistant Secretary) a written notice, signed by the Employee or a person entitled by will or the laws of descent and distribution to exercise the Option, as the case may be, of the election to exercise the Option and stating the number of Shares in respect of which it is then being exercised. The Option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the Option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the Option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the Option, the Company shall issue in the name of the person exercising the Option, and deliver to such person, a certificate for the Shares purchased. The Employee agrees that as holder of the Option he or she shall have no rights as shareholder in respect of any of the Shares as to which the Option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the Option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 6. This Option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; or 3 (c) Any applicable legal requirement of any other governmental authority. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this Option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a written statement that the Employee is acquiring such Shares for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid statement and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 7. In consideration of the granting of this Option by the Company, the Employee agrees that he or she will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his or her employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 8. This Option and the Option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than by will or by the laws of descent and distribution. 9. In the event of a reorganization, recapitalization or other change in the capital stock, corporate structure or business of the Company, the Board of Directors shall make appropriate adjustments to the number of Shares subject to the Option and the exercise price so as to maintain the proportionate interest of the Employee and preserve the value of the Option. In the event of a Change in Control of the Company, outstanding Options shall be settled by a cash payment in accordance with Section 18.2 of the Plan. 10. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered employment by the Company. 11. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 4 12. Notwithstanding any provisions hereof, this Agreement and the Option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. Cooper Industries, Inc. By -------------------------------------------- Employee Signature ---------------------------- Social Security No. --------------------------- Home Address ---------------------------------- ---------------------------------------------- ---------------------------------------------- EX-10.18 15 DIRECTORS' NONQUALIFIED STOCK OPTION AGREEMENT 1 Exhibit 10.18 Cooper Industries, Inc. Directors' Nonqualified Stock Option Agreement Granted to: ----------------------------- Grant Date ------------------------------ Number of Shares of Cooper Industries Common Stock --------------------------- Option Price Per Share ------------------ Social Security Number ------------------ Expiration Date ------------------------- This agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned (the "Participant"), a member of the Board of Directors of the Company (the "Board"). The parties hereto have agreed as follows: 1. Pursuant to the Cooper Industries, Inc. Directors' Stock Plan (the "Plan"), the Company grants to the Participant, a Nonqualified Stock Option ("Option") to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the terms and conditions set forth below. 2. The Option rights shall become fully exercisable on the third anniversary of the date of grant of this Option (the "Grant Date"). If, prior to the third anniversary of the Grant Date, the Participant ceases to be a Director of the Company for any reason other than death or retirement in accordance with the retirement policy of the Board, the Option rights shall terminate immediately. 3. If, prior to the third anniversary of the Grant Date, the Participant shall die while serving as a member of the Board or retires from the Board in accordance with the Board's retirement policy, all outstanding Options granted to the Participant shall become fully exercisable immediately. 4. The duration of the Option rights shall be 10 years from the Grant Date, provided that after the Participant ceases to be a member of the Board for any reason, including without limitation death or retirement in accordance with the Board's retirement policy, all vested Options may be exercised only until the Expiration Date thereof or for a period of five years, whichever is lesser. 5. During the lifetime of the Participant, the Option rights are exercisable only by the Participant. 6. The Option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary or Assistant Secretary) a written notice, signed by the Participant or a person entitled by will or the laws of descent and distribution to exercise the 2 Option, as the case may be, of the election to exercise the Option and stating the number of Shares in respect of which it is then being exercised. The Option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the Option shall be exercised, as provided herein, by any person other than the Participant, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the Option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Participant in payment of the purchase price must have been owned by the Participant for a period of not less than six months. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange composite tape for the date of exercise, provided that if no sales of Stock were made on the New York Stock Exchange on that date, the Stock shall be valued at the average of the high and low prices of the Stock as reported on the composite tape for the preceding day on which sales of the Stock were made. Upon the proper exercise of the Option, the Company shall issue in the name of the person exercising the Option, and deliver to such person, a certificate for the Shares purchased. The Participant agrees that as holder of the Option, he or she shall have no rights as a shareholder in respect of any of the Shares as to which the Option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the Option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 7. This Option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this Option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a written statement that the Participant is acquiring such Shares for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid statement and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 3 8. Nothing contained herein shall be deemed to confer upon any Participant any right to continue as a Director of the Company. 9. This Option and the Option rights granted hereunder are not assignable or transferable or subject to any disposition by the Participant otherwise than by will or by the laws of descent and distribution. 10. In the event of any change in the number of outstanding shares of the Company's Stock by reason of any stock dividend, stock split, recapitalization, merger, consolidation, exchange of shares or other similar corporate change, the Board shall make appropriate adjustments to the number of Shares subject to the Option and the exercise price so as to maintain the proportionate interest of the Participant and preserve the value of the Option. In the event of a Change in Control (as defined in the Plan) of the Company, all outstanding Options shall be canceled and shall be settled with a cash payment in accordance with Section 8 of the Plan. 11. The Board, or a Committee appointed by the Board to act on its behalf under the Plan, shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Board or Committee, necessary or desirable for the administration of the Plan. The Board or Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Board or Committee under the provisions of this paragraph shall be conclusive for all purposes. 12. Notwithstanding any provisions hereof, this Agreement and the Option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. Cooper Industries, Inc. By -------------------------------------------- Participant Signature ------------------------- Social Security No. --------------------------- Home Address ---------------------------------- ---------------------------------------------- ---------------------------------------------- EX-12 16 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 1 Exhibit 12.0 COOPER INDUSTRIES, INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands) (Unaudited)
Year Ended December 31, --------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Interest Expense $ 90,400 $ 142,100 $ 151,000 $ 73,300 $ 80,900 Estimated Interest Portion of Rent Expense (One-Third) 18,755 17,362 16,865 19,289 20,701 --------- --------- --------- --------- --------- Fixed Charges $ 109,155 $ 159,462 $ 167,865 $ 92,589 $ 101,601 ========= ========= ========= ========= ========= Income From Continuing Operations Before Income Taxes $ 626,700 $ 558,000 $ 478,000 $ 504,700 $ 506,000 Add: Fixed Charges 109,155 159,462 167,865 92,589 101,601 Dividends From Less Than 50% Owned Companies -- 359 968 835 2,395 Less: Equity in Net Income of Less Than 50% Owned Companies (155) (1,281) (1,000) (1,900) (1,200) --------- --------- --------- --------- --------- Earnings Before Fixed Charges $ 735,700 $ 716,540 $ 645,833 $ 596,224 $ 608,796 ========= ========= ========= ========= ========= Ratio of Earnings to Fixed Charges 6.7x 4.5x 3.8x 6.4x 6.0x
EX-13 17 TEXT OF APPENDIX A TO PROXY STMT ANNUAL MEETING 1 EXHIBIT 13.0 APPENDIX A COOPER INDUSTRIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. A-1 Consolidated Financial Statements: Report of Management...................................... A-13 Report of Independent Auditors............................ A-14 Consolidated Income Statements for the three years ended December 31, 1997...................................... A-15 Consolidated Balance Sheets as of December 31, 1997 and 1996................................................... A-16 Consolidated Statements of Cash Flows for the three years ended December 31, 1997................................ A-17 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1997.................... A-18 Notes to Consolidated Financial Statements................ A-19
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Acquisitions and Divestitures During the last three years, Cooper's continuing operations have completed 18 acquisitions and 3 divestitures. The acquisitions have been in complementary product lines that enhance areas of strength, while the dispositions have been of noncore or under-performing businesses. In 1995, Cooper divested the remaining businesses comprising the former Petroleum & Industrial Equipment segment through an exchange offer with shareholders for common stock of Cooper Cameron Corporation ("Cooper Cameron"). On May 30, 1997, Cooper completed the sale of its Kirsch window treatment division for $216.0 million. For the five months ended May 30, 1997, and the year ended December 31, 1996, Kirsch had revenues of $97.4 million and $252.9 million, and operating earnings of $4.8 million and $20.0 million, respectively. Nonrecurring Income and Expenses In the third quarter of 1995, Cooper began to sell the common shares of Belden Inc. ("Belden") that it retained following the 1993 initial public offering of Belden's common stock. In 1995, Cooper recognized gains from the sale of the Belden marketable equity securities of $.05 per share. In 1996, Cooper sold the remaining common shares of Belden and all of the shares of Cooper Cameron retained in the 1995 exchange offer with shareholders. Also in 1996, Cooper initiated a strategic review of most of its businesses and operations. Actions resulting from this review included (1) the decision to retain an investment banking firm to evaluate the possible sale of Kirsch; (2) a change in the strategic direction of the automotive brake business and the write-down of long-lived assets and goodwill associated with certain brake product lines; and (3) nonrecurring charges related primarily to facility closings and consolidations and resolution of environmental litigation. The 1996 nonrecurring charges, when combined with the realization of gains from the sale of marketable equity securities, resulted in a net gain of $.05 per share. On May 30, 1997, Cooper completed the sale of its Kirsch window treatment division. The sale resulted in a gain of $69.8 million. During 1997, Cooper also exchanged a portion of its DECSSM (Debt Exchangeable for Common Stock) for Wyman-Gordon Company ("Wyman-Gordon") common stock and realized a gain of $23.2 million. Cooper incurred charges of $83.9 million for actions management committed to during 1997 after concluding an evaluation of (1) geographic manufacturing and distribution facilities within the Tools & Hardware segment, (2) certain sales, marketing and distribution activities within the Automotive Products segment and (3) information systems relating to year 2000 compliance efforts. The 1997 charges included adjustments to the carrying value of assets of $54.8 million and accruals for continuing obligations for replaced systems and facility consolidations of $29.1 million. Cooper also recorded a tax benefit of $6.1 million related to favorable settlements of state income tax issues in 1997. For 1997, the nonrecurring gains, net of the nonrecurring charges, and the tax benefit increased earnings per share by $.10. Cooper currently is not considering additional consolidations in the Electrical Products segment. The Tools & Hardware segment is currently in the process of consolidating certain international manufacturing and distribution facilities and the Automotive Products segment is currently in the process of consolidating sales, marketing and distribution activities. In addition, during 1997, Cooper began negotiations with Standard Motor Products, Inc. ("SMP") to exchange Cooper's temperature control business for the brake products business owned by SMP. In December 1997, Cooper received the necessary government approvals for completion of the transaction with SMP. Closing of the business exchange is subject to negotiation of a definitive agreement and is currently anticipated to occur in the first quarter of 1998. Cooper is continuing to evaluate strategic alternatives related to the Automotive Products segment. During early 1998, Cooper anticipates completing the exit of Automotive Products remanufacturing activities and all product lines included in the temperature control businesses and completing the consolidation of the Automotive Products sales, marketing and distribution activities. Adjustments to the carrying value of assets and accruals, noted above, were recorded for projects committed to by management. Severance and certain other costs related to projects committed to by management are not expensed until affected employees are notified. A majority of the consolidations have been announced and such costs were accrued and expended by the end of 1997. Cash expenditures related to the payout of accrued severance and other expenditures related to the committed consolidations in 1998 will not be significant. However, Cooper could incur additional expenses as the projects are completed, resulting from consolidation disruptions to operations and additional consolidation expenses. These additional expenses are currently not anticipated to be significant to any quarterly period in 1998. In addition, other gains or charges could be incurred during 1998 as A-1 3 management completes its evaluation of strategic alternatives related to the Automotive Products segment or adds to the strategic projects committed to in the Tools & Hardware segment. With the exception of the sale of Kirsch, the actions committed to in 1997 will not have a continuing significant impact on revenues, segment operating earnings or cash flows. See Notes 2 and 6 of Notes to Consolidated Financial Statements for additional information on nonrecurring gains and charges. Capitalization Effective January 1, 1995, Cooper exchanged all of its outstanding $1.60 Convertible Exchangeable Preferred Stock for $691.2 million of 7.05% Convertible Subordinated Debentures due 2015 and $3.8 million in cash related to fractional shares. While the exchange increased the debt-to-total capitalization ratio above Cooper's preferred target, it generated in excess of $20 million per year of additional net cash flows. During the first half of 1997, Cooper completed calls for redemption of all of its outstanding 7.05% Convertible Subordinated Debentures with a total of $610 million converted to approximately 14.8 million shares of Cooper Common stock and approximately $80 million redeemed for cash. On June 30, 1995, Cooper reduced common shares outstanding by 9.5 million shares through the completion of the exchange offer with its shareholders for the common stock of Cooper Cameron. In December 1995, Cooper issued $222.8 million in 6% Exchangeable Notes (DECSSM -- Debt Exchangeable for Common Stock) due January 1, 1999. The notes are mandatorily exchangeable into shares of Wyman-Gordon common stock owned by Cooper or, at Cooper's option, into cash in lieu of shares. The notes are, in effect, a monetization of Cooper's investment in Wyman-Gordon common stock. In addition, Cooper retained the first 16% of appreciation in the fair market value of the Wyman-Gordon common stock between the date of issuance of the notes and their maturity, plus 13.8% of any additional appreciation beyond the first 16%. During 1997, Cooper exchanged $33.8 million of its DECS for Wyman-Gordon common stock. At December 31, 1997, a minimum of $85.4 million after income taxes will be realized as a gain on the Wyman-Gordon common stock through the DECS monetization. This gain plus any additional appreciation will be realized upon redemption of the DECS. During 1997, Cooper purchased approximately 3.6 million shares of its Common stock for $192 million. This action was taken as part of the remaining $275 million Common stock repurchase authorization program to maintain Cooper's debt-to-total capitalization between 35% and 45%. Cooper has invested $586 million in capital assets related to modernization and expansion of facilities plus significant amounts related to the integration of newly acquired businesses and the revitalization of existing ones during the last three years. More importantly, Cooper today is a much different company than it was in 1994, and one that is well prepared for the increasingly competitive global marketplace. YEAR 2000 INFORMATION SYSTEMS ASSESSMENTS Many of Cooper's purchased and internally developed information systems programs were written using two digits rather than four to identify a year. With the turn of the century, time sensitive software using two digits may not identify the year 2000, which could result in system failures and miscalculations disrupting the ability to conduct normal business operations. Cooper completed an assessment of its major information systems for year 2000 compliance during 1997 and developed detailed plans to resolve all major issues by the end of 1998. Cooper has nine divisions with multiple hardware platforms and software products in use. At the time the assessment was completed, several businesses were, in the normal course, upgrading software and systems to increase efficiency and customer responsiveness. Therefore, while the assessment expedited certain systems conversions and upgrades, it did not initiate all of the actions subsequently described. Cooper also assesses major information systems of newly acquired businesses for year 2000 compliance as part of its assessment program. Four of Cooper's divisions are implementing new enterprise systems with the remaining divisions revising or upgrading existing software to be year 2000 compliant. One of the divisions implementing a new enterprise system began the rollout in 1997 with the other three divisions planning the rollouts in the second and third quarters of 1998. Where possible, businesses have abandoned home-grown or highly customized applications with purchased, year 2000 compliant replacements or upgrades. In some situations, operations within a business abandoned existing software and migrated to consolidated hardware and software that is year 2000 compliant. Where these solutions were not possible, businesses have contracted with third parties or committed internal resources to ensure that all major systems are year 2000 compliant. Cooper believes it was close to fifty percent complete with its efforts to convert software or install systems that are year 2000 compliant at the end of 1997. While most efforts are anticipated to be completed by the end of 1998, it is likely that certain efforts will be delayed into early 1999. A-2 4 Cooper has also initiated formal communications with its significant suppliers and large customers to determine the potential risk of disruption to Cooper's operations if these companies fail to remediate year 2000 issues. The greatest year 2000 compliance risk to Cooper is that implementation of new enterprise systems will be delayed beyond the anticipated completion dates in 1998 and the severe shortage of qualified information systems personnel, both internally and externally, could delay compliance efforts. Cooper's total annual capital investment has not increased significantly over historical expenditures, although like most companies the investment in information technology has become a larger percentage of annual capital expenditures. During the period 1996 through 1998, Cooper estimates that it will have capital expenditures of close to $100 million on information technology related to new systems installations. During 1997 and until completion of year 2000 compliance efforts, considerable internal resources are being devoted to these projects. In addition to the internal resources, Cooper has been incurring, and anticipates continuing to incur, approximately $2 million of quarterly expense in its compliance efforts. The capital expenditures and expenses of the projects, the estimated percentage of completion to date, and the dates on which Cooper believes it will complete the year 2000 compliance efforts are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. RESULTS OF OPERATIONS The financial information and discussions that follow, along with the Consolidated Financial Statements and related footnotes, will aid in understanding Cooper's results of operations as well as its financial position, cash flows and indebtedness. REVENUES
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- (IN MILLIONS) Electrical Products......................................... $2,568.3 $2,407.5 $2,089.7 Tools & Hardware............................................ 749.9 720.1 702.9 Automotive Products......................................... 1,873.2 1,903.2 1,758.8 -------- -------- -------- Continuing Revenues............................... 5,191.4 5,030.8 4,551.4 Kirsch...................................................... 97.4 252.9 259.5 -------- -------- -------- Total Revenues.................................... $5,288.8 $5,283.7 $4,810.9 ======== ======== ========
1997 vs. 1996 Revenues Cooper's 1997 revenues, excluding Kirsch, increased 3% over 1996. Excluding the impact of eight 1997 acquisitions and the carryover impact of 1996 acquisitions, revenues for 1997 increased 2%. The strengthening of the U.S. dollar against most of the functional currencies in which international operations conduct business reduced revenues measured in U.S. dollars by approximately $80 million or 1.5% compared to 1996. The strong dollar also had a negative unquantifiable impact on export sales. The Electrical Products segment contributed close to 50% of Cooper's continuing revenues in 1997, as revenues increased 7% over 1996. Excluding the effects of 1997 acquisitions and the carryover impact of 1996 acquisitions, revenues increased 5%. Revenue growth is attributable to strong sales increases of distribution and transmission equipment and circuit protection products. Lighting fixtures also benefited from strong demand in the housing and nonresidential construction markets. Strong international demand in Mexico and Canada for construction materials was offset somewhat by a soft European market and the effects of a strong dollar. The Tools & Hardware segment made up approximately 14% of Cooper's continuing revenues in 1997, with revenues increasing 4% over the prior year. Excluding the carryover impact of 1996 acquisitions, revenues increased 2% compared to 1996. Sales of domestic hand-held power tools and worldwide assembly equipment grew to meet continued demand from the automotive and aerospace industries. Providing a partial offset to this increase was a slight decline in demand for hand tool products in North America and the effects of a stronger U.S. dollar against most European currencies. A-3 5 The Automotive Products segment contributed 36% of Cooper's continuing revenues in 1997 with revenues decreasing slightly from the prior year. Excluding the effects of two small 1997 acquisitions and the carryover impact of one 1996 acquisition, revenues declined 2% from the prior year. Sales in the original equipment market improved as vehicle production levels increased on existing vehicle platform contracts. Sales in the aftermarket were hampered by weak demand in most product lines. Temperature control product sales and remanufactured product lines declined due primarily to competitive price pressures. Wiper volume declined significantly in the first half of 1997 as more normal winter weather patterns were experienced in 1997 than in 1996. 1996 vs. 1995 Revenues Cooper's 1996 revenues increased 10% over 1995. Excluding the impact of seven 1996 acquisitions, the carryover impact of 1995 acquisitions (including the CEAG acquisition on December 31, 1995) and one small 1996 divestiture, revenues for 1996 were up 5%. The Electrical Products segment comprised approximately 46% of Cooper's total revenues in 1996, as revenues increased 15% over 1995. Excluding the effects of 1996 acquisitions and the carryover impact of 1995 acquisitions (including the CEAG acquisition on December 31, 1995), revenues increased 6%. Sales of electrical construction materials, lighting fixtures and power distribution products benefited from continued strength in industrial production and commercial and industrial construction and renovation activity. Strong international demand for a number of the segment's transformer and power management products and a recovery from the 1995 economic downturn in Mexico contributed to the revenue increase. New product introductions also added to revenues in 1996. The Tools & Hardware segment, including Kirsch, made up approximately 18% of Cooper's total revenues in 1996, with revenues increasing slightly over the 1995 level. Excluding the effects of two small 1996 acquisitions, revenues were flat when compared to 1995. Sales of power tools and assembly equipment continued to grow to meet demand from the automotive and aircraft assembly industries, both domestically and internationally. However, slowing demand in the European markets for hand tools and drapery hardware products and the disruptions from the implementation of a new hand tools distribution center in North America offset the revenue gains from power tools and assembly equipment. The Automotive Products segment contributed approximately 36% of Cooper's total revenues in 1996, with revenues increasing 8% over 1995. Excluding the effects of two 1996 acquisitions and carryover impact of one 1995 acquisition, revenues increased 5% over the prior year. Harsh winter weather and lean distributor inventories boosted domestic aftermarket demand for wiper blades and ignition products early in the year. New customers for lighting products and a partial recovery from the 1995 economic downturn in Mexico also increased revenues. Product sales in the original equipment market improved as a result of increased light vehicle production and increased placement of products on new vehicle platforms. However, a decline in sales of temperature control products, the result of a mild summer and related product returns; a decline in domestic sales of heavy duty brake components, the result of decreases in original equipment production; and lower European aftermarket sales, influenced by weak economic conditions there, offset some of the gains made in other product categories. SEGMENT OPERATING EARNINGS
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ------ ------ ------ Reported Segment Operating Earnings: (IN MILLIONS) Electrical Products......................................... $445.7 $405.3 $355.5 Tools & Hardware............................................ 77.1 91.4 96.5 Automotive Products......................................... 143.5 87.3 180.7 ------ ------ ------ Continuing Segment Operating Earnings............. 666.3 584.0 632.7 Kirsch...................................................... 74.6 20.0 14.7 ------ ------ ------ Segment Operating Earnings........................ $740.9 $604.0 $647.4 ====== ====== ======
A-4 6
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ------ ------ ------ Segment Operating Earnings Excluding Nonrecurring Items: (IN MILLIONS) Electrical Products......................................... $461.6 $408.3 $355.5 Tools & Hardware............................................ 99.6 91.4 96.5 Automotive Products......................................... 186.9 189.3 180.7 ------ ------ ------ Continuing Segment Operating Earnings............. 748.1 689.0 632.7 Kirsch...................................................... 4.8 22.0 14.7 ------ ------ ------ Segment Operating Earnings........................ $752.9 $711.0 $647.4 ====== ====== ======
1997 vs. 1996 Segment Operating Earnings Segment operating earnings in 1997 include nonrecurring charges of $81.8 million for adjustments to the carrying value of assets, accruals for facility consolidations and related severance and other obligations committed to by management. Reported segment operating earnings also include a $69.8 million gain on the sale of Kirsch. Segment operating earnings in 1996 include nonrecurring charges of an $85.3 million write-down of assets in the Automotive Products segment and $21.7 million in other nonrecurring charges related primarily to facility closings and consolidations. See Nonrecurring Income and Expenses in the Overview section and Note 2 of Notes to Consolidated Financial Statements. Excluding nonrecurring items in 1997 and nonrecurring charges of $107 million in 1996, segment operating earnings increased 6% over 1996. Excluding Kirsch results from both years, segment operating earnings increased 9% over 1996. Acquisitions contributed approximately $11 million or 2% of the increase in segment operating earnings over 1996. The Electrical Products segment operating earnings, excluding nonrecurring charges of $15.9 million in 1997 and $3.0 million in 1996, improved 13% over the prior year and contributed 62% of Cooper's continuing segment operating earnings. Return on revenues improved in 1997 to 18% from 17% in 1996. The 1997 acquisitions and the carryover impact of 1996 acquisitions contributed approximately $8 million of the increase in earnings. Excluding this impact and nonrecurring items, segment operating earnings were up 11% over 1996. This strong growth in earnings is primarily attributable to cost savings in transformer products, strong revenue growth in higher margin distribution and certain transmission equipment and circuit protection products and cost containment across all businesses. All electrical products businesses had increases in return on revenues, excluding nonrecurring charges, during 1997. The Tools & Hardware segment operating earnings, excluding nonrecurring items of $22.5 million in 1997 and Kirsch, increased 9% from 1996 and contributed 13% of the continuing segment operating earnings. The incremental earnings of the carryover impact of two small acquisitions was less than $1.5 million. Return on revenues increased to 13.3%, up .6 percentage points from the prior year. Increased sales of hand-held power tools and assembly equipment and leveraging of costs, primarily in the power tools and assembly equipment businesses, were the primary drivers of the performance. The absence of implementation costs incurred in the 1996 warehouse and distribution system conversion at the hand tools operations also contributed to the increase in return on revenues, partially offset by lower sales volume for hand tools. The Automotive Products segment operating earnings, excluding nonrecurring charges of $43.4 million in 1997 and $102.0 million in 1996, decreased 1% from the prior year. The segment contributed 25% of continuing segment operating earnings. Without the impact of two acquisitions, operating earnings declined 2%. Return on revenues increased from 9.9% in 1996 to 10.0% in 1997. Lower sales volume in the domestic aftermarket for most chassis, temperature control and wiper products, coupled with competitor price pressures, and a weak European aftermarket for ignition products contributed to the earnings decline. Increased sales in the original equipment market, lower spending on promotional expenses and other costs and lower depreciation and amortization due to the 1996 write-down of brake assets provided a partial offset. 1996 vs. 1995 Segment Operating Earnings Segment operating earnings in 1996, excluding nonrecurring charges, included an $85.3 million write-down of assets in the Automotive Products segment and $21.7 million in other nonrecurring charges related primarily to facility closings and consolidations. See Nonrecurring Income and Expense in the Overview section and Note 2 of Notes to Consolidated Financial Statements. Excluding nonrecurring charges of $107 million, segment operating earnings in 1996 increased 10% over 1995. Acquisitions contributed approximately $45 million or 7% of the increase in segment operating earnings over 1995. The Electrical Products segment operating earnings, excluding nonrecurring charges, improved 15% from 1995, and contributed 57% of Cooper's total segment operating earnings. Return on revenues decreased only slightly in 1996 A-5 7 to 16.8% due to an unfavorable mix of power distribution products and a proportionately lower contribution of higher-margin fuse products. Excluding nonrecurring charges, return on revenues declined less than .1 percentage points. The 1996 acquisitions and the carryover impact of 1995 acquisitions, including CEAG, added approximately $36 million of incremental earnings to 1996. Excluding this impact, segment operating earnings were up 4% over 1995. This resulted from the growth in revenues from improvements in construction markets, cost reduction efforts and a more favorable product line mix beginning in the third quarter of 1996. The Tools & Hardware segment operating earnings, excluding Kirsch, declined $5.1 million when compared to 1995 with the segment, including Kirsch, contributing 16% of total segment operating earnings before nonrecurring charges. The incremental earnings impact from 1996 acquisitions was less than $2 million. Return on revenues, excluding Kirsch, of 12.7% in 1996 was below the 1995 level of 13.7%. The favorable impact from prior cost improvement actions, including the consolidation of forged hand tools manufacturing, and increased sales of power assembly tools were offset by implementation costs incurred in the warehouse and distribution system conversion at the hand tools operations and the effects of slower European markets. Kirsch results included nonrecurring expenses of $2 million for legal and other costs related to sales of imported mini blinds containing lead paint. The Automotive Products segment operating earnings, before nonrecurring expenses of $102 million, increased 5% from 1995 and contributed 27% of total segment operating earnings. Acquisitions provided all of the increase in the Automotive Products segment operating earnings. Return on revenues, before nonrecurring expenses, declined from 10.3% in 1995 to 9.9% in 1996. Increased sales in the North American market for most ignition, wiper, lighting and steering and suspension products in 1996 contributed to earnings. However, the North American reduction in production of vehicles utilizing heavy-duty brake products; continuing severe price competition for brake and temperature control products and a weak European aftermarket offset the increased sales and related earnings and contributed to the decline in return on revenues. In addition, customer changeover costs more than doubled in 1996 as a result of adding two new large customers and several smaller customers. Price competition continued in 1996, offsetting many of the efficiency gains achieved through facility consolidations. OTHER INCOME AND EXPENSE
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ------ ------ ------ (IN MILLIONS) Segment Operating Earnings(1)............................... $740.9 $604.0 $647.4 Other Income................................................ 14.2 23.0 25.5 Nonrecurring Gains.......................................... 23.2 150.4 11.7 General Corporate Expense................................... (61.2) (77.3) (55.6) Interest Expense............................................ (90.4) (142.1) (151.0) ------ ------ ------ Income from Continuing Operations before Income Taxes..... $626.7 $558.0 $478.0 ====== ====== ======
- --------------- (1) Includes nonrecurring gain on sale of Kirsch and nonrecurring charges. Other Income Other income in 1997 declined compared to 1996 due to the absence of dividends on marketable equity securities and the utilization of cash to reduce average debt outstanding. General Corporate Expense General corporate expenses decreased $16.1 million in 1997 compared to 1996. Excluding nonrecurring charges, general corporate expenses decreased $7.3 million in 1997 compared to 1996. The 1997 and 1996 expenses included nonrecurring charges of $2.1 million and $10.9 million, respectively. The 1997 charge relates primarily to information systems and the 1996 charge related primarily to environmental litigation. The remainder of the decrease was primarily due to lower costs for retirements and severance. General corporate expenses increased $21.7 million in 1996 compared to 1995. The 1996 general corporate expense includes $10.9 million in nonrecurring expenses related to environmental litigation. The remainder of the increase from 1995 is related to costs in connection with the executive incentive plan adopted by shareholders in 1996 and severance and retirement expenses. Nonrecurring Gains Nonrecurring gains decreased by $127.2 million in 1997 from 1996. The gain on the exchange of the Wyman-Gordon DECS of $23.2 million was recognized in 1997 while 1996 included $150.4 million in gains on the sale of marketable equity securities of Belden and Cooper Cameron. Nonrecurring gains increased $138.7 million in 1996 from 1995 due to lower gains on sales of marketable equity securities in 1995. A-6 8 Interest Expense Interest expense for 1997 decreased $51.7 million from 1996. The majority of the decrease was due to the conversion during 1997 of $610 million of Cooper's 7.05% Convertible Subordinated Debentures to Cooper Common stock. Average debt levels in 1997, excluding the $610 million converted debt, were also lower than 1996 and contributed to the decline in interest expense. Interest expense decreased $8.9 million in 1996 from the 1995 level. The decline was driven by lower average interest rates and lower average debt levels. INCOME FROM CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Income from continuing operations before income taxes....... $626.7 $558.0 $478.0 Income taxes................................................ 232.1 242.6 197.4 ------ ------ ------ Income from continuing operations........................... $394.6 $315.4 $280.6 ====== ====== ====== Diluted earnings per share from continuing operations....... $ 3.26 $ 2.77 $ 2.41 ====== ====== ======
1997 vs. 1996 Income from Continuing Operations Income from continuing operations before income taxes for 1997, exclusive of 1997 net nonrecurring gains of $9.1 million and 1996 net nonrecurring gains of $32.5 million, increased to $617.6 million from $525.5 million, an 18% increase. This increase was primarily the result of the increased segment earnings and lower interest expense. The effective tax rate decreased from 43.5% in 1996 to 37.0% in 1997. The 1996 rate was higher than normal due to the asset write-down which included the write-off of nondeductible goodwill. Excluding the impact of this write-down, the effective tax rate was 41.2%. The effective tax rate for 1997 includes $6.1 million related to the favorable settlements of several state income tax issues. Excluding the 1997 nonrecurring tax benefit, the 1997 effective tax rate was 38%. The rate reduction from 41.2% to 38.0% stems from Cooper's tax planning efforts, including changing its international tax structure, maximizing tax incentives for exports and increasing research and development tax credits. In addition, the impact of nondeductible goodwill on the effective tax rate is reduced as earnings increase. Income from continuing operations increased 25% over 1996. The 1997 net income includes the effect of (1) the redemption and conversion of Cooper's 7.05% Convertible Subordinated Debentures, (2) the purchase of approximately 3.6 million shares of Cooper's Common stock, (3) the absence of the Kirsch business for seven months of 1997, and (4) a $6.1 million benefit from settlements of several state income tax matters. Diluted earnings per share from continuing operations increased 18% from the 1996 level. The lower interest expense in 1997 related to the conversion of $610 million of 7.05% Convertible Subordinated Debentures to Cooper Common stock, had no effect on diluted earnings per share as the interest expense is excluded and the equivalent Cooper Common stock are included in the calculation of diluted earnings per share for both 1997 and 1996. While the purchase of Cooper Common stock and the impact of the $80 million of 7.05% Convertible Subordinated Debentures redeemed for cash reduced average shares utilized in the computation of diluted earnings per share, the funding of these two items increased interest expense, offsetting most of the benefit on diluted earnings per share. After considering the impact of additional common stock equivalents, primarily resulting from an increase in market price of a share of Cooper Common stock during the year, diluted earnings per share were not impacted by the net reduction in average shares during 1997. The absence of the Kirsch operations, net of the effect of lower interest expense resulting from repaying debt with the net proceeds of the sale, reduced earnings per share for 1997 by approximately $.05. Earnings per share for 1997 also includes contributions of $.10 of nonrecurring gains (net of nonrecurring expenses) and the favorable settlements of several state income tax issues. Earnings per share for 1996 include a contribution of $.05 per share (net of nonrecurring expenses) from the sale of marketable equity securities. 1996 vs. 1995 Income from Continuing Operations Income from continuing operations before income taxes, exclusive of the third quarter 1996 gain of $107.2 million on the sale of marketable equity securities and the $85.3 million write-down in the Automotive Products segment, increased 12% to $536.1 million compared to $478.0 million in 1995. The increase results primarily from the increase in operating earnings and the reduction in interest expense offset partially by an increase in general corporate expense. The effective tax rate increased to 43.5% in 1996 from 41.3% in 1995. The increase resulted primarily from the asset write-down in the Automotive Products segment, which included a write-down of goodwill that was not A-7 9 deductible for income tax purposes. Excluding the gain on the sale of marketable equity securities and the nonrecurring write-down, the effective tax rate decreased from 41.3% in 1995 to 41.2% in 1996. Income from continuing operations increased 12% due to the factors outlined above, while diluted earnings per share from continuing operations increased 15%. The full-year impact of the reduction in average shares outstanding resulting from the Cooper Cameron Exchange Offer completed in mid-year 1995, accounted for $.09 per share of the earnings per share increase. See Note 18 of Notes to Consolidated Financial Statements. Both 1996 and 1995 earnings per share include a net contribution (net of nonrecurring expenses in 1996) of $.05 per share from the sale of marketable equity securities. PERCENTAGE OF REVENUES
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ------ ------ ------ Revenues.................................................... 100.0% 100.0% 100.0% Cost of Sales............................................... 67.8% 68.2% 68.5% Selling and Administrative.................................. 17.5% 17.9% 17.5%
1997 vs. 1996 Percentage of Revenues Cost of sales, as a percentage of revenues, declined to 67.8% in 1997 from 68.2% in 1996. The decline resulted primarily from product cost improvements and containments and an overall favorable mix of higher margin electrical products. Most of the improvement in cost of sales as a percentage of revenue was in the Electrical Products segment, with the Tools & Hardware segment, excluding Kirsch, improving to a lesser extent and the Automotive Products segment being flat with the prior year. Selling and administrative expenses decreased, as a percentage of revenues, to 17.5% in 1997 from 17.9% in 1996. The inclusion of Kirsch for five months in 1997 and for the full year in 1996, represented .2 percentage points of the improvement. Each of the segments contributed to the remaining improvement. Lower general corporate expenses discussed under "General Corporate Expense" also contributed to the improvement. 1996 vs. 1995 Percentage of Revenues Cost of sales, as a percentage of revenues, declined to 68.2% from 68.5% in 1995. The improvement in the cost of sales percentage reflects the continued improvement in operating efficiencies achieved through manufacturing and distribution improvement programs, the emphasis beginning in 1995 on top line growth through new products, market penetration and acquisitions offset in part by disruptions resulting from consolidations and facility closings and the large increase in transformer sales, which carry a lower margin. Selling and administrative expense, as a percentage of revenues, increased to 17.9% in 1996 from 17.5% in 1995. The increase of .4 percentage points in 1996, is primarily attributable to higher selling and administrative expenses of the CEAG acquisition, acquired December 31, 1995, the higher corporate general expenses discussed under "General Corporate Expense", additional investments in personnel and other sales expenses, primarily in the business comprising the Electrical Products segment, and high customer changeover expenses in the Automotive Products segment. DISCONTINUED OPERATIONS In September 1994, Cooper announced its decision to discontinue its Petroleum & Industrial Equipment segment through an exchange offer with holders of Cooper Common stock. On June 30, 1995, Cooper's Common shareholders exchanged 9.5 million shares of their Cooper Common stock for common stock of Cooper Cameron Corporation, a newly formed company that included all of the assets and liabilities of the four divisions that comprised Cooper's Petroleum & Industrial Equipment segment, as well as $375 million of allocated indebtedness. See Note 18 of the Notes to Consolidated Financial Statements for additional information. In the second quarter of 1995, Cooper recorded a charge of $186.6 million ($1.45 per diluted share) to reflect the actual loss on the split-off of Cooper Cameron. The charge was composed of the difference between the historical cost of Cooper's investment in Cooper Cameron remaining after the September 1994 estimated charge and the market value of Cooper Cameron common stock during the first few days the common stock traded on a national exchange ($162.8 million), additional Cooper Cameron operating losses during the period October 1, 1994 through June 30, 1995 ($20.3 million) and additional transaction costs ($3.5 million). The additional operating losses and transaction costs resulted primarily from the delay in completing the exchange transaction and the recording by Cooper Cameron of a $17 million pretax charge in the second quarter of 1995 for the write-down of receivables due from customers in Iran. A-8 10 Under the provisions of the Asset Transfer Agreement between Cooper and Cooper Cameron, Cooper Cameron was responsible, other than for certain agreed amounts of estimated operating losses, for its cash requirements between October 1, 1994 and the expiration date of the Exchange Offer. Other than for income tax liabilities for periods prior to the completion of the Exchange Offer, Cooper did not retain any liabilities, contingent or otherwise, with respect to the discontinued operations. EARNINGS OUTLOOK The following sets forth Cooper's general business outlook for 1998, based on current expectations. The statements are forward looking and actual results may differ materially. The comparative figures for 1998 include the effects of acquisitions made during 1997 and exclude 1997 nonrecurring items and the Kirsch division from the Tools & Hardware segment. Electrical Products segment revenues are expected to increase by approximately fifteen percent, Tools & Hardware segment revenues are expected to increase approximately five percent and Automotive Products segment revenues are expected to be about the same as 1997 revenues. Cooper expects operating earnings for the Electrical Products segment to increase by approximately ten to fifteen percent. Operating earnings for both the Tools & Hardware segment and the Automotive Products segment are expected to increase by approximately five to ten percent. The above statements are forward looking, and actual results may differ materially. The above statements are based on a number of assumptions, risks and uncertainties. The primary economic assumptions include, without limitation, (1) modest growth in the domestic economy; (2) a modest improvement in European markets; (3) a modest increase in construction spending worldwide; (4) no significant change in raw material costs; (5) no major customer consolidation in the automotive aftermarket; and (6) no significant adverse changes in the relationship of the currencies of Western European countries to the U.S. dollar. The estimates also assume, without limitation, no significant change in competitive conditions and such other risk factors as are discussed from time to time in Cooper's periodic filings with the Securities and Exchange Commission. PRICING AND VOLUME In each of Cooper's segments, the nature of many of the products sold is such that an accurate determination of the changes in unit volume of sales is neither practical nor, in some cases, meaningful. Each segment produces a family of products, within which there exist considerable variations in size, configuration and other characteristics. It is Cooper's best judgment that, excluding the year-to-year effects of acquisitions and divestitures, unit volume increased in the Electrical Products and Tools & Hardware segments but decreased in the Automotive Products segment in 1997. During 1996, Cooper's best judgment is that unit volume increased in the Electrical Products and Automotive Products segments and decreased in the Tools & Hardware segment. During the three-year period ending in 1997, Cooper was unable to increase prices to fully offset cost increases in selected product offerings in all segments. Cooper has been able to control costs through manufacturing improvements and other actions during this period so that the inability to increase prices has not significantly affected profitability in the segments. EFFECT OF INFLATION During each year, inflation has had a relatively minor effect on Cooper's results of operations. This is true primarily for three reasons. First, in recent years, the rate of inflation in Cooper's primary markets has been fairly low. Second, Cooper makes extensive use of the LIFO method of accounting for inventories. The LIFO method results in current inventory costs being matched against current sales dollars, such that inflation affects earnings on a current basis. Finally, many of the assets and liabilities included in Cooper's Consolidated Balance Sheets are recorded in connection with business combinations that are accounted for as purchases. At the time of such acquisitions, the assets and liabilities are adjusted to fair market value and, therefore, the cumulative long-term effect of inflation is reduced. A-9 11 LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital For purposes of this discussion, operating working capital is defined as receivables and inventories less accounts payable. In 1997, operating working capital, as reported in the consolidated balance sheet, increased $31.1 million. Excluding acquisitions consummated in December 1997, operating working capital decreased $19.5 million as a result of a $17.3 million decrease in accounts receivable, a $36.4 million decrease in inventories and a $34.2 million decrease in accounts payable. Excluding the impact of the December 1997 acquisitions, operating working capital turns increased from 3.8 to 4.0 turns in 1997, a 5% improvement. In 1996, operating working capital decreased $58 million as a reduction in accounts receivable of $33 million and an increase in accounts payable of $32 million contributed to the improvement. Operating working capital turns increased in excess of 10%. In 1995, operating working capital decreased $16 million primarily driven by a reduction of inventories during the year. All three segments contributed to the reduction of inventory. Management attention was focused in 1995 on reducing the build up of inventories that occurred in 1994. Cash Flows Net cash provided by operating activities in 1997 totaled $494 million. These funds, along with $216 million in proceeds from the sale of Kirsch and an increase in debt of $213 million (net of acquisition related assumed debt), were used to finance net cash outflows for acquisitions of $387 million, capital expenditures of $196 million, dividends of $157 million and purchases of Cooper's Common stock of $192 million. Net cash provided by operating activities in 1996 totaled $562 million. The cash generated from operating activities, and $259 million provided from the sales of marketable equity securities and fixed assets, was utilized to finance net cash flows for acquisitions of $257 million, capital expenditures of $202 million, dividends of $143 million and debt reduction of $227 million. Net cash flows provided by operating activities in 1995 totaled $550 million. This cash, in addition to $40 million generated by sales of fixed assets and marketable equity securities, was used to fund capital spending of $188 million, dividends of $164 million, debt reduction of $186 million and discontinued operations of $48 million. In connection with accounting for purchase business combinations, Cooper records, to the extent appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel and integrating the acquired business into existing Cooper operations. Cash flow from operating activities for each of the three years in the period ended December 31, 1997, is reduced by the amounts expended on the various accruals established in connection with each acquisition. At December 31, 1997, Cooper had accruals totaling $26.0 million related to these activities. Cooper spent $9.3 million, $24.3 million and $47.0 million in 1997, 1996 and 1995, respectively. Spending in 1998 and future years is not expected to be at these levels, as most of the major projects related to earlier acquisitions have been completed and recent acquisitions do not involve significant restructuring activities. Cooper does not believe that future spending will impair Cooper's overall financial flexibility. See Note 7 of the Notes to Consolidated Financial Statements for further information. Debt The ratio of debt-to-total capitalization was 36.3%, 50.3% and 54.5% at year-end 1997, 1996 and 1995, respectively. The 1997 and 1996 debt-to-total capitalization ratio includes the noncash effect of marking the DECS to market. The 1997 ratio reflects the conversion of $610 million of 7.05% Convertible Subordinated Debentures into Cooper Common stock and the subsequent purchase of $192 million of Cooper Common stock. The 1995 ratio reflected the exchange, on January 1, 1995, of the $1.60 Convertible Exchangeable Preferred Stock for 7.05% Convertible Subordinated Debentures and the $614.1 million reduction in shareholders' equity from the June 30, 1995 exchange of Cooper Common stock for Cooper Cameron common stock. During 1996, Cooper filed a shelf registration statement for $300 million of medium-term notes and issued $50 million of five-year notes at an average rate of 5.74%. At December 31, 1997, $250 million was available for issuance under the shelf registration statement. A-10 12 During 1997, Cooper called for redemption its 7.05% Convertible Subordinated Debentures. Cooper retired all $690 million of the debentures. Of these debentures, a total of $610 million was converted to approximately 14.8 million shares of Cooper Common stock and approximately $80 million was redeemed for cash. Cooper has targeted a 35% to 45% debt-to-total capitalization ratio and intends to utilize cash flows to maintain approximately a minimum of a 35% debt-to-total capitalization ratio with excess cash utilized to purchase shares of Cooper's Common stock or fund acquisitions. Capital Expenditures and Commitments Capital expenditures on projects to reduce product costs, improve product quality, increase manufacturing efficiency and operating flexibility, or expand product capacity were $196 million in 1997, $202 million in 1996 and $188 million in 1995. Projected capital expenditures for 1998 are anticipated to exceed 1997 expenditures by ten to fifteen percent. The 1998 anticipated capital spending represents approximately 55% for various cost-reduction and capacity-maintenance projects, including machinery and equipment modernization and enhancement and computer hardware and software projects, 14% for capacity expansion, 9% related to environmental matters and 22% for other items. Interest Rate and Foreign Currency Risk Changes in interest rates and foreign currency exchange rates affect Cooper's earnings and cash flows. In countries where Cooper has significant investments and where practical, debt is either borrowed in the local functional currency or foreign currency forward contracts are entered into to, in effect, exchange U.S. dollar denominated debt into local functional currency debt. While the purpose of borrowing in local functional currencies is primarily driven by tax planning considerations, it also reduces the cash flow risk as a significant portion of cash flows generated by the operations are utilized to pay interest and principal on the debt. The earnings risk is also reduced since interest expense is in the same currency as the operating earnings are generated. Cooper uses forward foreign currency exchange contracts to reduce the risk associated with changes in the exchange rates for firm commitments and anticipated sales or purchases where a product is manufactured or purchased in one country and sold or consumed in the manufacturing process in another country. Cooper's policy is to hedge firm commitments to eliminate this risk if natural hedges do not exist. Anticipated sales or purchases are hedged at the discretion of the operating businesses. Substantially all forward contracts expire within one year. At December 31, 1997, insignificant amounts of anticipated sales and purchases were hedged. Cooper believes that the effects of currency movements on the respective underlying hedged transactions offset any gain or loss on forward exchange contracts. The table below provides information about Cooper's financial instruments at December 31, 1997 that are sensitive to changes in interest rates. The table presents principal cash flows by expected maturity dates and weighted average interest rates for debt obligations.
1998 1999 2000 2001 2002 THEREAFTER TOTAL ----- ------ ------ ----- ----- ---------- ------ (IN MILLIONS, WHERE APPLICABLE) Long-term debt: Fixed rate.................. $57.8 $235.7(1) $ 0.5 $50.4 $60.3 $250.0 $654.7 Average interest rate....... 6.0% 6.5% 6.5% 6.6% 6.6% 6.7% 6.0% Variable rate............... $ 0.5 $ 58.4 $545.4 $ 0.5 $ 0.5 $ 70.5 $675.8 Average interest rate....... 5.8% 5.7% 5.6% 6.1% 6.1% 6.1% 5.8%
- --------------- (1)Includes $235.2 of 6.0% DECS which are mandatorily exchangeable into shares of Wyman-Gordon common stock, or at Cooper's option, into cash in lieu of shares. Cooper anticipates delivering the Wyman-Gordon common stock upon redemption of the DECS in 1999. A-11 13 The table below provides information about Cooper's financial instruments at December 31, 1997 in excess of $5 million that are sensitive to foreign currency exchange rate changes by functional currency. For foreign currency denominated debt obligations, the table provides principal cash flows, weighted average interest rates by expected maturity dates and the applicable foreign currency exchange rate. For foreign currency forward contracts, the table presents the notional amounts and weighted average exchange rates by contractual maturity dates. These notional amounts are used to calculate the contractual payments to be exchanged under the contracts. All amounts are presented in U.S. dollar equivalents.
1998 2000 ------------ ------------ (IN MILLIONS, WHERE APPLICABLE) U.S. Dollar Functional Currency Long-term debt denominated in German Deutschemark........... -- $ 128.3 Average interest rate....................................... -- 4.0% Foreign currency exchange rate.............................. -- .56 Forward Exchange Contracts: Sell Pounds Sterling/Buy U.S. Dollars Notional amount........................................... $ 175.3 -- Average contract rate..................................... 1.66 -- Buy Australian Dollars/Sell U.S. Dollars Notional amount........................................... $ 7.2 -- Average contract rate..................................... .67 -- Buy Italian Lira/Sell U.S. Dollars Notional amount........................................... $ 5.4 -- Average contract rate..................................... .00057 -- Pounds Sterling Functional Currency Forward Exchange Contracts: Buy U.S. Dollars/Sell Pounds Sterling Notional amount........................................... $ 5.0 -- Average contract rate..................................... 1.63 --
See Note 16 of Notes to Consolidated Financial Statements for additional information regarding the fair value of Cooper's financial instruments. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 Reporting Comprehensive Income ("FAS No. 130") and No. 131 Disclosures About Segments of an Enterprise and Related Information ("FAS No. 131"). Both FAS No. 130 and FAS No. 131 are effective for Cooper's calendar year ending December 31, 1998. FAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of financial statements. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Upon adopting the new standard in 1998, Cooper will report and display comprehensive income which includes net income plus non-owner changes in equity such as the change in foreign currency translation, the minimum pension liability, and unrealized gains or losses on investments in marketable equity securities. FAS No. 131 changes the way segment information is presented from an industry segment approach to a management approach. Under the management approach, segments are determined based on the operations regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. FAS No. 131 also allows the presentation of information on an internally reported basis and changes certain other disclosures. Cooper is managed in a similar structure to the present segment disclosures and information reviewed with the Board of Directors and senior management is in a similar format. Cooper has not presently determined the extent to which the segment groupings and related disclosures will be revised when FAS No. 131 is adopted, but does not anticipate major revisions that would make the information lack all comparability with the current presentation. A-12 14 REPORT OF MANAGEMENT The management of Cooper Industries is responsible for the preparation, integrity and fair presentation of the accompanying Consolidated Financial Statements. Such Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgments of management. Management also prepared the other information included in the 1998 Proxy Statement and is responsible for its accuracy and consistency with the Consolidated Financial Statements. The Consolidated Financial Statements have been audited by an independent accounting firm, Ernst & Young LLP, which was given unrestricted access to all financial records and related data, including minutes of meetings of shareholders, the Board of Directors, and committees of the Board. Management believes that all representations made to the independent auditors during their audit were valid and appropriate. Cooper maintains a system of internal control designed to provide reasonable assurance to Cooper's management and Board of Directors that assets are safeguarded against loss, that transactions are authorized, executed and recorded in accordance with management's instructions, and accounting records are reliable for preparing published financial statements. The system of internal control includes: a documented organizational structure and division of responsibility; regular management review of financial performance and internal control activities; comprehensive written policies and procedures (including a code of conduct to foster a sound ethical climate) that are communicated throughout Cooper; and the careful selection, training and development of employees. Cooper's internal audit department monitors the operation of the internal control system and reports findings and recommendations to management and the Audit Committee. Prompt corrective action is taken to address control deficiencies and other opportunities for improving the internal control system. The Audit Committee of the Board of Directors, which is composed entirely of directors who are not officers or employees of Cooper, meets periodically with management, the independent auditors, and the director of internal audit to discuss the adequacy of internal control and to review accounting, reporting, auditing and other internal control matters. The internal and independent auditors have unrestricted access to the Audit Committee. /s/ H. John Riley, Jr. /s/ D. Bradley McWilliams /s/ Terry A. Klebe H. John Riley, Jr. D. Bradley McWilliams Terry A. Klebe Chairman, President and Senior Vice President and Vice President and Chief Executive Officer Chief Financial Officer Controller
A-13 15 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Cooper Industries, Inc. We have audited the accompanying consolidated balance sheets of Cooper Industries, Inc. as of December 31, 1997 and 1996, and the related consolidated income statements, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cooper Industries, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Houston, Texas January 23, 1998 A-14 16 COOPER INDUSTRIES, INC. CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................................................... $5,288.8 $5,283.7 $4,810.9 Cost of sales............................................... 3,588.3 3,605.7 3,297.5 Selling and administrative expenses......................... 925.3 945.4 841.1 Goodwill amortization....................................... 65.1 65.2 60.8 Nonrecurring gains.......................................... (93.0) (150.4) (11.7) Nonrecurring charges........................................ 83.9 117.9 -- Other (income) expense, net................................. 2.1 (0.2) (5.8) Interest expense............................................ 90.4 142.1 151.0 -------- -------- -------- Income from continuing operations before income taxes..... 626.7 558.0 478.0 Income taxes................................................ 232.1 242.6 197.4 -------- -------- -------- Income from continuing operations......................... 394.6 315.4 280.6 Charge for discontinued operations.......................... -- -- (186.6) -------- -------- -------- Net income........................................ $ 394.6 $ 315.4 $ 94.0 ======== ======== ======== Income per Common share Basic: Income from continuing operations...................... $ 3.36 $ 2.94 $ 2.52 Charge for discontinued operations..................... -- -- (1.67) -------- -------- -------- Net income........................................ $ 3.36 $ 2.94 $ 0.85 ======== ======== ======== Diluted: Income from continuing operations...................... $ 3.26 $ 2.77 $ 2.41 Charge for discontinued operations..................... -- -- (1.45) -------- -------- -------- Net income........................................ $ 3.26 $ 2.77 $ 0.96 ======== ======== ======== Cash dividends per Common share............................. $ 1.32 $ 1.32 $ 1.32 ======== ======== ========
The Notes to Consolidated Financial Statements are an integral part of these statements. A-15 17 COOPER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------- 1997 1996 -------- -------- (IN MILLIONS) ASSETS Cash and cash equivalents................................... $ 30.3 $ 16.1 Receivables................................................. 991.7 959.4 Inventories................................................. 958.2 971.1 Other....................................................... 156.5 151.5 -------- -------- Total current assets.............................. 2,136.7 2,098.1 -------- -------- Property, plant and equipment, less accumulated depreciation.............................................. 1,198.8 1,241.3 Intangibles, less accumulated amortization.................. 2,389.9 2,154.9 Investments in marketable equity securities................. 274.8 367.1 Deferred income taxes and other assets...................... 52.3 89.0 -------- -------- Total assets...................................... $6,052.5 $5,950.4 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt............................................. $ 139.0 $ 98.2 Accounts payable............................................ 574.5 586.2 Accrued liabilities......................................... 589.5 581.8 Accrued income taxes........................................ 23.8 37.3 Current maturities of long-term debt........................ 58.3 77.8 -------- -------- Total current liabilities......................... 1,385.1 1,381.3 -------- -------- Long-term debt.............................................. 1,272.2 1,737.7 Postretirement benefits other than pensions................. 558.0 606.4 Other long-term liabilities................................. 260.6 334.8 -------- -------- Total liabilities................................. 3,475.9 4,060.2 -------- -------- Common stock, $5.00 par value............................... 615.0 540.2 Capital in excess of par value.............................. 679.8 150.1 Retained earnings........................................... 1,514.5 1,275.3 Common stock held in treasury, at cost...................... (149.7) -- Unearned employee stock ownership plan compensation......... (66.5) (92.9) Other....................................................... (16.5) 17.5 -------- -------- Total shareholders' equity........................ 2,576.6 1,890.2 -------- -------- Total liabilities and shareholders' equity........ $6,052.5 $5,950.4 ======== ========
The Notes to Consolidated Financial Statements are an integral part of these statements. A-16 18 COOPER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- (IN MILLIONS) Cash flows from operating activities: Net income................................................ $ 394.6 $ 315.4 $ 94.0 Charge for discontinued operations........................ -- -- 186.6 ------- ------- ------- Income from continuing operations......................... 394.6 315.4 280.6 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization.......................... 219.6 233.8 218.8 Deferred income taxes.................................. (3.4) 13.3 65.4 Gain on sales of marketable equity securities and DECS exchange.............................................. (23.2) (150.4) (11.7) Gain on disposition of business........................ (69.8) -- -- Nonrecurring asset write-down.......................... 54.8 85.3 -- Changes in assets and liabilities:(1) Receivables.......................................... (31.3) 46.6 (12.1) Inventories.......................................... (37.1) 3.3 68.2 Accounts payable and accrued liabilities............. 8.0 (1.2) 16.6 Accrued income taxes................................. (15.3) 28.5 (33.2) Other assets and liabilities, net.................... (2.6) (12.2) (42.3) ------- ------- ------- Net cash provided by operating activities......... 494.3 562.4 550.3 ------- ------- ------- Cash flows from investing activities: Cash paid for acquired businesses......................... (386.5) (257.2) (11.9) Proceeds from disposition of business..................... 216.0 2.3 -- Capital expenditures...................................... (195.7) (201.9) (188.4) Proceeds from sales of marketable equity securities....... -- 231.4 14.4 Proceeds from sales of property, plant and equipment...... 8.3 27.6 25.4 ------- ------- ------- Net cash used in investing activities............. (357.9) (197.8) (160.5) ------- ------- ------- Cash flows from financing activities: Proceeds from issuances of debt........................... 564.7 316.0 704.7 Repayments of debt........................................ (351.8) (542.7) (890.3) Dividends................................................. (157.4) (142.6) (164.0) Acquisition of treasury shares............................ (191.5) -- -- Activity under employee stock plans and other............. 15.6 1.7 (5.8) ------- ------- ------- Net cash used in financing activities............. (120.4) (367.6) (355.4) ------- ------- ------- Cash flows used by discontinued operations.................. -- -- (47.7) Effect of exchange rate changes on cash and cash equivalents............................................... (1.8) 1.4 5.7 ------- ------- ------- Increase (decrease) in cash and cash equivalents............ 14.2 (1.6) (7.6) Cash and cash equivalents, beginning of year................ 16.1 17.7 25.3 ------- ------- ------- Cash and cash equivalents, end of year...................... $ 30.3 $ 16.1 $ 17.7 ======= ======= =======
- --------------- (1)Net of the effects of acquisitions, divestitures and translation. The Notes to Consolidated Financial Statements are an integral part of these statements. See Note 17 for information on noncash investing and financing activities. A-17 19 COOPER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
$1.60 CONVERTIBLE CAPITAL UNEARNED EXCHANGEABLE IN EXCESS EMPLOYEE STOCK PREFERRED COMMON OF PAR RETAINED TREASURY OWNERSHIP PLAN STOCK STOCK VALUE EARNINGS STOCK COMPENSATION OTHER ------------ ------ --------- -------- -------- -------------- ------- (IN MILLIONS) BALANCE DECEMBER 31, 1994............. $30.6 $584.6 $1,176.5 $1,153.4 $ -- $(147.4) $ (56.6) Net income.......................... 94.0 Common stock dividends.............. (148.4) Exchange of Common stock for Cooper Cameron common stock............. (47.5) (382.6) 2.6 Redemption of $1.60 Preferred for 7.05% Convertible Subordinated Debentures....................... (30.6) (664.4) Stock issued under employee stock plans............................ 1.8 12.0 Principal payments by ESOP.......... 25.4 Adjustment for minimum pension liability........................ 8.7 Translation loss.................... (15.0) Unrealized gain on investments in marketable equity securities..... 126.8 Reclassification to realized gain... (7.2) Other activity...................... 0.5 0.1 1.3 (2.2) ----- ------ -------- -------- ------- ------- ------- BALANCE DECEMBER 31, 1995............. -- 539.4 141.6 1,100.3 -- (121.6) 56.7 Net income.......................... 315.4 Common stock dividends.............. (142.6) Stock issued under employee stock plans............................ 0.5 4.4 Principal payments by ESOP.......... 28.7 Adjustment for minimum pension liability........................ (1.5) Translation loss.................... (4.9) Unrealized gain on investments in marketable equity securities..... 60.3 Reclassification to realized gain... (93.2) Other activity...................... 0.3 4.1 2.2 0.1 ----- ------ -------- -------- ------- ------- ------- BALANCE DECEMBER 31, 1996............. -- 540.2 150.1 1,275.3 -- (92.9) 17.5 Net income.......................... 394.6 Common stock dividends.............. (157.4) Conversion of 7.05% Convertible Subordinated Debentures.......... 73.9 536.3 Purchase of treasury shares......... (191.5) Stock issued under employee stock plans............................ 0.7 (7.5) 40.9 Principal payments by ESOP.......... 26.4 Adjustment for minimum pension liability........................ 27.6 Translation loss.................... (38.1) Unrealized loss on investments in marketable equity securities..... (9.1) Reclassification to realized gain... (14.4) Other activity...................... 0.2 0.9 2.0 0.9 -- ----- ------ -------- -------- ------- ------- ------- BALANCE DECEMBER 31, 1997............. $ -- $615.0 $ 679.8 $1,514.5 $(149.7) $ (66.5) $ (16.5)(1) ===== ====== ======== ======== ======= ======= =======
- --------------- (1)At December 31, 1997, "Other" included the minimum pension liability of $(20.1) million, net of tax, cumulative translation adjustments of $(107.3) million and the unrealized gain on Cooper's investment in Wyman-Gordon, net of the increase in the market value of the DECS, of $110.9 million, net of tax. The Notes to Consolidated Financial Statements are an integral part of these statements. A-18 20 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the accounts of Cooper Industries, Inc. ("Cooper") and its majority-owned subsidiaries. Affiliated companies are accounted for on the equity method where Cooper owns more than 20% but less than 50% of the affiliate unless significant economic, political or contractual considerations indicate that the cost method is appropriate. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS: For purposes of the consolidated statements of cash flows, Cooper considers all investments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES: Inventories are carried at cost or, if lower, net realizable value. On the basis of current costs, 71% of inventories at December 31, 1997 and 1996 were carried on the last-in, first-out (LIFO) method. The remaining inventories, which are primarily located outside the United States, are carried on the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using primarily the straight-line method. This method is applied to group asset accounts, which in general have the following lives: buildings -- 10 to 40 years; machinery and equipment -- 3 to 18 years; and tooling, dies, patterns and other -- 5 to 10 years. INTANGIBLES: Intangibles consist primarily of goodwill related to purchase acquisitions. With minor exceptions, the goodwill is being amortized over 40 years from the respective acquisition dates. The carrying value of goodwill is reviewed at the lowest level feasible whenever there are indications that the goodwill may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on undiscounted cash flows over the remaining amortization periods, the carrying value of the goodwill will be reduced by the estimated shortfall in discounted cash flows. INVESTMENTS IN MARKETABLE EQUITY SECURITIES: Marketable equity securities received or retained in connection with the divestiture of businesses are reflected as available-for-sale securities and are stated at fair market value at each balance sheet date, with unrealized gains and losses, net of tax, reported as a component of shareholders' equity. The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. DERIVATIVE FINANCIAL INSTRUMENTS: On a recurring basis, foreign currency forward exchange contracts and commodity contracts are entered into to reduce risks of adverse changes in foreign exchange rates and commodity prices. All contracts are hedges of actual or anticipated transactions with the gain or loss on the contract recognized in the same period and in the same category of income or expense as the underlying hedged transaction. Cooper does not enter into speculative derivative transactions or hedges of anticipated transactions unless there is a high probability the transactions will occur. Due to the short term of contracts and a restrictive policy, contract terminations or anticipated transactions that do not occur are rare and insignificant events which are accounted for through income in the period they occur. As discussed in Note 6, in December 1995, Cooper hedged its investment in marketable equity securities of Wyman-Gordon Company ("Wyman-Gordon"). Cooper currently is not a party to any interest rate swap agreements used to manage its interest rate risk. Cooper's policy is to recognize the interest rate differential to be received or paid over the lives of the interest rate swap as an adjustment to interest expense. COMMON STOCK BASED COMPENSATION: Cooper follows the intrinsic value method of accounting for stock options and performance-based stock awards as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. INCOME PER COMMON SHARE: In the fourth quarter of 1997, Cooper adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share. The new accounting standard required all prior periods' income per Common share to be restated based on a new computational method for average shares outstanding. Adopting the new standard had no impact on previously reported fully diluted, currently referred to as diluted, income per Common share from A-19 21 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) continuing operations and increased primary, currently referred to as basic, income per common share $.01 in each of the years ended December 31, 1996 and 1995. Unlike primary earnings per share, basic earnings per share excludes the dilutive effects of common stock equivalents. Adopting the new standard also increased 1995 diluted net income by $.12 per share as the new standard requires the use of income from continuing operations rather than net income to determine whether common stock equivalents are antidilutive. RECLASSIFICATION: Certain amounts in the Consolidated Income Statements for the years ended December 31, 1996 and 1995 have been reclassified to conform to the 1997 presentation. NOTE 2: NONRECURRING ITEMS During 1997, Cooper realized a gain of $69.8 million ($43.3 million after income taxes) from the sale of Kirsch (See Note 3) and exchanged a portion of its DECS(SM) (Debt Exchangeable for Common Stock) for Wyman-Gordon common stock and realized a gain of $23.2 million ($14.4 million after income taxes) (See Note 6). Cooper also incurred charges of $83.9 million ($52.0 million after income taxes) for actions management committed to during the period after concluding an evaluation of (1) geographic manufacturing and distribution facilities within the Tools & Hardware segment; (2) certain sales, marketing and distribution activities within the Automotive Products segment; and (3) information systems relating to year 2000 compliance efforts. The 1997 charges include adjustments to the carrying value of assets of $54.8 million and accruals for continuing obligations for replaced systems and facility consolidations of $29.1 million. The charges decreased operating earnings of the Electrical Products segment by $15.9 million, Tools & Hardware segment by $22.5 million, and the Automotive Products segment by $43.4 million and increased general corporate expenses by $2.1 million. The gains, combined with nonrecurring charges and a $6.1 million income tax benefit related to the settlements of certain state income tax matters (See Note 11), resulted in a net $.10 per share of nonrecurring income being recognized in 1997. Cooper has begun a consolidation of certain international manufacturing and distribution facilities in the Tools & Hardware segment and the consolidation of certain sales, marketing and distribution activities in the Automotive Products segment. Adjustments to the carrying value of assets and accruals were recorded for projects committed to by management. Severance and certain other costs related to projects committed to by management are not expensed until the affected employees are notified. A majority of the consolidations have been announced and such costs were accrued and expensed during 1997. The remaining committed but unannounced consolidations are not anticipated to result in significant additional expenses. During 1997, Cooper began negotiations with Standard Motor Products, Inc. ("SMP") to exchange Cooper's temperature control business for the brake products business owned by SMP. In December 1997, Cooper received the necessary government approval for completion of the transaction with SMP. Closing of the business exchange is subject to negotiation of a definitive agreement and is currently anticipated to occur in the first quarter of 1998. During 1997, Cooper also assessed the impact of existing system capabilities to function at the turn of the century. Four of Cooper's nine divisions are implementing new enterprise systems with the remaining divisions modifying or replacing existing software. Where possible, businesses have abandoned home-grown or highly customized applications with purchased, year 2000 compliant replacements or upgrades. In some situations, operations within a business abandoned existing software and migrated to consolidated hardware and software that is year 2000 compliant. Where these solutions were not possible, businesses either contracted to third parties or committed internal resources to ensure that all major systems are year 2000 compliant. Cooper recorded a $43.7 million charge in 1997 primarily related to the adjustment in the carrying value of abandoned hardware and software. While depreciation and amortization are reduced by the effect of the write-down, depreciation and amortization of new systems and equipment, as well as expenses incurred to revise current software to be year 2000 compliant, and implementation costs of new systems, are likely to exceed the reduction in depreciation and amortization in most future periods. During the third quarter of 1996 Cooper completed a strategic review of its automotive brake business, resulting in a write-down of approximately 21% of the long-lived assets of the business. The Wagner brake product lines, acquired as part of the McGraw-Edison acquisition in 1985, were subjected to intense competitive pricing and anticipated profitability improvements during 1996 were not being realized. As a result of the review of the Wagner brake products, Cooper replaced Wagner technology with technology acquired in the 1994 acquisition of Abex Friction Products. A-20 22 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Based on the strategic review, Cooper concluded that the projected undiscounted cash flows of certain Wagner product lines would not recover the carrying value of the long-lived assets and goodwill associated with these product lines. Accordingly, Cooper recorded an $85.3 million write-down, including $31.5 million in goodwill, in the third quarter of 1996. The write-down reduced depreciation and amortization costs equivalent to approximately $.03 per share in 1997. Cooper has incurred expenses executing its revised brake strategy, which have offset some of the benefit of the reduced depreciation and amortization in 1997. During 1996, Cooper initiated a strategic review of most of its businesses. As a result of those actions and certain legal matters, Cooper incurred nonrecurring charges totaling $32.6 million during 1996. A total of $3.0 million was incurred in the Electrical Products segment primarily related to a write-down of property and equipment at a facility; $2.0 million in the Tools & Hardware segment for legal and other costs related to sales of imported mini blinds containing lead paint; $16.7 million in the Automotive Products segment primarily related to costs incurred on facility closings and consolidations; and $10.9 million of corporate costs primarily related to environmental litigation. Cooper anticipates future cost savings from the facility closings and consolidations, however, the amounts are not quantifiable with any degree of accuracy. The nonrecurring charges of $32.6 million have an insignificant effect on future earnings and expenditures beyond 1996 are insignificant. During 1996, Cooper realized $150.4 million in gains on the sale of marketable equity securities (See Note 6). These gains combined with nonrecurring charges resulted in a net $.05 per share of nonrecurring income being recognized in 1996. In 1995, Cooper realized a gain of $.05 per share from the sale of marketable equity securities (See Note 6). NOTE 3: ACQUISITIONS AND DIVESTITURES In 1997, Cooper completed one large acquisition, seven small product-line acquisitions and the divestiture of Kirsch. In December 1997, Cooper acquired Menvier-Swain Group plc ("Menvier-Swain") for a total cost of approximately $274.5 million. Menvier-Swain manufactures and markets emergency lighting, fire detection and security systems primarily in Europe. The seven small product line acquisitions had an aggregate cost of $184.2 million. A total of $349.3 million of goodwill was recorded, on a preliminary basis, with respect to the acquisitions. Five of the small acquisitions and Menvier-Swain were in the Electrical Products segment, and the other two small acquisitions were in the Automotive Products segment. On May 30, 1997, Cooper completed the sale of its Kirsch window treatment division for $216 million. For the five months ended May 30, 1997, and the year ended December 31, 1996, Kirsch had revenues of $97.4 million and $252.9 million, and operating earnings of $4.8 million and $20.0 million, respectively. Kirsch was part of the Tools & Hardware segment. In 1996, Cooper completed seven small product-line acquisitions and one small divestiture. The total cost of the acquisitions was approximately $97.4 million. A total of $74.2 million of goodwill was recorded, including 1997 revisions of $.9 million with respect to the acquisitions. Three acquisitions and the divestiture were in the Electrical Products segment, two were in the Tools & Hardware segment and two were in the Automotive Products segment. In 1995, Cooper completed one large acquisition, two small product-line acquisitions, and the divestiture, through an exchange offer with shareholders, of Cooper Cameron Corporation ("Cooper Cameron") (See Note 18). Effective December 31, 1995, Cooper acquired CEAG Sicherheitstechnik GmbH ("CEAG") from Asea Brown Boveri AG, Mannheim. The total cost of the acquisition, which was paid on January 5, 1996, was approximately $164 million. CEAG manufactures and markets explosion proof electrical products and business security and emergency lighting products. The two small product-line acquisitions had an aggregate cost of $13.5 million. A total of $139.5 million of goodwill was recorded with respect to the three acquisitions. One small acquisition was in the Automotive Products segment and the two other acquisitions were in the Electrical Products segment. The acquisitions have been accounted for as purchases and the results of the acquisitions are included in Cooper's consolidated income statements since the respective acquisition dates. A-21 23 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4: INVENTORIES
DECEMBER 31, -------------------- 1997 1996 -------- -------- (IN MILLIONS) Raw materials............................................... $ 295.7 $ 302.9 Work-in-process............................................. 178.7 205.2 Finished goods.............................................. 512.1 513.8 Perishable tooling and supplies............................. 54.5 54.2 -------- -------- 1,041.0 1,076.1 Excess of current standard costs over LIFO costs............ (82.8) (105.0) -------- -------- Net Inventories................................... $ 958.2 $ 971.1 ======== ========
NOTE 5: PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
DECEMBER 31, --------------------- 1997 1996 --------- --------- (IN MILLIONS) Property, plant and equipment: Land and land improvements................................ $ 71.5 $ 82.9 Buildings................................................. 543.4 569.7 Machinery and equipment................................... 1,196.1 1,171.5 Tooling, dies and patterns................................ 189.0 171.0 All other................................................. 263.1 303.0 Construction in progress.................................. 134.8 103.7 --------- --------- 2,397.9 2,401.8 Accumulated depreciation.................................. (1,199.1) (1,160.5) --------- --------- $ 1,198.8 $ 1,241.3 ========= ========= Intangibles: Goodwill.................................................. $ 2,906.0 $ 2,614.7 Other..................................................... 17.1 17.8 --------- --------- 2,923.1 2,632.5 Accumulated amortization.................................. (533.2) (477.6) --------- --------- $ 2,389.9 $ 2,154.9 ========= =========
NOTE 6: INVESTMENTS IN MARKETABLE EQUITY SECURITIES At December 31, 1997 and 1996, Cooper's investment in marketable equity securities consisted of its investment in Wyman-Gordon common stock. During 1996, Cooper sold its remaining common shares of Belden Inc. and all of the shares of Cooper Cameron common stock (See Note 18). In December 1995, Cooper issued 16.5 million DECS at $13.50 which, at maturity, are mandatorily exchangeable into shares of Wyman-Gordon common stock or, at Cooper's option, into cash in lieu of shares. The number of shares or the amount of cash will be based on the average market value of Wyman-Gordon common stock on the 20 trading days prior to maturity on January 1, 1999 (the "WGC Maturity Price"). If the WGC Maturity Price is greater than or equal to $15.66 per share, each DECS will be exchangeable at maturity into the equivalent of .862 shares of Wyman-Gordon common stock. If the WGC Maturity Price is less than or equal to $13.50 per share, each DECS will be exchangeable at maturity into one Wyman-Gordon share. If the WGC Maturity Price is between $13.50 and $15.66 per share, each DECS will be exchangeable into a fraction of shares of Wyman-Gordon common stock between .862 and 1, based on an exchange ratio. If the DECS are redeemed for cash, the amount of cash will be equal to the number of Wyman-Gordon shares exchangeable under the terms of the DECS times the WGC Maturity Price. A-22 24 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The DECS are a hedge of Cooper's investment in Wyman-Gordon common stock and will result in Cooper realizing a minimum after-tax gain of $85.4 million upon redemption of the DECS. This unrealized gain, plus any additional appreciation of the investment in Wyman-Gordon common stock since the issuance of the DECS, is included in shareholders' equity as an unrealized gain on investments in marketable equity securities, net of tax. At December 31, 1997 and 1996, Cooper's long-term debt includes an increase in the market value of Wyman-Gordon common stock related to the DECS of $47.9 million and $93.7 million, respectively. The offset to the debt increase, net of tax, decreased the unrealized gain on investments in marketable equity securities included in shareholders' equity. During 1997, Cooper exchanged a portion of the DECS for Wyman-Gordon common stock and realized a gain of $23.2 million ($14.4 million after income taxes). The aggregate fair value of the marketable equity securities was $274.8 million and $367.1 million at December 31, 1997 and 1996, respectively. Gross unrealized gains on investments in marketable equity securities were $218.5 million ($170.6 million, net of the increase in the fair market value of the DECS) and $300.8 million ($207.1 million, net of the increase in the fair market value of the DECS) at December 31, 1997 and 1996, respectively. During 1996 and 1995, marketable equity securities were sold for proceeds of $231.4 million and $14.4 million, respectively, resulting in realized gains of $150.4 million and $11.7 million, respectively. Cooper incurred nonrecurring charges during 1996 which, when combined with the gains from the sale of marketable equity securities, resulted in Cooper realizing $.05 per share in 1996. In 1995, Cooper realized $.05 per share from the sale of marketable equity securities. NOTE 7: ACCRUED LIABILITIES
DECEMBER 31, ---------------- 1997 1996 ------ ------ (IN MILLIONS) Salaries, wages and employee benefit plans.................. $236.8 $201.5 Product and environmental liability accruals................ 77.8 95.0 Commissions and customer incentives......................... 76.3 80.3 Facility integration of acquired businesses................. 26.0 48.0 Other (individual items less than 5% of total current liabilities).............................................. 172.6 157.0 ------ ------ $589.5 $581.8 ====== ======
At December 31, 1997, Cooper had accruals of $28.8 million with respect to potential product liability claims and $104.9 million with respect to potential environmental liabilities, including $55.9 million classified as a long-term liability, based on Cooper's current estimate of the most likely amount of losses that it believes will be incurred. The product liability accrual consists of $8.2 million of known claims with respect to ongoing operations, $12.8 million of known claims for previously divested operations and $7.8 million which represents an estimate of claims that have been incurred but not yet reported. While Cooper is generally self-insured with respect to product liability claims, Cooper has insurance coverage for individual 1997 claims above $3.0 million. Insurance levels have varied from year to year. Environmental remediation costs are accrued based on estimates of known environmental remediation exposures. Such accruals are adjusted as information develops or circumstances change. The environmental liability accrual includes $39.6 million related to sites owned by Cooper and $65.3 million for retained environmental liabilities related to sites previously owned by Cooper and third-party sites where Cooper was a contributor. Third-party sites usually involve multiple contributors where Cooper's liability will be determined based on an estimate of Cooper's proportionate responsibility for the total cleanup. The amount actually accrued for such sites is based on these estimates as well as an assessment of the financial capacity of the other potentially responsible parties. It has been Cooper's consistent practice to include the entire product liability accrual and a significant portion of the environmental liability accrual as current liabilities, although only approximately 10-20% of the balance classified as current will be spent on an annual basis. The annual effect on earnings for product liability is essentially equal to the amounts disbursed. In the case of environmental liability, the annual expense is considerably smaller than the disbursements, since the vast majority of Cooper's environmental liability has been recorded in connection with A-23 25 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquired companies. The change in the accrual balances from year to year reflects the effect of acquisitions and divestitures as well as normal expensing and funding. Cooper has not utilized any form of discounting in establishing its product or environmental liability accruals. While both product liability and environmental liability accruals involve estimates that can have wide ranges of potential liability, Cooper has taken a proactive approach and has managed the costs in both of these areas over the years. Cooper does not believe that the nature of its products, its production processes, or the materials or other factors involved in the manufacturing process subject Cooper to unusual risks or exposures for product or environmental liability. Cooper's greatest exposure to inaccuracy in its estimates is with respect to the constantly changing definitions of what constitutes an environmental liability or an acceptable level of cleanup. In connection with acquisitions accounted for using the purchase method of accounting, Cooper records, to the extent appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel and integrating the acquired business into existing Cooper operations. Significant accruals include plant shut-down and realignment costs, and facility relocations. The following table summarizes the accrual balances and activity during each of the last three years:
1997 1996 1995 ------ ------ ------ (IN MILLIONS) Activity during each year: Balance, beginning of year.............. $ 48.0 $ 65.6 $122.3 Spending................................ (9.3) (24.3) (47.0) Kirsch disposition...................... (0.4) -- -- Reclassifications....................... (15.8) (2.2) (27.8) Acquisitions -- initial allocation...... 4.7 4.1 .1 Acquisitions -- final allocation adjustment............................ 1.2 4.9 13.8 Translation............................. (2.4) (0.1) 4.2 ------ ------ ------ Balance, end of year.................... $ 26.0 $ 48.0 $ 65.6 ====== ====== ====== Balances by category of accrual: Plant shut-down and realignment......... $ 17.5 $ 37.7 $ 43.2 Other facility relocations and severance............................. 5.2 6.8 8.5 Other realignment and integration....... 3.3 3.5 13.9 ------ ------ ------ $ 26.0 $ 48.0 $ 65.6 ====== ====== ====== Balances by acquisition: Champion................................ $ 1.2 $ 10.4 $ 21.4 Moog Automotive......................... .2 2.5 13.3 Abex Friction Products.................. 9.1 12.4 13.3 Other................................... 15.5 22.7 17.6 ------ ------ ------ $ 26.0 $ 48.0 $ 65.6 ====== ====== ======
Plant shut-down and realignment includes the costs to terminate personnel, shut down the facilities, terminate leases and similar costs. The spending related primarily to downsizing and consolidating international facilities in Mexico, Venezuela, Belgium and the United Kingdom totaling $7.7 million and $26.3 million in 1996 and 1995, respectively. Other facility relocations and severance include costs to consolidate sales and marketing operations of the acquired company into Cooper operations, termination costs of redundant personnel and shut-down costs of redundant warehouses and the acquired companies' headquarters. Other realignment and integration costs include costs to liquidate joint ventures, exit product lines and miscellaneous costs. During the three years ended December 31, 1997, accruals reversed to income were insignificant. Reclassifications were substantially all related to termination and other benefit payments due former employees and lease obligations on closed facilities reclassified to trade accounts payable and other accrued liabilities. Acquisitions-final allocation adjustment represents adjustments to goodwill for finalization of the purchase price allocations recorded in the previous year. Substantially all spending related to these accruals represented cash outlays by Cooper. The amounts related to A-24 26 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the acquisitions of CEAG on the last business day of 1995, Abex on the last business day of 1994 and Zanxx in November 1994 were preliminary estimates that were finalized in the year following the acquisition. The CEAG, Abex and Zanxx acquisitions had insignificant accruals for terminations and no significant individual exit plan costs were accrued. NOTE 8: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
DECEMBER 31, -------------------- 1997 1996 -------- -------- (IN MILLIONS) 3.98%-6.47%* commercial paper and Deutschemark denominated bank loans maturing at various dates through January 1998...................................................... $ 528.3 $ 151.3 7.05% convertible subordinated debentures, due 2015......... -- 690.4 6.41%-7.99% second series medium-term notes, due through 2010...................................................... 357.6 429.6 6.0% exchangeable notes, due 1999........................... 235.2 316.5 7.19%-7.74%* Pound Sterling bank loans and notes payable maturing at various dates through 2005.................... 88.2 94.2 5.74% third series medium-term notes, due 2001.............. 50.0 50.0 5.52%* floating-rate ESOP notes, due through 1999........... 16.0 40.5 Other....................................................... 55.2 43.0 -------- -------- 1,330.5 1,815.5 Current maturities.......................................... (58.3) (77.8) -------- -------- Long-term portion........................................... $1,272.2 $1,737.7 ======== ========
- --------------- * Weighted average interest rates at December 31, 1997. The weighted average interest rates on commercial paper and bank loans, Pounds Sterling bank loans and notes and ESOP notes were, 3.35%, 6.42% and 5.12%, respectively at December 31, 1996. Cooper has U.S. committed credit facilities of $835 million that expire in 2000, and $315 million that expire in 1998. At December 31, 1997, Cooper had an effective "shelf" registration statement, which may be used to issue an additional $250 million of medium-term notes from time to time. At December 31, 1997, Cooper had $551.7 million of its $1.15 billion U.S. committed credit facilities available, after considering commercial paper backup. At December 31, 1996, $1.02 billion of its total $1.22 billion U.S. committed credit facilities was available after considering commercial paper backup, and none of its 30 million Pound Sterling credit facility was available. The 30 million Pound Sterling credit facility expired in 1997 and was not re-established. The agreements for the credit facilities require that Cooper maintain certain financial ratios, including a prescribed limit on debt as a percentage of total capitalization. Retained earnings are unrestricted as to the payment of dividends, except to the extent that payment would cause a violation of the prescribed limit on the debt to total capitalization ratio. Interest rates on Cooper's commercial paper and U.S. bank loans were generally 2.8% below the U.S. prime rate during 1997 and 1996. Total interest paid during 1997, 1996 and 1995 was $107 million, $141 million and $134 million, respectively. Commercial paper of $400 million and bank loans of $202.7 million were reclassified to long-term debt at December 31, 1997 and 1996, respectively, reflecting Cooper's intention to refinance these amounts during the twelve- month period following the balance sheet date through either continued short-term borrowing or utilization of available credit facilities. Effective January 1, 1995, Cooper exchanged all of the outstanding $1.60 Convertible Exchangeable Preferred Stock for $691.2 million of 7.05% Convertible Subordinated Debentures due 2015 and $3.8 million in cash related to fractional shares. During 1997, Cooper called for redemption the outstanding debentures with a total of $610 million converting to approximately 14.8 million shares of Cooper Common stock and approximately $80 million being redeemed for cash. A-25 27 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In December 1995, Cooper issued $222.8 million in 6% Exchangeable Notes (DECS) due January 1, 1999. At maturity, the notes are mandatorily exchangeable into shares of Wyman-Gordon common stock owned by Cooper or, at Cooper's option, into cash in lieu of shares. During 1997, Cooper exchanged a portion of the DECS ($33.8 million) for Wyman-Gordon common stock (See Note 6). At December 31, 1997 and 1996, Cooper's long-term debt includes $47.9 million and $93.7 million, respectively, which represents the increase in the market value of the Wyman-Gordon common stock exchangeable into the DECS. The offset to the debt increase, net of tax, decreased the unrealized gain on investments in marketable equity securities, both of which are included in shareholders' equity. The floating-rate ESOP notes are indebtedness of Cooper's ESOP. Cooper has guaranteed the payment of the ESOP notes; accordingly, the notes are reported as Cooper's debt (See Note 14). Maturities of long-term debt for the five years subsequent to December 31, 1997 are $58.3 million, $294.1 million, $545.9 million, $50.9 million and $60.8 million, respectively. Cooper anticipates delivering Wyman-Gordon common stock in settlement of the DECS, which represents $235.2 million of the 1999 maturities. The future net minimum lease payments under capital leases and obligations under operating leases are not significant. NOTE 9: COMMON AND PREFERRED STOCK COMMON STOCK At December 31, 1997, 1996 and 1995, 250,000,000 shares of Common stock were authorized of which 120,161,446 and 108,038,851 and 107,876,821 shares were issued and outstanding at December 31, 1997, 1996 and 1995, respectively. During 1997, Cooper issued 14,785,831 shares in exchange for the redemption of the 7.05% Convertible Subordinated Debentures (See Note 8). During the year ended December 31, 1997, Cooper purchased 3,645,017 shares as treasury stock at an average price of $52.54 per share and 813,387 of these shares were reissued in connection with employee stock plans. During 1995, Cooper exchanged 9,500,000 shares of Cooper Common stock for Cooper Cameron common stock (See Note 18). At December 31, 1997, Cooper had 12,818,206 shares reserved for the Dividend Reinvestment Plan, grants and exercises of stock options, performance-based stock awards and subscriptions under the Employee Stock Purchase Plan and other plans. Under the terms of the Dividend Reinvestment Plan, any holder of Common stock may elect to have cash dividends and up to $24,000 per year in cash payments invested in Common stock without incurring any brokerage commissions or service charges. Under a Shareholder Rights Plan adopted by the Board of Directors in 1997, share purchase Rights were declared as a dividend at the rate of one Right for each share of Common stock. Each Right entitles the holder to buy one one- hundredth of a share of Series A Participating Preferred Stock at a purchase price of $225 per one one-hundredth of a share or, in certain circumstances Common stock having a value of twice the purchase price. Each Right becomes exercisable only in certain circumstances constituting a potential change of control on a basis considered inadequate by the Board of Directors. The Rights expire August 5, 2007 and, at Cooper's option, may be redeemed prior to expiration for $.01 per Right. PREFERRED STOCK At December 31, 1997 and 1996, Cooper was authorized to issue 1,340,750 shares of Preferred stock with no par value, 10,000,000 shares of $2.00 par value Preferred stock and 2,821,079 shares of $1.00 par value Preferred stock. At December 31, 1997 and 1996, no Preferred shares were issued or outstanding. NOTE 10: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN Under Cooper stock option plans, officers, directors and key employees may be granted options to purchase Cooper's Common stock at no less than 100% of the market price on the date the option is granted. Options generally become exercisable ratably over a three-year period commencing one year from the date of grant and have a maximum term of ten years. The plans also provide for the granting of performance-based stock awards to certain key executives. Cooper follows the intrinsic value method of accounting for stock options and performance-based stock awards as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related A-26 28 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interpretations. Accordingly, no compensation expense is recognized under Cooper's fixed stock option plans or Employee Stock Purchase Plan. Compensation expense of $8.2 million, $7.1 million and $3.8 million was recognized in the consolidated income statements during 1997, 1996 and 1995, respectively for the performance-based stock awards. If compensation expense for stock options and performance-based stock awards granted under Cooper's stock based compensation plans during 1997 and 1996 was recognized using the alternative fair value method of accounting under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, net income and earnings per share would have decreased by approximately 1.2% in both 1997 and 1996. The fair value was estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997 and 1996, respectively: dividend yield of 2.8% and 3.2%, expected volatility of 20.1% and 20.3%, risk free interest rates of 6.4% and 6.1% and expected lives of 7 years and 6 years. A summary of the status of Cooper's fixed stock option plans for officers and employees as of December 31, 1997 and activity during the three years ended December 31, 1997 is presented below:
1997 1996 1995 -------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- -------- --------- -------- --------- -------- Outstanding at beginning of year........ 3,189,083 $44.05 2,748,219 $46.48 2,951,660 $49.19 Granted................................. 974,900 $45.06 1,044,000 $39.06 903,700 $39.06 Exercised............................... (491,165) $41.67 (12,679) $39.06 (125,500) $37.75 Canceled................................ (559,741) $50.68 (590,457) $46.68 (981,641) $48.91 --------- --------- --------- Outstanding at end of year.............. 3,113,077 $43.55 3,189,083 $44.05 2,748,219 $46.48 ========= ========= ========= Options exercisable at end of year...... 1,361,573 1,571,842 1,416,896 Options available for grant at end of year.................................. 4,706,406 5,760,467 1,676,054
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ----------------------------------------------------- ---------------------- WEIGHTED SHARES AVERAGE WEIGHTED SHARES WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF AT CONTRACTUAL EXERCISE AT EXERCISE EXERCISE PRICES 12/31/97 LIFE PRICE 12/31/97 PRICE - --------------- ----------- ----------- -------- ----------- -------- $39.06 1,531,406 5.9 $39.06 681,902 $39.06 $45.06 902,000 9.1 $45.06 -- -- $50.13 - $52.81 679,671 .6 $51.64 679,671 $51.64 --------- --------- 3,113,077 5.6 1,361,573 ========= =========
During 1997, options to purchase 9,000 shares of Common stock were granted to nonemployee directors at an exercise price of $45.44 and options for 6,000 shares were exercised at $27.13 per share. During 1996, options to purchase 9,000 shares of Common stock were granted to nonemployee directors at an exercise price of $42.13 and options for 8,000 shares were exercised at $27.00 per share. During 1995, options for 4,000 shares were granted, net of the annual retainer fee, at $17.31 per share and options for 6,000 shares were exercised at $25.44 per share. At December 31, 1997, options under the director plans for 12,000 Common shares were exercisable at $14.69 to $24.00 per share, and 174,800 shares were reserved for future grants. EMPLOYEE STOCK PURCHASE PLAN Participants in the Employee Stock Purchase Plan receive an option to purchase Common stock at a price that is the lesser of 90% of the market value on the offering date or 100% of the market value on the purchase date. On September 8, 1997, a total of 575,135 shares were sold to employees at $35.33 per share. At December 31, 1997, subscriptions for 711,332 shares of Common stock were outstanding at $45.68 per share or, if lower, the average market price on September 10, 1999, which is the purchase date. At December 31, 1997, an aggregate of 3,042,973 shares of Common stock were reserved for future issuance. A-27 29 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11: INCOME TAXES
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ------ ------ ------ (IN MILLIONS, EXCEPT FOR PERCENTAGES) Components of income before income taxes: U.S. operations........................................... $526.0 $434.7 $384.9 Foreign operations........................................ 100.7 123.3 93.1 ------ ------ ------ Income from continuing operations before income taxes............................................ $626.7 $558.0 $478.0 ====== ====== ====== Components of income tax expense: Current: U.S. Federal........................................... $166.9 $156.9 $ 82.1 U.S. state and local................................... 26.2 20.9 23.3 Foreign................................................ 42.4 51.5 26.6 ------ ------ ------ 235.5 229.3 132.0 ------ ------ ------ Deferred: U.S. Federal........................................... 4.2 2.2 51.0 U.S. state and local................................... (9.3) 10.2 5.8 Foreign................................................ 1.7 .9 8.6 ------ ------ ------ (3.4) 13.3 65.4 ------ ------ ------ Income tax expense................................ $232.1 $242.6 $197.4 ====== ====== ====== Total income taxes paid..................................... $252.1 $208.4 $158.2 ====== ====== ====== Effective tax rate reconciliation: U.S. Federal statutory rate............................... 35.0% 35.0% 35.0% State and local income taxes.............................. 2.4 2.8 3.4 Foreign statutory rate differential....................... (1.0) (.4) (.5) Nondeductible goodwill.................................... 3.4 4.0 4.7 Automotive asset goodwill write-down...................... -- 2.3 -- State tax settlements(1).................................. (1.0) -- -- Foreign Sales Corporation................................. (0.8) (0.5) (0.6) Tax credits............................................... (1.0) (0.2) -- Other..................................................... -- .5 (0.7) ------ ------ ------ Effective tax rate attributable to continuing operations....................................... 37.0% 43.5% 41.3% ====== ====== ======
- --------------- (1) During 1997, Cooper settled several state income tax matters and recognized a $6.1 million benefit in its income tax provision. A-28 30 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, ------------------ 1997 1996 ------- ------- (IN MILLIONS) Components of deferred tax liabilities and assets: Deferred tax liabilities: Property, plant and equipment and intangibles.......... $(121.4) $(143.6) Unrealized net gain on investments in marketable equity securities and DECS................................... (59.7) (72.5) Inventories............................................ (63.8) (63.8) Employee medical program funding....................... (11.5) (11.5) Employee stock ownership plan.......................... (22.0) (19.7) Pension plans.......................................... (30.2) (24.8) Other.................................................. (53.0) (65.1) ------- ------- Total deferred tax liabilities.................... (361.6) (401.0) ------- ------- Deferred tax assets: Postretirement benefits other than pensions............ 226.2 242.6 Accrued liabilities.................................... 195.0 193.1 Minimum pension liability.............................. 13.3 31.9 Net operating loss carryforwards....................... 2.3 15.2 Other.................................................. 19.8 29.7 ------- ------- Total deferred tax assets......................... 456.6 512.5 ------- ------- Valuation allowances...................................... (16.3) (16.3) ------- ------- Net deferred tax assets........................... $ 78.7 $ 95.2 ======= =======
The U.S. Federal portion of the above provision includes U.S. tax expected to be payable on the foreign portion of Cooper's income before income taxes when such earnings are remitted. Cooper's liabilities for continuing operations at December 31, 1997 and 1996 include the additional U.S. tax estimated to be payable on substantially all unremitted earnings of foreign subsidiaries. NOTE 12: PENSION PLANS Cooper and its subsidiaries have numerous pension plans covering substantially all domestic employees and pension and similar arrangements in accordance with local customs covering employees at foreign locations. The assets of the various domestic and foreign plans are maintained in various trusts and consist primarily of equity and fixed-income securities. Funding policies range from five to thirty years. Pension benefits for salaried employees are generally based upon career earnings. Benefits for hourly employees are generally based on a dollar unit, multiplied by years of service. Aggregate pension expense amounted to $37.8 million, $41.5 million and $40.7 million during 1997, 1996 and 1995, respectively. The amount of expense with respect to Cooper's various defined benefit pension plans is set forth in the table below. During 1997, 1996 and 1995, expense with respect to domestic and foreign defined contribution plans (primarily related to various groups of hourly employees) amounted to $18.7 million, $18.9 million and $16.2 million, respectively. Also included in pension expense are gains and losses on curtailments and settlements and other matters. Cooper partially or completely settled or curtailed one salaried plan in 1997 resulting in a net loss of $.5 million and four defined benefit plans for hourly employees in 1995 resulting in a reversion to Cooper of surplus assets totaling $1.0 million during 1995. A-29 31 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ------ ------ ------ (IN MILLIONS) Components of defined benefit plan net pension expense: Service cost -- benefits earned during the year............. $23.1 $23.7 $21.6 Interest cost on projected benefit obligation............... 69.7 69.1 67.6 Actual return on assets..................................... (93.7) (79.2) (65.9) Net amortization and deferral............................... 19.5 9.0 1.2 ----- ----- ----- Net pension expense......................................... $18.6 $22.6 $24.5 ===== ===== =====
The funded status of the plans at December 31 was as follows:
ASSETS EXCEED ACCUMULATED BENEFITS ACCUMULATED BENEFITS EXCEED ASSETS --------------------- --------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (IN MILLIONS) Actuarial present value of: Vested benefit obligation............................ $(585.7) $(476.3) $(291.9) $(419.9) ======= ======= ======= ======= Accumulated benefit obligation....................... $(618.8) $(509.2) $(318.3) $(446.1) ======= ======= ======= ======= Projected benefit obligation......................... $(632.3) $(529.0) $(330.8) $(453.0) Plan assets at fair value.............................. 762.8 624.3 212.5 319.0 ------- ------- ------- ------- Projected benefit obligation less than (in excess of) plan assets.......................................... 130.5 95.3 (118.3) (134.0) Unrecognized net (gain) loss........................... (52.2) (46.1) 51.8 75.2 Unrecognized net (asset) obligation from adoption date................................................. (5.6) (7.7) 2.3 4.5 Unrecognized prior service cost........................ (3.7) (4.4) 7.2 5.1 Adjustment required to recognize minimum liability..... -- -- (41.2) (86.8) ------- ------- ------- ------- Pension asset (liability) at end of year............... $ 69.0 $ 37.1 $ (98.2) $(136.0) ======= ======= ======= =======
1997 1996 ------------------------ ------------------------ DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL -------- ------------- -------- ------------- Actuarial assumptions used: Discount Rate................................... 7 1/2% 6-7 1/4% 7 1/2% 6 1/2-8 1/4% Rate of compensation increase................... 4 3/4% 4-6% 4 3/4% 4-6% Expected long-term rate of return on assets..... 8 1/2% 7 1/2-9 3/4% 8 1/2% 7 1/2-10%
NOTE 13: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The benefits provided under Cooper's various postretirement plans other than pensions, all of which are unfunded, include retiree medical care, dental care, prescriptions and life insurance, with medical care accounting for approximately 90% of the total. While Cooper has numerous plans, primarily resulting from Cooper's extensive acquisition activity, the vast majority of the annual expense is related to employees who are already retired. In fact, as a result of actions taken by Cooper starting in 1989, virtually no active salaried employees continue to earn retiree medical benefits, and the number of active hourly employees earning such benefits has been greatly diminished. Additionally, Cooper continues to amend its various plans to provide for appropriate levels of cost sharing and other cost-control measures. A-30 32 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Postretirement benefit cost includes the following components:
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ------ ------ ----- (IN MILLIONS) Service cost -- benefits earned during the year............. $ 0.6 $ 0.6 $ 0.6 Interest cost on accumulated postretirement benefit obligation................................................ 30.2 30.5 36.5 Net amortization and deferral............................... (12.7) (10.5) (19.0) ------ ------ ----- Postretirement benefit cost................................. $ 18.1 $ 20.6 $18.1 ====== ====== =====
Amounts recognized in the consolidated balance sheets were as follows:
DECEMBER 31, --------------- 1997 1996 ------ ------ (IN MILLIONS) Accumulated postretirement benefit obligation (APBO): Retirees.................................................. $356.8 $452.9 Employees eligible to retire.............................. 24.3 7.5 Other employees........................................... 10.2 12.6 ------ ------ 391.3 473.0 Unrecognized prior service costs............................ 13.9 22.0 Unrecognized net gain....................................... 152.8 111.4 ------ ------ Accrued postretirement benefit cost......................... $558.0 $606.4 ====== ======
DECEMBER 31, -------------------------------------------- 1997 1996 ------------------- --------------------- (IN MILLIONS, EXCEPT PERCENTAGES) Actuarial assumptions: Discount rate...................................... 6.75% 7.23% Ensuing year to 2002 health care cost trend rate... 11% ratable to 5.5% 11.5% ratable to 5.5% Effect of 1% change in health care cost trend rate: Increase in APBO................................... $34.8 $40.9 Increase in expense................................ $ 2.7 $ 2.7
NOTE 14: COOPER SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLANS All full-time domestic employees, except for certain bargaining unit employees, are eligible to participate in the Cooper Savings Plan ("CO-SAV"). Under the terms of the Plan, employee savings deferrals are partially matched with contributions by Cooper of Common stock consisting of either an allocation of shares in Cooper's Employee Stock Ownership Plan ("ESOP") or new shares issued to the ESOP. Cooper makes annual contributions to the ESOP to fund the payment of principal and interest on ESOP debt (See Note 8). All dividends received by the ESOP are used to pay debt service. As the debt is repaid, unallocated shares are allocated to participants to satisfy Cooper's matching obligation or to replace dividends on allocated shares with Cooper Common shares. For shares purchased by the ESOP prior to 1994, compensation expense is equal to Cooper's matching obligation, adjusted for the difference between the fair market value and cost of the shares released. Compensation expense is reduced by the amount of dividends paid on unallocated ESOP shares available for future matching. In addition, all shares issued to the ESOP are considered outstanding for purposes of computing earnings per share. For shares purchased by the ESOP in 1994, compensation expense is recorded equal to the amount of Cooper's CO-SAV matching obligation, with the difference between the fair market value and cost of shares released recorded as an adjustment to capital in excess of par value. Dividends paid on unallocated shares are recorded as a reduction of ESOP debt and accrued interest. Unallocated shares are not treated as outstanding in the earnings per share computation. A-31 33 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Dividends paid on unallocated shares purchased prior to 1994 of $1.6 million and $2.3 million during 1997 and 1996, respectively, were used to reduce the amount of cash required to fund principal and interest payments on ESOP debt. Dividends paid on allocated ESOP shares purchased prior to 1994 of $4.7 million and $4.3 million during 1997 and 1996, respectively, were used to pay additional principal and interest payments in order to release shares equivalent to the dividend amount to participants in the savings plan. Cooper contributed an additional $21.6 million and $26.6 million in cash to the ESOP during 1997 and 1996, respectively, to fund principal and interest payments on debt associated with shares purchased prior to 1994. During 1994, Cooper sold 1.6 million shares to the ESOP for $82.3 million in cash. The 1994 sales were funded by loans between the ESOP and Cooper, which for financial statement purposes are treated as eliminated intercompany loans. The fair value of the remaining unallocated ESOP shares purchased during 1994 was $34.0 million at December 31, 1997. The number of allocated, committed to be released, and unallocated ESOP shares held at December 31, 1997 and 1996 is summarized below.
SHARES PURCHASED SHARES PURCHASED IN 1994 PRIOR TO 1994 ------------------ ---------------------- 1997 1996 1997 1996 ------- ------- --------- --------- Allocated....................................... 619,320 668,146 3,638,849 3,532,167 Committed to be released........................ 8,156 11,271 60,510 130,275 Unallocated..................................... 692,942 740,880 725,412 1,327,446
Compensation expense with respect to the CO-SAV plan and the ESOP was $18.9 million, $23.5 million and $21.7 million and interest expense on ESOP debt was $1.4 million, $2.7 million and $4.2 million in 1997, 1996 and 1995, respectively. NOTE 15: INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS INDUSTRY SEGMENTS Cooper's operations consist of three segments: Electrical Products, Tools & Hardware and Automotive Products. Markets for Cooper's products and services are worldwide, with the United States being the largest market. The Electrical Products segment manufactures and markets electrical and electronic distribution and circuit protection products and lighting fixtures for use in residential, commercial and industrial construction, maintenance and repair and products for use by utilities and industries for primary power distribution and control. The Tools & Hardware segment produces and markets tools and hardware items for use in residential, commercial and industrial construction, maintenance and repair and for general industrial and consumer use. This segment manufactured and marketed window treatments through May 30, 1997. The Automotive Products segment manufactures and distributes spark plugs, wiper blades, lamps, brake friction materials and other products for use by the automotive aftermarket and in automobile assemblies. In addition, this segment manufactures and distributes suspension, steering, temperature control, driveline and brake system components and material for the automotive aftermarket. Intersegment sales and related receivables for each of the years presented were immaterial. A-32 34 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Financial information by industry segment was as follows:
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS ------------------------------ --------------------------- ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------ --------------------------- ------------------------------ 1997 1996 1995 1997 1996 1995 1997 1996 1995 -------- -------- -------- ------- ------- ------- -------- -------- -------- (IN MILLIONS) Electrical Products(1)............ $2,568.3 $2,407.5 $2,089.7 $ 445.7 $ 405.3 $ 355.5 $2,464.4 $1,985.0 $2,000.4 Tools & Hardware(1)(2)............ 847.3 973.0 962.4 151.7 111.4 111.2 548.9 773.2 759.7 Automotive Products(1)............ 1,873.2 1,903.2 1,758.8 143.5 87.3 180.7 2,547.6 2,594.0 2,635.3 -------- -------- -------- ------- ------- ------- -------- -------- -------- $5,288.8 $5,283.7 $4,810.9 740.9 604.0 647.4 5,560.9 5,352.2 5,395.4 ======== ======== ======== Other income...................... 14.2 23.0 25.5 Nonrecurring gains(3)............. 23.2 150.4 11.7 General corporate(1).............. (61.2) (77.3) (55.6) 487.1 575.3 646.0 Interest expense.................. (90.4) (142.1) (151.0) ------- ------- ------- Consolidated income from continuing operations before income taxes........................... $ 626.7 $ 558.0 $ 478.0 ======= ======= ======= Investments in unconsolidated affiliates...................... 4.5 22.9 22.5 -------- -------- -------- Consolidated assets............... $6,052.5 $5,950.4 $6,063.9 ======== ======== ========
- --------------- (1)The respective 1997 and 1996 operating earnings amount includes nonrecurring expenses of $15.9 million and $3.0 million for Electrical Products, $22.5 million and $2.0 million for Tools & Hardware and $43.4 million and $102.0 million (including an $85.3 million asset write-down) for Automotive Products and $2.1 million and $10.9 million for general corporate expense (See Note 2). (2)The Tools & Hardware segment includes revenues and operating earnings for the Kirsch division through May 30, 1997. Operating earnings include a gain on the sale of Kirsch of $69.8 million in 1997. (3)Includes gain on the exchange of DECS of $23.2 million in 1997 and gains on the sale of investments in marketable equity securities of $150.4 million and $11.7 million in 1996 and 1995, respectively (See Note 6). - ---------------
DEPRECIATION GOODWILL AMORTIZATION CAPITAL EXPENDITURES ------------------------ ------------------------ ------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ ------------------------ ------------------------ 1997 1996 1995 1997 1996 1995 1997 1996 1995 ------ ------ ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS) Electrical Products........... $ 61.2 $ 63.4 $ 52.6 $27.9 $26.9 $23.1 $ 79.2 $ 79.1 $ 62.4 Tools & Hardware.............. 26.5 35.2 36.1 4.5 4.6 4.8 37.0 32.7 31.6 Automotive Products........... 64.9 67.4 66.2 32.7 33.7 32.9 78.4 87.1 85.7 Corporate..................... 1.9 2.6 3.1 -- -- -- 1.1 3.0 8.7 ------ ------ ------ ----- ----- ----- ------ ------ ------ $154.5 $168.6 $158.0 $65.1 $65.2 $60.8 $195.7 $201.9 $188.4 ====== ====== ====== ===== ===== ===== ====== ====== ======
A-33 35 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DOMESTIC AND INTERNATIONAL OPERATIONS Transfers between domestic and international operations, principally inventory transfers, are designed to charge the receiving organization at third-party arms-length prices that are generally sufficient to recover manufacturing costs and provide a reasonable return. Export sales to unaffiliated customers included in domestic sales were $366.9 million, $302.5 million and $268.5 million in 1997, 1996 and 1995, respectively. Of total export sales, approximately 39% in 1997, 41% in 1996 and 39% in 1995 were to Asia, Africa, Australia and the Middle East; 26% in 1997, 25% in 1996 and 27% in 1995 were to Canada and Europe; 35% in 1997, and 34% in 1996 and 1995 were to Latin America. Domestic and international financial information was as follows:
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS ------------------------------ ------------------------ ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ------------------------ ------------------------------ 1997 1996 1995 1997 1996 1995 1997 1996 1995 -------- -------- -------- ------ ------ ------ -------- -------- -------- (IN MILLIONS) Domestic(1)....................... $4,297.7 $4,294.2 $4,030.2 $628.8 $459.9 $540.8 $4,128.6 $4,132.8 $4,171.2 -------- -------- -------- ------ ------ ------ -------- -------- -------- International:(1) Europe.......................... 678.8 737.9 537.5 58.7 88.2 56.1 1,125.9 987.9 959.2 Canada.......................... 219.1 256.7 250.8 14.9 6.3 10.7 138.1 146.6 131.9 Other........................... 290.0 257.2 225.7 39.6 50.4 39.9 363.9 311.9 280.5 -------- -------- -------- ------ ------ ------ -------- -------- -------- Sub-total International....... 1,187.9 1,251.8 1,014.0 113.2 144.9 106.7 1,627.9 1,446.4 1,371.6 Eliminations: Transfers to International...... (153.5) (178.2) (165.4) -- -- -- (42.8) (57.1) (62.1) Transfers to Domestic........... (43.3) (84.1) (67.9) -- -- -- (141.0) (158.3) (75.4) Other........................... -- -- -- (1.1) (.8) (.1) (11.8) (11.6) (9.9) -------- -------- -------- ------ ------ ------ -------- -------- -------- $5,288.8 $5,283.7 $4,810.9 740.9 604.0 647.4 5,560.9 5,352.2 5,395.4 ======== ======== ======== Other income...................... 14.2 23.0 25.5 Nonrecurring gains(2)............. 23.2 150.4 11.7 General corporate(3).............. (61.2) (77.3) (55.6) 487.1 575.3 646.0 Interest expense.................. (90.4) (142.1) (151.0) ------ ------ ------ Consolidated income from continuing operations before income taxes.................... $626.7 $558.0 $478.0 ====== ====== ====== Investments in unconsolidated affiliates...................... 4.5 22.9 22.5 -------- -------- -------- Consolidated assets............... $6,052.5 $5,950.4 $6,063.9 ======== ======== ========
- --------------- (1) The 1997 domestic, Europe and other operating earnings amount includes nonrecurring expenses of $56.8 million, $15.3 million and $9.7 million, respectively. The 1996 domestic operating earnings includes nonrecurring expenses of $107.0 million. The 1997 domestic operating earnings also include a gain on the sale of Kirsch of $69.8 million. (2) Includes gain on the exchange of DECS of $23.2 million in 1997 and gains on the sale of investments in marketable equity securities of $150.4 million and $11.7 million in 1996 and 1995, respectively (See Note 6). (3) Includes nonrecurring expenses of $2.1 million and $10.9 million in 1997 and 1996, respectively. - --------------- International revenues by destination, based on the location products were delivered, were as follows by segment:
INTERNATIONAL REVENUES ------------------------------ 1997 1996 1995 -------- -------- -------- (IN MILLIONS) Electrical Products......................................... $ 612.7 $ 578.6 $ 355.2 Tools & Hardware(1)......................................... 319.6 357.2 354.8 Automotive Products......................................... 543.8 537.5 506.6 -------- -------- -------- $1,476.1 $1,473.3 $1,216.6 ======== ======== ========
- --------------- (1) Includes $29.1 million in 1997, $83.3 million in 1996 and $90.0 in 1995 of Kirsch revenues. A-34 36 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16: OFF-BALANCE-SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES As a result of having sales and purchases and other transactions denominated in currencies other than the functional currencies used by Cooper's businesses, Cooper is exposed to the effect of foreign exchange rate fluctuations on its cash flows and earnings. To the extent possible, Cooper utilizes natural hedges to minimize the effect on cash flows of fluctuating foreign currencies. When natural hedges are not sufficient, it is Cooper's policy to enter into forward foreign exchange contracts to hedge all significant transactions for periods consistent with the terms of the underlying transactions. Cooper does not engage in speculative transactions. While forward contracts affect Cooper's results of operations, they do so only in connection with the underlying transactions. Gains and losses on these contracts offset losses and gains on the transactions being hedged. The volume of forward activity engaged in by Cooper from year to year fluctuates in proportion to the level of worldwide cross-border transactions, and contracts generally have maturities that do not exceed one year. The table below summarizes, by currency, the contractual amounts of Cooper's forward exchange contracts at December 31, 1997 and 1996.
DECEMBER 31, ---------------- 1997 1996 ------ ------ (IN MILLIONS) British Pound Sterling(1)................................... $175.3 $ 7.7 Canadian Dollar............................................. -- 58.2 German Deutschemark......................................... 4.1 27.8 Italian Lira................................................ 5.4 16.9 Spanish Peseta.............................................. 1.3 10.6 Australian Dollar........................................... 7.2 6.9 Japanese Yen................................................ 2.2 4.6 Dutch Guilder............................................... 2.5 1.8 Other....................................................... 11.0 12.8 ------ ------ $209.0 $147.3 ====== ======
- --------------- (1)Substantially all of the British Pound Sterling forward contracts were entered into in December 1997 and matured in January 1998. In an effort to reduce interest expense on Cooper's fixed-rate borrowings, Cooper entered into an interest rate swap in 1991, which matured in February 1996, that converted a $50 million fixed rate borrowing into a floating-rate borrowing resulting in an effective interest rate of 6.2% during 1995. In the normal course of business, Cooper has letters of credit, performance bonds and other guarantees which are not reflected in the consolidated balance sheets. In the past, no significant claims have been made against these financial instruments. Management believes the likelihood of performance under these instruments is minimal and expects no material losses to occur in connection with these instruments. Cooper's other off-balance-sheet risks are not material. CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and no one customer exceeding 3% of accounts receivable. Credit risk is also limited by the world-wide markets into which Cooper's products are sold, as well as their dispersion across many different geographic areas. FAIR VALUE OF FINANCIAL INSTRUMENTS Cooper's financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, debt instruments and foreign currency forward contracts. The book values of cash and cash equivalents, trade receivables and trade payables are considered to be representative of their respective fair values. Cooper had approximately $1.5 billion and $1.9 billion of debt instruments at December 31, 1997 and 1996, respectively. The book value of these instruments was approximately equal to fair value at December 31, 1997 and 1996. Based on year-end A-35 37 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) exchange rates and the various maturity dates of the foreign currency forward contracts, Cooper estimates that the contract value is representative of the fair value of these items at December 31, 1997 and 1996. NOTE 17: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES The following noncash transactions have been excluded from the consolidated statements of cash flows:
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 ------- ------- ------- (IN MILLIONS) Assets acquired and liabilities assumed or incurred from the acquisition of businesses: Fair value of assets acquired............................. $ 532.1 $ 131.6 $ 249.9 Cash used to acquire businesses, net of cash acquired..... (386.5) (93.2) (175.9)(1) ------- ------- ------- Liabilities assumed or incurred............................. $ 145.6(2) $ 38.4 $ 74.0 ======= ======= ======= Noncash increase (decrease) in net assets from: Conversion of 7.05% Convertible Subordinated Debentures into Cooper Common stock............................... $ 610.0 $ -- $ -- Exchange of DECS for Wyman-Gordon common stock............ 33.8 -- -- Retirement of Cooper Common shares exchanged for Cooper Cameron common shares.................................. -- -- 427.5 Exchange of $1.60 Convertible Exchangeable Preferred Stock into 7.05% Convertible Subordinated Debentures......... -- -- 691.2
- --------------- (1) Includes approximately $164 million at December 31, 1995 for the acquisition of CEAG that was paid on January 5, 1996 (See Note 3). (2) Includes $46.2 million of notes exchanged for Menvier-Swain common stock. NOTE 18: DISCONTINUED OPERATIONS In September 1994, Cooper announced its decision to establish its Petroleum & Industrial Equipment segment as an independent publicly traded company, Cooper Cameron, through an exchange offer with Cooper's common shareholders. The exchange offer was completed on June 30, 1995, at which time 9.5 million shares of Cooper Common stock were exchanged for 85.5% of Cooper Cameron common stock. The Petroleum & Industrial Equipment segment split-off has been accounted for as a discontinued operation. During the second quarter of 1995, Cooper recorded an additional charge of $186.6 million, with no tax benefit, to reflect the actual loss on the split-off of Cooper Cameron. This additional charge was composed of the difference between the historical cost of Cooper's investment in Cooper Cameron remaining after the initial September 1994 estimated charge and the market value of Cooper Cameron common stock during the first few days the common stock traded on a national exchange ($162.8 million), additional Cooper Cameron operating losses during the period October 1, 1994 through June 30, 1995 ($20.3 million) and additional transaction costs ($3.5 million). The additional operating losses and transaction costs resulted primarily from the delay in completing the exchange transaction and the recording by Cooper Cameron of a $17 million pretax charge in the second quarter of 1995 for the write-down of receivables due from customers in Iran. Cooper retained a 14.5% interest in Cooper Cameron, which was accounted for as a marketable equity security. Cooper sold its entire investment in Cooper Cameron common stock during 1996 (See Note 6). A-36 38 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 19: NET INCOME PER COMMON SHARE
BASIC DILUTED ------------------------------ ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------ ------------------------------ 1997 1996 1995 1997 1996 1995 -------- -------- -------- -------- -------- -------- ($ IN MILLIONS, SHARES IN THOUSANDS) Income from continuing operations..... $ 394.6 $ 315.4 $ 280.6 $ 394.6 $ 315.4 $ 280.6 Charge for discontinued operations.... -- -- (186.6) -- -- (186.6) Interest expense on 7.05% Convertible Subordinated Debentures, net of income taxes........................ -- -- -- 5.8 29.2 29.2 -------- -------- -------- -------- -------- -------- Net income applicable to Common stock............................... $ 394.6 $ 315.4 $ 94.0 $ 400.4 $ 344.6 $ 123.2 ======== ======== ======== ======== ======== ======== Weighted average Common shares outstanding......................... 117,459 107,284 111,510 117,459 107,284 111,510 ======== ======== ======== Incremental shares from assumed conversions: Options, performance-based stock awards and other employee awards........................... 1,201 613 442 7.05% Convertible Subordinated Debentures....................... 4,270 16,731 16,731 -------- -------- -------- Weighted average Common shares and Common share equivalents............ 122,930 124,628 128,683 ======== ======== ========
NOTE 20: UNAUDITED QUARTERLY OPERATING RESULTS
1997 (BY QUARTER) ----------------------------------------- 1 2 3 4 -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................................................... $1,318.9 $1,384.9 $1,296.9 $1,288.1 Cost of sales............................................... 905.7 938.4 883.1 861.1 Selling and administrative expenses......................... 240.8 238.8 222.5 223.2 Goodwill amortization....................................... 16.0 16.1 16.3 16.7 Nonrecurring gains.......................................... -- (69.8) (23.2) -- Nonrecurring charges........................................ -- 70.5 13.4 -- Other (income) expense, net................................. 1.5 (0.6) -- 1.2 Interest expense............................................ 29.6 21.3 19.4 20.1 -------- -------- -------- -------- Income before income taxes.................................. 125.3 170.2 165.4 165.8 Income taxes(1)............................................. 47.6 64.7 62.9 56.9 -------- -------- -------- -------- Net income.................................................. $ 77.7 $ 105.5 $ 102.5 $ 108.9 ======== ======== ======== ======== Income per Common share:(2)(3) Basic..................................................... $ 0.71 $ 0.89 $ 0.85 $ 0.91 ======== ======== ======== ======== Diluted................................................... $ 0.67 $ 0.86 $ 0.84 $ 0.90 ======== ======== ======== ========
- --------------- (1)Includes $6.1 million related to the favorable settlements of state income tax issues in the fourth quarter. (2)Includes gain, net of nonrecurring expenses, on the exchange of the DECS of $.05 in the third quarter and $.05 related to the favorable settlements of state tax issues in the fourth quarter. (3)Adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share increased the second and third quarter 1997 Basic Income per Common Share $.01 each quarter. A-37 39 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 (BY QUARTER) ----------------------------------------- 1 2 3 4 -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues................................................... $1,291.7 $1,351.4 $1,308.1 $1,332.5 Cost of sales.............................................. 897.1 919.3 889.8 899.5 Selling and administrative expenses........................ 233.6 232.8 235.5 243.5 Goodwill amortization...................................... 16.2 16.4 16.4 16.2 Nonrecurring gains......................................... (10.9) (9.5) (107.2) (22.8) Nonrecurring charges....................................... 10.9 8.3 85.3 13.4 Other (income) expense, net................................ 1.5 (2.3) (0.5) 1.1 Interest expense........................................... 37.6 36.8 35.4 32.3 -------- -------- -------- -------- Income before income taxes................................. 105.7 149.6 153.4 149.3 Income taxes(1)............................................ 43.6 61.3 76.1 61.6 -------- -------- -------- -------- Net income................................................. $ 62.1 $ 88.3 $ 77.3 $ 87.7 ======== ======== ======== ======== Income per Common share:(2)(3) Basic.................................................... $ 0.58 $ 0.82 $ 0.72 $ 0.82 ======== ======== ======== ======== Diluted.................................................. $ 0.56 $ 0.77 $ 0.68 $ 0.76 ======== ======== ======== ========
- --------------- (1)Income before income taxes includes a net nonrecurring gain of $21.9 million and income taxes include a $12.9 million effect related to the goodwill write-down included in the Automotive Products asset write-down in the third quarter of 1996. (2)Includes gains from the sale of marketable equity securities, net of nonrecurring expense, of $.01 and $.04 in the second and fourth quarters, respectively. (3)Adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share increased the fourth quarter of 1996 Basic Income per Common Share $.01. A-38 EX-21 18 LIST OF SUBSIDIARIES 1 Exhibit 21.0 December 31, 1997 SUBSIDIARIES Cooper has no parent. The subsidiaries of Cooper are listed in groupings that indicate the nature and management of the operations of each. Unless noted herein, all subsidiaries are wholly owned by Cooper or one of its subsidiaries.
Place of Name Incorporation ---- ------------- A. GENERAL CORPORATE ADMINISTRATION BZ Holdings Inc. Delaware, U.S. Champion Executive Pensions Limited United Kingdom CI Leasing Company Delaware, U.S. Cooper A & S Company Delaware, U.S. Cooper (Great Britain) Ltd. United Kingdom Cooper (U.K.) Limited Delaware, U.S. Cooper CPS Corporation Delaware, U.S. Cooper Enterprises LLC Delaware, U.S. Cooper Finance, Inc. Delaware, U.S. Cooper Industries (Canada) Inc. Ontario, Canada Cooper Industries Australia Pensions Pty Ltd Australia Cooper Industries Australia Pty Limited Australia Cooper Industries Foreign Sales Company, Limited Barbados Cooper Industries Foundation Ohio, U.S. Cooper Industries France SARL France Cooper Industries International Company Delaware, U.S. Cooper Industries Italia S.p.A. Italy Cooper Industries, Inc. Delaware, U.S. Cooper Industries (U.K.) Plc United Kingdom Cooper International Company Delaware, U.S. Cooper PAC Corporation Delaware, U.S. Cooper Pensions Limited United Kingdom Cooper Securities, Inc. Texas, U.S. Cooper Technologies Company Delaware, U.S. Cooper Trading, Inc. Delaware, U.S. Cooper Western Hemisphere Company Delaware, U.S. Coopind Inc. Delaware, U.S. CoopKC Michigan, U.S. CS Holdings International Inc. Cayman Islands Industrias Cooper de Venezuela, S.A. Venezuela Moog Redevelopment Corporation Missouri, U.S.
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Place of NAME Incorporation - ----------------- ------------- B. ELECTRICAL PRODUCTS ---------------------- Active Control, Inc. Texas, U.S. Alpha Lighting, Inc. Delaware, U.S. Arrow-Hart, S.A. de C.V. Mexico Atlite Inc. Delaware, U.S. Blessing Electronics B.V. Netherlands Blessing International B.V. Netherlands Bussmann do Brasil Ltda. Brazil Bussmann International, Inc. Delaware, U.S. Bussmann, S.A. de C.V. Mexico CALP International, Inc. Florida, U.S. CEAG Benelux B.V. Netherlands CEAG Crouse-Hinds Asia Pacific Pte. Ltd. Singapore CEAG digi table Sicherheitstechnik GmbH Germany CEAG Electronics GmbH Germany CEAG Flameproof Control Gears Private Limited (51% owned) India CEAG Grundstucks GmbH & Co. OHG Germany CEAG Grundstucksverwaltungsgesellschaft mbH Germany CEAG Middle East Limited Liability Company (49% owned) Dubai, U.A.E. CEAG Norge AS Norway CEAG NORTEM, S.A. Spain CEAG Sicherheitstechnik GmbH Germany Coiltronics, Inc. Florida, U.S. Coiltronics International Corporation Florida, U.S. Componentes de Iluminacion, S.A. de C.V. Mexico Connectron, Inc. New Jersey, U.S. Cooper Bussmann, Inc. Delaware, U.S. Cooper Elektrische Ausrustungen GmbH Germany Cooper Elektrische Ausrustungen GmbH & Co. Offene Germany Handelsgesellschaft Cooper Industries GmbH Germany Cooper Power Systems do Brasil Ltda. Brazil Cooper Lighting, Inc. Delaware, U.S. Cooper Power Systems Pty. Ltd. Australia Cooper Power Systems, Inc. Delaware, U.S. Cooper Power Systems Overseas, Inc. Delaware, U.S. Cooper Power Systems Transportation Company Wisconsin, U.S. Cortek Internacional S.A. Costa Rica Crouse-Hinds (Australia) Pty., Ltd. Australia Crouse-Hinds Domex, S.A. de C.V. Mexico Crouse-Hinds Inc. Delaware, U.S. CTIP Inc. Delaware, U.S. Digital Lighting Holdings Limited (50% owned) British Virgin Islands Dunfermline Company Ireland Edison Fusegear, Inc. Delaware, U.S. Fulleon Synchrobell Ltd. United Kingdom
2 3 Iluminacion Cooper de las Californias S.A. de C.V. Mexico Industries Karp, S.A. de C.V. Mexico Kearney Company, Inc. Delaware, U.S. Kearney-National (Canada) Limited Ontario, Canada Kearney (Thailand) Company Limited (51% owned) Thailand Les Appareillages Electriques Kearney Inc. Quebec, Canada Luminox Securite Electronique S.A. France Major Liting, Inc. Pennsylvania, U.S. McGraw-Edison Company Delaware, U.S. McGraw-Edison Development Corporation Delaware, U.S. Menvier (Electronic Engineers) Ltd. United Kingdom Menvier ApS Denmark Menvier CSA Srl Italy Menvier Electronics International Pty Ltd. Australia Menvier Hybrids Ltd. United Kingdom Menvier Notstrom-Und Systemtechnik GmbH Germany Menvier Overseas Holdings Ltd. United Kingdom Menvier Research Ltd. Ireland Menvier Security Ltd. United Kingdom Menvier-Amberlec Systems Ltd. United Kingdom Menvier-Swain Group plc United Kingdom Nugelec S.A. France Ping Ding Shan Edison Power Systems Company Limited (60% owned) China Pretronica Precisao Electron Ltda. Portugal Pretronica precisao Electron Ltda. II Portugal RTE Far East Corporation Taiwan Scantronic France S.A. France Scantronic Holdings Inc. PLC United Kingdom Scantronic International Ltd. United Kingdom Scantronic Ltd. United Kingdom SCI Noemi France Si-Tronic Srl Italy Silver Light International Limited (50% owned) British Virgin Islands Thepitt Manufacturing Company Pennsylvania, U.S. Transmould Ltd. United Kingdom Univel EPE Greece Western Power Products, Inc. Oregon, U.S.
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Place of NAME Incorporation - ------------------------ -------------- C. TOOLS & HARDWARE ------------------- Cooper Industries GmbH Beteiligungen Germany Cooper Power Tools, Inc. Delaware, U.S.A. Cooper Tools GmbH Germany Cooper Tools Industrial Ltda. Brazil Cooper Tools Pty. Limited Australia Cooper Tools S.A. France Deutsche Gardner-Denver Beteiligungs-GmbH Germany Deutsche Gardner-Denver GmbH & Co. Germany Empresa Andina de Herramientas, S.A. (49% owned) Columbia Erem S.A. Swizterland Lufkin Europa B.V. Netherlands Nicholson Mexicana, S.A. de C.V. Mexico The Cooper Group, Inc. Delaware, U.S.
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Place of NAME Incorporation - ----------------------- ------------- D. AUTOMOTIVE PRODUCTS ---------------------- CAP Automotive Company Delaware, U.S. Cooper Automotive de Mexico, S.A. de C.V. Mexico Cooper Automotive de Venezuela, C.A. Venezuela Cooper Automotive do Brasil, Ltda. Brazil Cooper Automotive Electrical do Brasil, Ltda. Brazil Cooper Automotive Filtration S.p.A. Italy Cooper Automotive France, S.A. France Cooper Automotive Iberica, S.A. Spain Cooper Automotive, Inc. Delaware, U.S. Cooper Automotive K.K. Japan Cooper Automotive of Latin America, S.A. de C.V. Mexico Cooper Automotive Netherlands B.V. Netherlands Cooper Automotive of South Africa (Proprietary) Limited South Africa Cooper Automotive Products (India) Private Limited India Cooper Automotive Pty. Ltd. Australia Cooper Automotive S.A. Belgium Cooper Automotive, Taiwan, Inc. Taiwan Champion Aviation, Inc. Delaware, U.S. Champion Interamericana, Ltd. Delaware, U.S. Champion Spark Plug Company Delaware, U.S. Crucetas Mexicanas, S.A. de C.V. (40% owned) Mexico Farloc Argentina S.A.I.C. y F. (23.9% owned) Argentina Frenos Hidraulicos Automotrices S.A. (49% owned) Mexico Guangzhou Champion Spark Plug Co., Ltd. (50% owned) China Moog Automotive Company Delaware, U.S. Moog Automotive, Inc. Missouri, U.S. Sistemas de Energia de Matamoros, S.A. de C.V. Mexico
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Place of NAME Incorporation - -------------------- ------------- E. INACTIVE SUBSIDIARIES ------------------------ Aerocharter (Coventry) Ltd. United Kingdom AP Alarm Systems, Ltd. United Kingdom B & S Fuses Limited United Kingdom Bussmann de Mexico S.A. de C.V. Mexico Bussmann (U.K.) Limited United Kingdom Carlton Santee Corporation California, U.S. CEAG Egypt Ltd. Delaware, U.S. Champion Spark Plug Belgium S.A. Belgium Champion Spark Plug GmbH Germany Champion Sparking Plug Company (Ireland) Limited Ireland Contronic Inc. Canada Coopauto Corporation Delaware, U.S. Cooper Industries Norge AS Norway Crouse-Hinds de Venezuela, C.A. Venezuela DFL Fusegear Limited United Kingdom Firecom Ltd. United Kingdom Gardner-Denver (Aust.) Pty. Limited Australia Gardner-Denver International, C.A. Venezuela Homelink Telecom Ltd. United Kingdom Inmobiliaria Cisco, S.A. Mexico McGraw-Edison Export Corporation Delaware, U.S. Menvier (CJS) Ltd. United Kingdom Moog Automotive, Ltd. Cayman Islands MSG Leasing Limited United Kingdom Productos de Frenos Automotrices de Calidad, S.A. de C.V. Mexico R S Alarm Systems Ltd. United Kingdom Scantronic (Singapore) Pte Ltd. Singapore Scantronic Benelux B.V. Netherlands Scantronic B.V. Netherlands Scantronic GmbH Germany Scantronic Holdings Inc. (CAN) Canada Scantronic Holdings Inc. Delaware, U.S. Scantronic International Holdings B.V. Netherlands Scantronic Spain S.A. Spain Synchrobell Ltd. United Kingdom The Cooper Group, B.V. Netherlands Veda Manufacturing Pty. Limited Australia WAWD Autoteile GmbH Germany WPC Corporation, Inc. Delaware, U.S. ZV Zundkerzenvertriebs GmbH Germany
6 EX-23 19 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.0 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Cooper Industries, Inc. of our report dated January 23, 1998, included in Appendix A to the Cooper Industries, Inc. Proxy Statement for the 1998 Annual Meeting of Shareholders. We also consent to the incorporation by reference in the following Registration Statements on Form S-8 or Form S-3 of Cooper Industries, Inc. and in each related Prospectus of our report dated January 23, 1998, with respect to the consolidated financial statements incorporated herein by reference. Registration Statement No. Purpose No. 2-71732 Form S-8 Registration Statement for Shares issuable pursuant to Substitute Deferred Compensation Agreements in connection with the acquisition of Crouse-Hinds Company No. 2-33-14542 Form S-8 Registration Statement for Cooper Industries, Inc. 1985 and 1989 Employee Stock Purchase Plans No. 2-33-19574 Form S-8 Registration Statement for Cooper Industries, Inc. 1986 Stock Option Plan No. 2-33-29302 Form S-8 Registration Statement for 1989 Director Stock Option Plan No. 33-57829 Form S-8 Registration Statement for Cooper Industries, Inc. 1986 Stock Option Plan No. 333-00117 Form S-3 Registration Statement for Cooper Industries, Inc. Debt Securities (Debt Shelf) No. 333-02847 Form S-8 Registration Statement for Cooper Industries, Inc. Directors' Stock Plan No. 333-08277 Form S-8 Registration Statement for Cooper Industries, Inc. Stock Incentive Plan No. 333-24237 Form S-3 Registration Statement for Cooper Industries, Inc. Dividend Reinvestment and Stock Purchase Plan /s/ Ernst & Young LLP Houston, Texas March 26, 1998 EX-24 20 POWERS OF ATTORNEY 1 EXHIBIT 24.0 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1997, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day of February, 1998. /s/ Harold S. Hook -------------------------- Harold S. Hook 2 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each of them acting individually, her true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in her name and in her capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1997, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 11th day of February, 1998. /s/ Linda A. Hill -------------------------- Linda A. Hill 3 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1997, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day of February, 1998. /s/Constantine S. Nicandros -------------------------- Constantine S. Nicandros 4 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1997, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th day of February, 1998. /s/John D. Ong -------------------------- John D. Ong 5 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1997, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day of February, 1998. /s/Sir Ralph H. Robins -------------------------- Sir Ralph H. Robins 6 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1997, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day of February, 1998. /s/James R. Wilson -------------------------- James R. Wilson -----END PRIVACY-ENHANCED MESSAGE-----