e10vq

-----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, JWOp5nkKKVFtcJ3+DA6SI18TrmTDRfuFkzyl8LbVyAAKsRNnauLrxOowgAgsX9Nt CfrtvEn5DVuX1fuSqu8KTA== 0000950129-05-004948.txt : 20050509 0000950129-05-004948.hdr.sgml : 20050509 20050509165359 ACCESSION NUMBER: 0000950129-05-004948 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050509 DATE AS OF CHANGE: 20050509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COOPER INDUSTRIES LTD CENTRAL INDEX KEY: 0001141982 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 980355628 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31330 FILM NUMBER: 05812444 BUSINESS ADDRESS: STREET 1: 600 TRAVIS STREET 2: SUITE 5800 CITY: HOUSTON STATE: TX ZIP: 77002-1001 BUSINESS PHONE: 7132098400 MAIL ADDRESS: STREET 1: 600 TRAVIS STREET 2: SUITE 5800 CITY: HOUSTON STATE: TX ZIP: 77002-1001 10-Q 1 h25228e10vq.htm COOPER INDUSTRIES, LTD. - MARCH 31, 2005 e10vq

10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2005


o		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		1-31330

Cooper Industries, Ltd.

(Exact name of registrant as specified in its charter)


Bermuda		98-0355628

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

600 Travis, Suite 5800		Houston, Texas 77002

(Address of principal executive offices)		(Zip Code)

(713) 209-8400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

Number of registrant’s common stock outstanding as of March 31, 2005 was 92,849,043 Class A common shares that are held by the public and 7,766,537 Class A common shares and 54,810,129 Class B common shares that are held by the issuer’s wholly-owned subsidiaries.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
	Item 6. Exhibits
Signatures
Exhibit Index
Fourth Supplemental Indenture
Summary of Executive Compensation Arrangements
Summary of Nonemployees Director Compensation
Form of Executive Stock Incentive Agreement
Amended and Restated Stock Incentive Plan
Form of Management Continuity Agreement
Computation of Ratios of Earnings to Fixed Charges
Consent of Bates White, LLC
Certification of CEO pursuant to Section 302
Certification of CFO pursuant to Section 302
Certification of CEO pursuant to Section 906
Certification of CFO pursuant to Section 906

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS


	Three Months Ended
	March 31,
	2005		2004
	(in millions, where applicable)
Revenues	$	1,144.8	$	1,064.6
Cost of sales		787.6		742.0
Selling and administrative expenses		227.5		208.4

Operating earnings		129.7		114.2
Interest expense, net		17.8		17.1

Income before income taxes		111.9		97.1
Income taxes		24.1		19.4


Net income	$	87.8	$	77.7


Income per common share:
Basic	$	.94	$	.83

Diluted	$	.92	$	.81


Cash dividends per common share	$	.37	$	.35

The accompanying notes are an integral part of these statements.

-2-

COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS


	March 31,			December 31,
	2005			2004
	(in millions)
ASSETS

Cash and cash equivalents	$	524.8		$	652.8
Receivables		841.0			820.9
Inventories		579.7			523.0
Deferred income taxes and other current assets		198.5			221.9

Total current assets		2,144.0			2,218.6

Property, plant and equipment, less accumulated depreciation		688.1			696.4
Goodwill		2,124.6			2,142.3
Deferred income taxes and other noncurrent assets		283.5			283.5

Total assets	$	5,240.2		$	5,340.8


LIABILITIES AND SHAREHOLDERS’ EQUITY

Short-term debt	$	7.2		$	97.6
Accounts payable		377.6			350.7
Accrued liabilities		432.0			488.8
Accrual for discontinued operations		218.6			225.1
Current maturities of long-term debt		643.1			665.4

Total current liabilities		1,678.5			1,827.6

Long-term debt		693.9			698.6
Postretirement benefits other than pensions		171.1			173.3
Other long-term liabilities		352.1			354.8

Total liabilities		2,895.6			3,054.3

Common stock, $.01 par value		0.9			0.9
Capital in excess of par value		460.5			446.2
Retained earnings		2,024.8			1,971.6
Accumulated other nonowner changes in equity		(141.6	)		(132.2	)

Total shareholders’ equity		2,344.6			2,286.5

Total liabilities and shareholders’ equity	$	5,240.2		$	5,340.8

The accompanying notes are an integral part of these statements.

-3-

COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	March 31,
	2005			2004
	(in millions)
Cash flows from operating activities:
Net income	$	87.8		$	77.7

Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization		29.3			29.4
Deferred income taxes		9.6			15.6
Restructuring charge payments		(0.2	)		(2.6	)
Changes in assets and liabilities: ⁽¹⁾
Receivables		(29.1	)		(43.2	)
Inventories		(55.9	)		(14.3	)
Accounts payable and accrued liabilities		(40.1	)		(18.6	)
Other assets and liabilities, net		18.8			18.8

Net cash provided by operating activities		20.2			62.8

Cash flows from investing activities:
Capital expenditures		(19.9	)		(16.7	)
Cash paid for acquired businesses		(2.4	)		(10.1	)
Proceeds from sales of property, plant and equipment and other		0.5			3.3

Net cash used in investing activities		(21.8	)		(23.5	)

Cash flows from financing activities:
Proceeds from issuances of debt		—			1.0
Repayments of debt		(90.1	)		(0.8	)
Dividends		(34.6	)		(32.9	)
Subsidiary purchase of parent shares		(28.0	)		(109.5	)
Activity under employee stock plans and other		25.4			12.2

Net cash used in financing activities		(127.3	)		(130.0	)
Effect of exchange rate changes on cash and cash equivalents		0.9			1.7

Decrease in cash and cash equivalents		(128.0	)		(89.0	)
Cash and cash equivalents, beginning of period		652.8			463.7

Cash and cash equivalents, end of period	$	524.8		$	374.7

⁽¹⁾ Net of the effects of acquisitions and translation.

The accompanying notes are an integral part of these statements.

-4-

COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Accounting Policies

Basis of Presentation - The consolidated financial statements of Cooper Industries, Ltd., a Bermuda company (“Cooper”), have been prepared in accordance with generally accepted accounting principles in the United States.

The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. Financial information as of December 31 has been derived from Cooper’s audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. For further information regarding Cooper’s accounting policies, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2004 included in Part IV of Cooper’s 2004 Annual Report on Form 10-K.

In December 2004, the Financial Accounting Standards Board issued FASB Statement 123(R), Share-Based Payment, which is a revision of SFAS No. 123. For Cooper, the revised statement is effective January 1, 2006. Statement 123(R) must be applied to new awards and previously granted awards that are not fully vested on the effective date. Cooper adopted SFAS No. 123 on January 1, 2003 using the prospective transition method which applied only to awards granted, modified or settled after the adoption date. Accordingly, compensation cost for some previously granted unvested awards that were not recognized under SFAS No. 123 will be recognized under Statement 123(R). Had we adopted Statement 123(R) in prior periods the impact of that standard would approximate the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 2 of the Notes to the Consolidated Financial Statements.

Note 2. Stock-Based Compensation

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 grant date and have a maximum term of ten years. The plans also provide for the granting of performance-based stock awards and restricted stock awards to certain key executives that generally vest over periods ranging from three to five years. Cooper also has an Employee Stock Purchase Plan which provides employees an option to purchase common stock. There is currently no outstanding offering under the Employee Stock Purchase Plan.

Effective January 1, 2003, Cooper adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), as amended. Cooper utilized the prospective method of adoption. Cooper accounts for stock-based compensation awards granted, modified or settled prior to January 1, 2003 using the intrinsic value method of accounting as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations (“APB No. 25”). SFAS No. 123 provides an alternative fair value based method for recognizing stock-based compensation in which compensation expense is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The fair value of stock options granted was estimated using the Black-Scholes option-pricing model. The fair value of restricted stock and performance-based awards granted was measured at the market price on the grant date. Stock-based compensation expense was $6.6 million and $4.3 million during the three months ended March 31, 2005 and 2004, respectively.

-5-

The following table presents pro forma income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.


	Three Months Ended
	March 31,
	2005			2004
	(in millions)
Net income, as reported	$	87.8		$	77.7

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		4.0			2.5
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2.5	)		(2.6	)


Pro forma net income	$	89.3		$	77.6


Earnings per share:
Basic – as reported	$	.94		$	.83
Basic – pro forma	$	.96		$	.83
Diluted – as reported	$	.92		$	.81
Diluted – pro forma	$	.94		$	.81

Note 3. Acquisitions

During March of 2004, Cooper acquired a manufacturer of specification and commercial grade lighting fixtures, for $10.1 million.

Note 4. Inventories


	March 31,			December 31,
	2005			2004
	(in millions)
Raw materials	$	213.5		$	185.2
Work-in-process		129.0			118.6
Finished goods		340.3			320.2
Perishable tooling and supplies		13.4			13.2

		696.2			637.2
Allowance for excess and obsolete inventory		(58.7	)		(58.9	)
Excess of current standard costs over LIFO costs		(57.8	)		(55.3	)

Net inventories	$	579.7		$	523.0

-6-

Note 5. Shareholders’ Equity

At March 31, 2005, 92,849,043 Class A common shares, $.01 par value were issued and outstanding (excluding the 7,766,537 Class A common shares held by wholly-owned subsidiaries as discussed below) compared to 92,543,660 Class A common shares, $.01 par value (excluding the 3,700,200 Class A common shares held by wholly-owned subsidiaries) at December 31, 2004. During the first quarter of 2005, Cooper issued 705,383 Class A common shares primarily in connection with employee incentive and benefit plans and Cooper’s dividend reinvestment program. During the first quarter of 2005, Cooper’s wholly-owned subsidiaries purchased 400,000 outstanding Class A common shares for $28.0 million under the Company’s share repurchase plan and a wholly-owned subsidiary purchased 3,669,037 previously unissued Class A common shares for a purchase price based on the fair market value of the shares. The share purchases are recorded by Cooper’s wholly-owned subsidiaries as an investment in its parent company that is eliminated in consolidation. During the first quarter of 2005, 2,700 Class A common shares held by wholly-owned subsidiaries were issued in connection with employee incentive plans, leaving 7,766,537 Class A common shares held by wholly-owned subsidiaries at March 31, 2005.

A wholly-owned subsidiary also owns all the issued and outstanding Class B common shares. The subsidiary’s investment in the Class B common shares is eliminated in consolidation. If at any time a dividend is declared and paid on the Class A common shares, a like dividend shall be declared and paid on the Class B common shares in an equal amount per share. During 2004, Cooper’s wholly-owned subsidiaries waived their rights to receive the regular quarterly dividend declared. During the first quarter of 2005, Cooper’s wholly-owned subsidiaries elected to receive the regular quarterly dividend of $.37 per share (or an aggregate of $23.1 million) on all Class A and Class B common shares held.

Note 6. Segment Information


	Revenues				Operating Earnings
	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2005		2004		2005		2004
	(in millions)
Electrical Products	$	968.3	$	890.7	$	135.4	$	120.8
Tools & Hardware		176.5		173.9		14.7		11.8

Total segments	$	1,144.8	$	1,064.6		150.1		132.6

General Corporate expense						20.4		18.4
Interest expense, net						17.8		17.1

Income before income taxes					$	111.9	$	97.1

-7-

Note 7. Pension and Other Postretirement Benefits


							Other Postretirement
	Pension Benefits						Benefits
	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
	(in millions)
Components of net periodic benefit cost:
Service cost	$	4.5		$	4.4		$	—		$	—
Interest cost		10.4			10.1			1.8			2.1
Expected return on plan assets		(12.8	)		(11.5	)		—			—
Amortization of prior service cost		0.2			0.2			—			—
Recognized actuarial (gain) loss		2.3			1.7			(0.8	)		(0.7	)

Net periodic benefit cost	$	4.6		$	4.9		$	1.0		$	1.4

Note 8. Income Taxes

The effective tax rate was 21.5% for the three months ended March 31, 2005 and 20.0% for the three months ended March 31, 2004. The increase is primarily related to increased projected earnings in 2005 without a corresponding increase in projected tax benefits.

In April 2005, Cooper received an Examination Report from the Internal Revenue Service, which included a challenge to the treatment of gains and interest deductions claimed on Cooper’s 2000 and 2001 federal income tax returns, relating to transactions involving government securities. If the proposed adjustment is upheld, it would require that Cooper pay approximately $26.5 million in taxes plus accrued interest. Interest will continue to accrue until the matter is resolved. Cooper believes these transactions were properly reported on its federal income tax returns in accordance with applicable tax laws and regulations in effect during the period involved. Cooper is challenging these adjustments vigorously. While the outcome of proceedings of this type cannot be predicted with certainty, management believes that the ultimate outcome of this matter will not have a material impact on Cooper’s consolidated financial position, results of operations, or cash flows.

Note 9. Net Income Per Common Share


	Basic				Diluted
	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2005		2004		2005		2004
			(in millions)
Net income applicable to common stock	$	87.8	$	77.7	$	87.8	$	77.7

Weighted average common shares outstanding		93.0		93.5		93.0		93.5

Incremental shares from assumed conversions:
Options, performance-based stock awards and other employee awards						2.6		2.2

Weighted average common shares and common share equivalents						95.6		95.7

-8-

Options and employee awards are not considered in the calculations if the effect would be antidilutive.

Note 10. Net Income and Other Nonowner Changes in Equity

The components of net income and other nonowner changes in equity, net of related taxes, were as follows:


	Three Months Ended
	March 31,
	2005			2004
	(in millions)
Net income	$	87.8		$	77.7
Foreign currency translation gains (losses)		(8.1	)		14.9
Change in fair value of derivatives		(1.3	)		1.4

Net income and other nonowner changes in equity	$	78.4		$	94.0

Note 11. Restructuring Charges

During the fourth quarter of 2003, Cooper recorded net restructuring charges of $16.9 million, or $13.6 million after taxes ($.14 per diluted common share). This represented costs associated with restructuring projects undertaken in 2003 of $18.4 million, partially offset by a $1.5 million adjustment of estimates for restructuring projects initiated in 2002.

The most significant action included in the charges was an announcement of the closing of Cooper Wiring Devices’ manufacturing operations in New York City. This action will include the withdrawal from a multiple-employer pension plan. Cooper recorded a $12.5 million obligation as an estimate of Cooper’s portion of unfunded benefit obligations of the plan. The remaining $5.9 million charge primarily represents severance for announced employment reductions at several locations. The 2003 net impact of the charges was $16.4 million on the Electrical Products segment, $(0.4) million on the Tools & Hardware segment and $0.9 million related to General Corporate. As of March 31, 2005, Cooper had paid a total of $5.1 million for these actions, all of which was for severance costs.

A total of 114 salaried and 150 hourly personnel were eliminated as a result of these actions, and all personnel were terminated as of December 31, 2004. The majority of the severance obligation was paid by the first half of 2004. The multiple-employer pension obligation is expected to be paid over 15 years, beginning in 2005.

During the fourth quarter of 2002, Cooper committed to (1) the closure of ten manufacturing facilities, (2) further employment reductions to appropriately size Cooper’s workforce to market conditions, and (3) the write-off of assets related to production rationalization activities. These actions were taken as a part of Cooper management’s ongoing assessment of required production capacity in consideration of current demand levels. In connection with these commitments, certain production capacity and related assets were sold, outsourced, discontinued or moved to a lower cost environment. Cooper recorded a provision for these announced actions of $39.1 million ($15.0 million of which was non-cash), or $29.8 million after taxes ($.32 per diluted common share). Of this amount, $24.0 million ($11.0 million of which was non-cash) was associated with the Electrical Products segment, $12.7 million ($3.4 million of which was non-cash) was associated with the Tools & Hardware segment and the remainder was related to General Corporate.

-9-

The following table reflects activity related to the fourth quarter 2002 restructuring charge.


							Facilities
	Number of			Accrued			Closure and
	Employees			Severance			Rationalization
				($ in millions)
Balance at December 31, 2002		1,022		$	16.2		$	5.8
Employees terminated		(982	)		—			—
Cash expenditures		—			(14.9	)		(2.9	)
Reversal of excess accruals		(9	)		(0.9	)		(0.6	)

Balance at December 31, 2003		31			0.4			2.3
Employees terminated		(31	)		—			—
Cash expenditures		—			(0.4	)		(1.7	)

Balance at December 31, 2004		—			—			0.6
Cash expenditures		—			—			—

Balance at March 31, 2005		—		$	—		$	0.6

A total of 435 salaried and 771 hourly positions were eliminated as a result of the planned closure and rationalization actions. Of those planned position eliminations, approximately 600 positions were replaced ultimately as a result of Cooper’s ongoing efforts to relocate production capacity to lower cost locations.

See “Restructuring Charges” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

Note 12. Charge Related to Discontinued Operations

In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation (“Federal-Mogul”). These discontinued businesses (including the Abex product line obtained from Pneumo-Abex Corporation (“Pneumo”) in 1994) were operated through subsidiary companies, and the stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale Agreement dated August 17, 1998 (“1998 Agreement”). In conjunction with the sale, Federal-Mogul indemnified Cooper for certain liabilities of these subsidiary companies, including liabilities related to the Abex product line and any potential liability that Cooper may have to Pneumo pursuant to a 1994 Mutual Guaranty Agreement between Cooper and Pneumo. On October 1, 2001, Federal-Mogul and several of its affiliates filed a Chapter 11 bankruptcy petition and indicated that Federal-Mogul may not honor the indemnification obligations to Cooper. As of the date of this filing, Federal-Mogul had not rejected the 1998 Agreement, which includes the indemnification to Cooper. If Federal-Mogul rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998 Agreement, including specific indemnities relating to payment of taxes and certain obligations regarding insurance for its former Automotive Products businesses. To the extent Cooper is obligated to Pneumo for any asbestos-related claims arising from the Abex product line (“Abex Claims”), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based on information provided by representatives of Federal-Mogul and recent claims experience, from August 28, 1998 through March 31, 2005, a total of 134,215 Abex Claims were filed, of which 87,361 claims have been resolved leaving 46,854 Abex Claims pending at March 31, 2005, that are the responsibility of Federal-Mogul. During the three months ended March 31, 2005, 2,855 claims were filed, 900 claims were resolved and based on an audit of records, 1,801 claims were tendered back to Pneumo Abex since Cooper believes they do not qualify as indemnified claims under the 1994 Agreement with Pneumo Abex. Since August 28, 1998, the average indemnity payment for resolved Abex Claims was $1,950 before insurance. A total of $69.2 million was spent on defense costs for the period August 28, 1998 through March 31, 2005. Historically, existing insurance coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims.

-10-

Federal-Mogul’s bankruptcy, Cooper concluded that an additional fourth-quarter 2001 discontinued operations provision of $30 million after-tax, or $.32 per share, was appropriate to reflect the potential net impact of this issue. The analysis included a review of the twenty-year history of Abex Claims; the average indemnity payments for resolved claims; the jurisdictions in which claims had been filed; Bates White, LLC data on the incidence of asbestos exposure and diseases in various industries; existing insurance coverage including the insurance recovered by Pneumo and Federal-Mogul for pre-bankruptcy claims and the contractual indemnities. Assumptions were made regarding future claim filings and indemnity payments, and, based on the advisor’s data, the expected population of persons exposed to asbestos in particular industries. All of this data was used to determine a reasonable expectation of future claims, indemnity payments and insurance coverage. Cooper is preserving its rights as a creditor for breach of Federal-Mogul’s indemnification to Cooper and its rights against all Federal-Mogul subsidiaries. Cooper intends to take all actions to seek a resolution of the indemnification issues and future handling of the Abex-related claims within the Federal-Mogul bankruptcy proceedings.

Cooper’s fourth-quarter 2001 analysis of the contingent liability exposure assumed that the liabilities would be settled within the Federal-Mogul bankruptcy proceedings. This analysis assumed that representatives of Federal-Mogul, its bankruptcy committees and the future claimants (the “Representatives”) would reach similar conclusions regarding the potential future liabilities and insurance recoveries as Cooper did based on the Bates White, LLC analysis. Throughout 2003, Cooper worked towards resolution of the indemnification issues and future handling of the Abex-related claims within the Federal-Mogul bankruptcy proceedings. This included negotiations with the Representatives regarding participation in Federal-Mogul’s proposed 524(g) asbestos trust. Based on the status of negotiations in 2004, Cooper concluded that it was probable that Federal-Mogul will reject the 1998 Agreement. Cooper also concluded that the Representatives would require any negotiated settlement through the Federal-Mogul bankruptcy to be at the high end of the Bates White, LLC liability analysis and with substantially lower insurance recovery assumptions and higher administrative costs.

While Cooper believes that the insurance has significant additional value, extensive litigation with the insurance carriers may be required to receive recoveries and there is risk that court decisions could reduce the value of the recoveries. Additionally, the assumptions on liability payments could prove inaccurate over time. If Cooper is unable to reach a settlement with the Representatives and the 1998 Agreement is rejected, Cooper would be required to reflect an accrual for the total estimated liability and a receivable for the probable insurance recoveries. Generally accepted accounting principles provide relatively conservative requirements for the recording of insurance recoveries and a substantial portion of the potential insurance recoveries would not be reflected as receivables until future events occur.

During late February and early March 2004, Cooper reassessed the accrual required based on the then current status of the negotiations with the Representatives and the liability and insurance receivable that would be required to be recorded if this matter is not settled within the Federal-Mogul bankruptcy. Cooper concluded that resolution within the Federal-Mogul proposed 524(g) asbestos trust would likely be within the range of the liabilities, net of insurance recoveries, that Cooper would accrue if this matter were not settled within the Federal-Mogul bankruptcy. Accordingly, Cooper recorded a $126.0 million after-tax discontinued operations charge, net of a $70.9 million income tax benefit, in the fourth quarter of 2003.

Cooper has continued discussions with the Representatives, but to date has been unable to reach a satisfactory conclusion. At this time, the exact manner in which this issue will be resolved is not known. The accrual for potential liabilities related to the Automotive Products sale and the Federal-Mogul bankruptcy was $218.6 million at March 31, 2005 and $225.1 million at December 31, 2004.

-11-

Note 13. Consolidating Financial Information

Prior to January 1, 2005, Cooper fully and unconditionally guaranteed the registered debt securities of Cooper Industries, Inc. (“Cooper Ohio”), a wholly-owned indirect subsidiary. Effective January 1, 2005, Cooper Industries, LLC, a wholly-owned indirect subsidiary, became the successor issuer of Cooper Ohio’s registered debt securities as a result of a merger of Cooper Ohio into Cooper Industries, LLC. Cooper and certain principal operating subsidiaries fully and unconditionally guarantee, on a joint and several basis, the registered debt securities of Cooper Industries, LLC. The following condensed consolidating financial information is included so that separate financial statements of Cooper Industries, LLC or Cooper Ohio are not required to be filed with the Securities and Exchange Commission. The consolidating financial statements present investments in subsidiaries using the equity method of accounting. Intercompany investments in the Class A and Class B common shares are accounted for using the cost method.

Consolidating Income Statements
Three Months Ended March 31, 2005
(in millions)


				Cooper
				Industries,			Guaranteeing			Other		Consolidating
	Cooper			LLC			Subsidiaries			Subsidiaries		Adjustments			Total
Revenues	$	—		$	—		$	751.6		$	423.4	$	(30.2	)	$	1,144.8
Cost of sales		0.2			—			536.4			281.2		(30.2	)		787.6
Selling and administrative expenses		2.2			1.8			138.5			85.0		—			227.5
Interest expense, net		(0.5	)		13.5			(1.0	)		5.8		—			17.8
Equity in earnings of subsidiaries, net of tax		113.7			6.9			81.8			60.4		(262.8	)		—
Intercompany income (expense)		(0.8	)		—			(110.8	)		134.7		(23.1	)		—

Income (loss) before income taxes		111.0			(8.4	)		48.7			246.5		(285.9	)		111.9
Income tax expense (benefit)		—			(13.6	)		(11.7	)		49.4		—			24.1

Net income	$	111.0		$	5.2		$	60.4		$	197.1	$	(285.9	)	$	87.8

Consolidating Income Statements
Three Months Ended March 31, 2004
(in millions)


				Cooper			Other		Consolidating
	Cooper			Ohio			Subsidiaries		Adjustments			Total
Revenues	$	—		$	67.0		$	1,002.7	$	(5.1	)	$	1,064.6
Cost of sales		0.4			43.4			703.3		(5.1	)		742.0
Selling and administrative expenses		2.0			25.9			180.5		—			208.4
Interest expense, net		(0.2	)		11.8			5.5		—			17.1
Equity in earnings of subsidiaries, net of tax		81.1			123.4			34.7		(239.2	)		—
Intercompany income (expense)		(1.2	)		(126.3	)		127.5		—			—

Income (loss) before income taxes		77.7			(17.0	)		275.6		(239.2	)		97.1
Income tax expense (benefit)		—			(51.7	)		71.1		—			19.4

Net income	$	77.7		$	34.7		$	204.5	$	(239.2	)	$	77.7

-12-

Consolidating Balance Sheets
March 31, 2005
(in millions)


				Cooper
				Industries,			Guaranteeing			Other			Consolidating
	Cooper			LLC			Subsidiaries			Subsidiaries			Adjustments			Total
Cash and cash equivalents	$	82.0		$	—		$	161.3		$	281.5		$	—		$	524.8
Receivables		—			—			483.2			357.8			—			841.0
Inventories		—			—			344.1			235.6			—			579.7
Deferred income taxes and other current assets		0.8			109.2			117.0			(28.5	)		—			198.5

Total current assets		82.8			109.2			1,105.6			846.4			—			2,144.0

Property, plant and equipment, less accumulated depreciation		—			0.4			391.5			296.2			—			688.1
Goodwill		—			—			1,018.0			1,106.6			—			2,124.6
Investment in subsidiaries		4,646.5			718.3			4,832.5			2,314.4			(12,511.7	)		—
Investment in parent		—			—			2,490.4			230.2			(2,720.6	)		—
Intercompany accounts receivable		541.4			893.2			—			874.8			(2,309.4	)		—
Intercompany notes receivable		4.5			—			63.4			5,834.1			(5,902.0	)		—
Deferred income taxes and other noncurrent assets		—			109.8			47.2			126.5			—			283.5

Total assets	$	5,275.2		$	1,830.9		$	9,948.6		$	11,629.2		$	(23,443.7	)	$	5,240.2


Short-term debt	$	—		$	—		$	—		$	7.2		$	—		$	7.2
Accounts payable		34.4			11.8			186.0			145.4			—			377.6
Accrued liabilities		3.3			25.0			279.7			124.0			—			432.0
Accrual for discontinued operations		—			218.6			—			—			—			218.6
Current maturities of long-term debt		—			229.0			—			414.1			—			643.1

Total current liabilities		37.7			484.4			465.7			690.7			—			1,678.5

Long-term debt		—			683.1			8.1			2.7			—			693.9
Intercompany accounts payable		—			—			1,661.7			647.7			(2,309.4	)		—
Intercompany notes payable		135.7			462.9			5,235.5			67.9			(5,902.0	)		—
Other long-term liabilities		—			78.0			329.2			116.0			—			523.2

Total liabilities		173.4			1,708.4			7,700.2			1,525.0			(8,211.4	)		2,895.6

Class A common stock		1.0			—			—			—			(0.1	)		0.9
Class B common stock		0.5			—			—			—			(0.5	)		—
Subsidiary common stock		—			—			—			246.9			(246.9	)		—
Capital in excess of par value		3,152.4			—			495.3			6,405.4			(9,592.6	)		460.5
Retained earnings		2,099.4			272.5			1,904.6			3,748.7			(6,000.4	)		2,024.8
Accumulated other nonowner changes in equity		(151.5	)		(150.0	)		(151.5	)		(296.8	)		608.2			(141.6	)

Total shareholders’ equity		5,101.8			122.5			2,248.4			10,104.2			(15,232.3	)		2,344.6

Total liabilities and shareholders’ equity	$	5,275.2		$	1,830.9		$	9,948.6		$	11,629.2		$	(23,443.7	)	$	5,240.2

-13-

Consolidating Balance Sheets
December 31, 2004
(in millions)


			Cooper			Other			Consolidating
	Cooper		Ohio			Subsidiaries			Adjustments			Total
Cash and cash equivalents	$	111.5	$	246.1		$	295.2		$	—		$	652.8
Receivables		—		15.0			805.9			—			820.9
Inventories		—		—			523.0			—			523.0
Deferred income taxes and other current assets		1.3		215.0			5.6			—			221.9

Total current assets		112.8		476.1			1,629.7			—			2,218.6

Property, plant and equipment, less accumulated depreciation		—		34.5			661.9			—			696.4
Goodwill		—		—			2,142.3			—			2,142.3
Investment in subsidiaries		2,785.8		4,796.1			193.5			(7,775.4	)		—
Investment in parent		—		2,245.5			202.2			(2,447.7	)		—
Intercompany accounts receivable		514.0		—			681.9			(1,195.9	)		—
Intercompany notes receivable		25.6		21.3			3,899.6			(3,946.5	)		—
Deferred income taxes and other noncurrent assets		—		112.6			170.9			—			283.5

Total assets	$	3,438.2	$	7,686.1		$	9,582.0		$	(15,365.5	)	$	5,340.8


Short-term debt	$	—	$	—		$	97.6		$	—		$	97.6
Accounts payable		32.5		21.1			297.1			—			350.7
Accrued liabilities		2.9		130.6			355.3			—			488.8
Accrual for discontinued operations		—		225.1			—			—			225.1
Current maturities of long-term debt		—		229.0			436.4			—			665.4

Total current liabilities		35.4		605.8			1,186.4			—			1,827.6

Long-term debt		—		688.3			10.3			—			698.6
Intercompany accounts payable		—		1,195.9			—			(1,195.9	)		—
Intercompany notes payable		135.7		3,763.9			46.9			(3,946.5	)		—
Other long-term liabilities		—		253.2			274.9			—			528.1

Total liabilities		171.1		6,507.1			1,518.5			(5,142.4	)		3,054.3

Class A common stock		0.9		—			—			—			0.9
Class B common stock		0.5		—			—			(0.5	)		—
Subsidiary common stock		—		—			137.0			(137.0	)		—
Capital in excess of par value		2,882.2		12.1			7,252.0			(9,700.1	)		446.2
Retained earnings		350.0		1,263.8			773.1			(415.3	)		1,971.6
Accumulated other nonowner changes in equity		33.5		(96.9	)		(98.6	)		29.8			(132.2	)

Total shareholders’ equity		3,267.1		1,179.0			8,063.5			(10,223.1	)		2,286.5

Total liabilities and shareholders’ equity	$	3,438.2	$	7,686.1		$	9,582.0		$	(15,365.5	)	$	5,340.8

-14-

Consolidating Statements of Cash Flows
Three Months Ended March 31, 2005
(in millions)


				Cooper
				Industries,		Guaranteeing			Other			Consolidating
	Cooper			LLC		Subsidiaries			Subsidiaries			Adjustments			Total
Net cash provided by (used in) operating activities	$	0.4		$	—	$	(87.2	)	$	130.1		$	(23.1	)	$	20.2

Cash flows from investing activities:
Capital expenditures		—			—		(11.3	)		(8.6	)		—			(19.9	)
Cash paid for acquired businesses		—			—		—			(2.4	)		—			(2.4	)
Investment in affiliates		(2.8	)		—		(33.6	)		—			36.4			—
Loans to affiliates		—			—		(60.7	)		—			60.7			—
Repayments of loans to affiliates		21.1			—		—			—			(21.1	)		—
Dividends from subsidiaries		—			—		8.4			—			(8.4	)		—
Other		—			—		0.2			0.3			—			0.5

Net cash provided by (used in) investing activities		18.3			—		(97.0	)		(10.7	)		67.6			(21.8	)

Cash flows from financing activities:
Repayments of debt		—			—		—			(90.1	)		—			(90.1	)
Borrowings from affiliates		—			—		—			60.7			(60.7	)		—
Repayments of loans from affiliates		—			—		—			(21.1	)		21.1			—
Other intercompany financing activities		4.1			—		78.3			(82.4	)		—			—
Dividends		(34.6	)		—		—			—			—			(34.6	)
Dividends paid to affiliates		(23.1	)		—		—			(8.4	)		31.5			—
Subsidiary purchase of parent shares		5.4			—		(5.4	)		(28.0	)		—			(28.0	)
Issuance of stock		—			—		—			36.4			(36.4	)		—
Employee stock plan activity and other		—			—		25.4			—			—			25.4

Net cash provided by (used in) financing activities		(48.2	)		—		98.3			(132.9	)		(44.5	)		(127.3	)
Effect of exchange rate changes on cash and cash equivalents		—			—		—			0.9			—			0.9

Decrease in cash and cash equivalents		(29.5	)		—		(85.9	)		(12.6	)		—			(128.0	)
Cash and cash equivalents, beginning of period		111.5			—		247.2			294.1			—			652.8

Cash and cash equivalents, end of period	$	82.0		$	—	$	161.3		$	281.5		$	—		$	524.8

-15-

Consolidating Statements of Cash Flows
Three Months Ended March 31, 2004
(in millions)


				Cooper			Other			Consolidating
	Cooper			Ohio			Subsidiaries			Adjustments			Total
Net cash provided by (used in) operating activities	$	(1.1	)	$	(55.3	)	$	119.2		$	—		$	62.8

Cash flows from investing activities:
Capital expenditures		—			(3.6	)		(13.1	)		—			(16.7	)
Cash paid for acquired businesses		—			—			(10.1	)		—			(10.1	)
Intercompany sale (purchase) of investment in parent		—			109.5			(109.5	)		—			—
Intercompany sale (purchase) of investment in subsidiaries		—			(182.1	)		182.1			—			—
Loans to affiliates		—			—			(38.5	)		38.5			—
Dividends from subsidiaries		—			1.0			—			(1.0	)		—
Other		—			0.7			2.6			—			3.3

Net cash provided by (used in) investing activities		—			(74.5	)		13.5			37.5			(23.5	)

Cash flows from financing activities:
Proceeds from issuances of debt		—			—			1.0			—			1.0
Repayments of debt		—			—			(0.8	)		—			(0.8	)
Borrowings from affiliates		38.5			—			—			(38.5	)		—
Other intercompany financing activities		0.5			59.2			(59.7	)		—			—
Dividends		(32.9	)		—			—			—			(32.9	)
Dividends paid to affiliates		—			—			(1.0	)		1.0			—
Subsidiary purchase of parent shares		—			(109.5	)		—			—			(109.5	)
Employee stock plan activity and other		—			12.2			—			—			12.2

Net cash provided by (used in) financing activities		6.1			(38.1	)		(60.5	)		(37.5	)		(130.0	)
Effect of exchange rate changes on cash and cash equivalents		—			—			1.7			—			1.7

Increase (decrease) in cash and cash equivalents		5.0			(167.9	)		73.9			—			(89.0	)
Cash and cash equivalents, beginning of period		96.4			257.2			110.1			—			463.7

Cash and cash equivalents, end of period	$	101.4		$	89.3		$	184.0		$	—		$	374.7

-16-

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three Months Ended March 31, 2005 Compared With Three Months Ended March 31, 2004

Net income for the first quarter of 2005 was $87.8 million on revenues of $1,144.8 million compared with 2004 first quarter net income of $77.7 million on revenues of $1,064.6 million. First quarter diluted earnings per share increased 13.6% to $.92 from $.81 in 2004.

Revenues:

Revenues for the first quarter of 2005 increased 8% compared to the first quarter of 2004. The impact of foreign currency translation increased reported revenues by approximately one percent for the quarter and the impact of acquisitions increased reported revenues by approximately one percent for the quarter.

Electrical Products segment revenues increased 9% compared to the first quarter of 2004. Excluding the impact of favorable currency translation, revenues increased approximately 8% in the first quarter of 2005. Growth was primarily achieved through higher prices to recover increased material and other costs and from improved demand in key North American residential, commercial and industrial markets, which positively impacted our lighting, fuse protection, hazardous duty, wiring devices and enclosure businesses. Continued investments in system upgrades by utilities resulted in revenue gains in Cooper’s power transmission and distribution equipment business. European lighting and security markets showed modest improvement. Partially offsetting improved residential, utility, commercial and industrial volumes were lower retail channel sales relative to very strong comparables in the prior year.

Tools & Hardware segment revenues for the first quarter of 2005 increased 2% from the first quarter of 2004. Excluding the impact of favorable currency translation, revenues were essentially flat with the first quarter of 2004. Tools & Hardware segment revenues reflected improved demand for hand tools from industrial markets, offset by decreased activity for power tools from the industrial market and lower North American hand tool retail sales relative to a strong quarter in the prior year.

Costs and Expenses:

Cost of sales, as a percentage of revenues, was 68.8% for the first quarter of 2005 compared to 69.7% for the comparable 2004 quarter. The decrease in the cost of sales percentage was primarily due to favorable sales mix, realization of price increases, benefits of restructuring activities in prior periods and ongoing sourcing and productivity initiatives, more than offsetting increased material, energy and transportation costs.

Electrical Products segment cost of sales, as a percentage of revenues, was 68.4% for the first quarter of 2005 compared to 69.0% for the first quarter of 2004. The decrease in the cost of sales percentage was primarily a result of productivity improvement initiatives, realized price increases, continued benefits of global sourcing activities and favorable business mix. Tools & Hardware segment cost of sales, as a percentage of revenues, was 70.8% for the first quarter of 2005 compared to 72.9% for the first quarter of 2004. The decrease in cost of sales percentage reflects the impact of pricing actions, cost structure alignment actions and benefits achieved through productivity improvement initiatives.

Selling and administrative expenses, as a percentage of revenues, for the first quarter of 2005 were 19.9% compared to 19.6% for the first quarter of 2004. The increase is due to higher stock-based compensation and other incentive programs, increased audit and Sarbanes-Oxley Act compliance costs and selling and marketing costs related to Cooper’s sales growth initiatives.

-17-

Electrical Products segment selling and administrative expenses, as a percentage of revenues, for the first quarter of 2005 were 17.7% compared to 17.4% for the first quarter of 2004. The increase in selling and administrative expenses percentage is primarily due to increased incentive compensation and costs to support growth.

Tools & Hardware segment selling and administrative expenses, as a percentage of revenues, for the first quarter of 2005 were 20.9% compared to 20.3% for the first quarter of 2004. The increase in the selling and administrative expenses percentage is primarily due to increased incentive costs and globalization initiatives.

Interest expense, net for the first quarter of 2005 increased $0.7 million from the 2004 first quarter primarily as a result of both higher average interest rates and average debt balances, partially offset by higher cash and cash equivalents balances. Average debt balances were $1.41 billion and $1.34 billion and average interest rates were 5.9% and 5.6% for the first quarter of 2005 and 2004, respectively. The increase in average debt balances resulted from approximately $90 million of short-term debt which was borrowed in the fourth quarter of 2004 and repaid in the first quarter of 2005.

Operating Earnings:

Electrical Products segment first quarter 2005 operating earnings increased 12% to $135.4 million from $120.8 million for the same quarter of last year, with revenue increases, favorable sales mix, price realization and benefits of cost reduction efforts more than offsetting increased costs.

Tools & Hardware segment first quarter 2005 operating earnings increased 25% to $14.7 million compared to $11.8 million in the first quarter of 2004. The increase is a result of productivity initiatives and product cost reduction actions.

General Corporate expense increased $2.0 million to $20.4 million during the first quarter of 2005 compared to $18.4 million during the first quarter of 2004. This increase primarily resulted from increased stock-based and other incentive compensation expenses, as well as increased audit and Sarbanes-Oxley compliance costs.

Income Taxes:

Restructuring Charges:

-18-

A total of 114 salaried and 150 hourly personnel were eliminated as a result of these actions. The multiple-employer pension obligation is expected to be paid over 15 years beginning in 2005. Cooper estimates the annual savings from the personnel reductions was approximately $6 million, (net of additional employees added in lower-cost regions) with most of the savings beginning in the first quarter of 2004. The savings from the withdrawal from the multiple-employer pension plan are approximately $1 million per year and are expected to begin in 2006. The majority of the eliminated costs previously were reflected as cost of sales.

During the fourth quarter of 2002, Cooper committed to (1) the closure of ten manufacturing facilities, (2) further employment reductions to appropriately size Cooper’s workforce to market conditions, and (3) the write-off of assets related to production rationalization activities. These actions were taken as a part of Cooper management’s ongoing assessment of required production capacity in consideration of the current demand levels. In connection with these commitments, certain production capacity and related assets were sold, outsourced, discontinued or moved to a lower cost environment. Cooper recorded a provision for these announced actions of $39.1 million ($15.0 million of which was non-cash), or $29.8 million after taxes ($.32 per diluted common share). Of this amount, $24.0 million ($11.0 million of which was non-cash) was associated with the Electrical Products segment, $12.7 million ($3.4 million of which was non-cash) was associated with the Tools & Hardware segment and the remainder was related to General Corporate. During 2003, Cooper reduced estimates of the cost related to those actions by $1.5 million.

The following table reflects activity related to the fourth quarter 2002 restructuring charge.


							Facilities
	Number of			Accrued			Closure and
	Employees			Severance			Rationalization
				($ in millions)
Balance at December 31, 2002		1,022		$	16.2		$	5.8
Employees terminated		(982	)		—			—
Cash expenditures		—			(14.9	)		(2.9	)
Reversal of excess accruals		(9	)		(0.9	)		(0.6	)

Balance at December 31, 2003		31			0.4			2.3
Employees terminated		(31	)		—			—
Cash expenditures		—			(0.4	)		(1.7	)

Balance at December 31, 2004		—			—			0.6
Cash expenditures		—			—			—

Balance at March 31, 2005		—		$	—		$	0.6

A total of 435 salaried and 771 hourly positions were eliminated as a result of the planned closure and rationalization actions. Of those position eliminations, approximately 600 positions were replaced ultimately as a result of Cooper’s ongoing efforts to relocate production capacity to lower cost locations. Substantially all of the closure and rationalization activities were initiated and completed by the end of 2003. The expenditures related to the 2002 restructuring charge were funded from cash provided by operating activities.

Cooper estimates that the earnings impact in 2003 from these actions was approximately $10 million in pretax savings, the majority of which benefited the second half of the year. The initial savings were realized from personnel reductions that principally impacted selling and administrative expenses and lower costs of sales. Cooper estimates that incremental savings of $25.0 to $30.0 million were realized in 2004, largely reflected as lower cost of sales.

-19-

Liquidity and Capital Resources

Liquidity:

Cooper’s operating working capital (defined as receivables and inventories less accounts payable) increased $50 million during the first quarter of 2005. A $20 million increase in receivables and a $57 million increase in inventories, partially offset by an increase in accounts payable, were driven by increased sales volumes and actions to improve customer service through improved inventory availability. Operating working capital turnover (defined as annualized revenues divided by average quarterly operating working capital) for the 2005 first quarter of 4.5 turns increased from 4.3 turns in the same period of 2004 and primarily resulted from revenues growing at a higher rate than the increase in operating working capital.

Cash provided by operating activities was $20 million during the 2005 first quarter. This cash, plus an additional $128 million of cash and cash equivalents and $25 million of cash received from employee stock activity were primarily used to fund capital expenditures of $20 million, dividends of $35 million, share purchases of $28 million and debt reduction of $90 million.

Cash provided by operating activities was $63 million during the 2004 first quarter. This cash, plus an additional $89 million of cash and cash equivalents and $12 million of cash received from employee stock activity were primarily used to fund capital expenditures of $17 million, an acquisition of $10 million, dividends of $33 million and share purchases of $110 million.

In connection with acquisitions accounted for as purchases, Cooper records, to the extent appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel and integrating the acquired businesses into existing Cooper operations. Cash flows from operating activities are reduced by the amounts expended against the various accruals established in connection with each acquisition. Spending against these accruals was $0.5 million and $1.9 million during the three months ended March 31, 2005 and 2004, respectively.

Cooper is continuing to focus on initiatives to maximize cash flows. Cooper currently anticipates a continuation of its long-term ability to annually generate approximately $200 million in cash flow available for acquisitions, debt repayments and common stock repurchases.

As discussed in Note 12 of Notes to the Consolidated Financial Statements, Cooper is continuing discussions with the representatives of Federal-Mogul, its bankruptcy committees and the future claimants regarding settlement of Cooper’s contingent liabilities related to the Automotive Products sale to Federal-Mogul. It is likely that if a settlement is reached, the settlement would involve a cash contribution. Cooper anticipates that any settlement cash contribution amounts would be funded from operating cash flows and existing cash.

Capital Resources:

Cooper has targeted a 35% to 45% debt-to-total capitalization ratio and intends to utilize cash flows to maintain a debt-to-total capitalization ratio within this range. Excess cash flows are utilized to fund acquisitions or to purchase shares of Cooper common stock. Cooper’s debt-to-total capitalization ratio was 36.4% at March 31, 2005, 39.0% at December 31, 2004 and 39.1% at March 31, 2004.

At March 31, 2005 and December 31, 2004, Cooper had short-term debt of $7.2 million and $97.6 million, respectively and had no commercial paper outstanding.

Cooper’s practice is to back up its short-term debt balance with a combination of cash and committed credit facilities. At March 31, 2005 and December 31, 2004, Cooper had cash and cash equivalents of $524.8 million and $652.8 million, respectively. At March 31, 2005, Cooper had a $500

-20-

million committed credit facility which matures in November 2009. Short-term debt to the extent not backed up by cash, reduces the amount of additional liquidity provided by the committed credit facility.

The credit facility agreement is not subject to termination based on a decrease in Cooper’s debt ratings or a material adverse change clause. The principal financial covenants in the agreement limit Cooper’s debt-to-total capitalization ratio to 60% and require Cooper to maintain a minimum earnings before interest expense, income taxes, depreciation and amortization to interest ratio of 3 to 1. Cooper is in compliance with all covenants set forth in the credit facility agreement.

Cooper’s access to the commercial paper market could be adversely affected by a change in the credit ratings assigned to its commercial paper. Should Cooper’s access to the commercial paper market be adversely affected due to a change in its credit ratings, Cooper would rely on a combination of available cash and its committed credit facility to provide short-term funding. The committed credit facility does not contain any provision which makes its availability to Cooper dependent on Cooper’s credit ratings.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

As of March 31, 2005, there have been no material changes to Cooper’s off-balance sheet arrangements and contractual obligations as described in its Annual Report on Form 10-K for the year ended December 31, 2004.

Backlog

Sales backlog represents the dollar amount of all firm open orders for which all terms and conditions pertaining to the sale have been approved such that a future sale is reasonably expected. Sales backlog by segment was as follows:


	March 31,
	2005		2004
	(in millions)
Electrical Products	$	405.4	$	327.4
Tools & Hardware		70.0		86.7

	$	475.4	$	414.1

Private Securities Litigation Reform Act Safe Harbor Statement

This Form 10-Q includes certain forward-looking statements. The forward-looking statements reflect Cooper’s expectations, objectives and goals with respect to future events and financial performance, and are based on assumptions and estimates which Cooper believes are reasonable. Forward-looking statements include, but are not limited to, statements regarding the facilities closure and production rationalization plan and cost-reduction programs, potential liability exposure resulting from Federal-Mogul Corporation’s (“Federal-Mogul”) bankruptcy filing, and any statements regarding future revenues, cost and expenses, earnings, earnings per share, margins, cash flows and capital expenditures. Cooper wishes to caution readers not to put undue reliance on these statements and that actual results could differ materially from anticipated results. Important factors which may affect the actual results include, but are not limited to, the resolution of Federal-Mogul’s bankruptcy proceedings, political developments, market and economic conditions, changes in raw material and energy costs, industry competition, the net effects of Cooper’s cost-control and productivity improvement programs, the timing and net effects of facility closures and the magnitude of any disruptions from such closures, the successful implementation of Cooper’s strategic initiatives, changes in mix of products sold, mergers and acquisitions and their integration into Cooper, the timing and amount of any share repurchases, changes in financial markets including foreign currency rate fluctuations and changing legislation and regulations including changes in tax law, tax treaties or tax

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regulations. The forward-looking statements contained in this report are intended to qualify for the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended.

Item 4. Controls and Procedures

As of the end of the period covered by this report, Cooper’s management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of Cooper’s disclosure controls and procedures. Based on that evaluation, Cooper’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the disclosure controls and procedures are effective. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation.

Cooper is executing a multi-year process of implementing an Enterprise Business System (“EBS”) globally. Implementing an EBS system on a global basis involves significant changes in business processes. The implementation is phased, which reduces the risks associated with making these changes. In addition, Cooper is taking the necessary steps to monitor and maintain appropriate internal controls during the implementations.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Cooper 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 Cooper’s financial statements.

In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation (“Federal-Mogul”). These discontinued businesses (including the Abex product line obtained from Pneumo-Abex Corporation (“Pneumo”) in 1994) were operated through subsidiary companies, and the stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale Agreement dated August 17, 1998 (“1998 Agreement”). In conjunction with the sale, Federal-Mogul indemnified Cooper for certain liabilities of these subsidiary companies, including liabilities related to the Abex product line and any potential liability that Cooper may have to Pneumo pursuant to a 1994 Mutual Guaranty Agreement between Cooper and Pneumo. On October 1, 2001, Federal-Mogul and several of its affiliates filed a Chapter 11 bankruptcy petition and indicated that Federal-Mogul may not honor the indemnification obligations to Cooper. As of the date of this filing, Federal-Mogul had not rejected the 1998 Agreement, which includes the indemnification to Cooper. If Federal-Mogul rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998 Agreement, including specific indemnities relating to payment of taxes and certain obligations regarding insurance for its former Automotive Products businesses. To the extent Cooper is obligated to Pneumo for any asbestos-related claims arising from the Abex product line (“Abex Claims”), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based on information provided by representatives of Federal-Mogul and recent claims experience, from August 28, 1998 through March 31, 2005, a total of 134,215 Abex Claims were filed, of which 87,361 claims have been resolved leaving 46,854 Abex Claims pending at March 31, 2005, that are the responsibility of Federal-Mogul. During the three months ended March 31, 2005, 2,855 claims were filed and 900 claims were resolved and based on an audit of records, 1,801 claims were tendered back to Pneumo Abex since Cooper believes they do not qualify as indemnified claims under the 1994 Agreement with Pneumo Abex. Since August 28, 1998, the average indemnity payment for resolved Abex Claims was $1,950 before insurance. A total of $69.2 million was spent on defense costs for the period August 28, 1998 through March 31, 2005. Historically, existing insurance coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims.

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With the assistance of independent advisors, Bates White, LLC, in the fourth quarter of 2001 Cooper completed a thorough analysis of its potential exposure for asbestos liabilities in the event Federal-Mogul rejects the 1998 Agreement. Based on Cooper’s analysis of its contingent liability exposure resulting from Federal-Mogul’s bankruptcy, Cooper concluded that an additional fourth-quarter 2001 discontinued operations provision of $30 million after-tax, or $.32 per share, was appropriate to reflect the potential net impact of this issue. The analysis included a review of the twenty-year history of Abex Claims; the average indemnity payments for resolved claims; the jurisdictions in which claims had been filed; Bates White, LLC data on the incidence of asbestos exposure and diseases in various industries; existing insurance coverage including the insurance recovered by Pneumo and Federal-Mogul for pre-bankruptcy claims and the contractual indemnities. Assumptions were made regarding future claim filings and indemnity payments, and, based on the advisor’s data, the expected population of persons exposed to asbestos in particular industries. All of this data was used to determine a reasonable expectation of future claims, indemnity payments and insurance coverage. Cooper is preserving its rights as a creditor for breach of Federal-Mogul’s indemnification to Cooper and its rights against all Federal-Mogul subsidiaries. Cooper intends to take all actions to seek a resolution of the indemnification issues and future handling of the Abex-related claims within the Federal-Mogul bankruptcy proceedings.

Cooper’s fourth-quarter 2001 analysis of the contingent liability exposure assumed that the liabilities would be settled within the Federal-Mogul bankruptcy proceedings. This analysis assumed that representatives of Federal-Mogul, its bankruptcy committees and the future claimants (the “Representatives”) would reach similar conclusions regarding the potential future liabilities and insurance recoveries as Cooper did based on the Bates White, LLC analysis. Throughout 2003, Cooper worked towards resolution of the indemnification issues and future handling of the Abex-related claims within the Federal-Mogul bankruptcy proceedings. This included negotiations with the Representatives regarding participation in Federal-Mogul’s proposed 524(g) asbestos trust. Based on the status of the negotiations in 2004, Cooper concluded that it was probable that Federal-Mogul will reject the 1998 Agreement. Cooper also concluded that the Representatives would require any negotiated settlement through the Federal-Mogul bankruptcy to be at the high end of the Bates White, LLC liability analysis and with substantially lower insurance recovery assumptions and higher administrative costs.

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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table reflects activity related to equity securities purchased by Cooper’s wholly-owned subsidiaries during the three months ended March 31, 2005:

Purchases of Equity Securities


					Total Number of Shares		Maximum Number of
	Total Number		Average Price		Purchased as Part of		Shares that May Yet Be
	of Shares		Paid per		Publicly Announced		Purchased Under the
Period	Purchased		Share		Plans or Programs ⁽¹⁾		Plans or Programs ⁽¹⁾
As of 12/31/04								5,161,050
1/01/05 – 1/31/05		—	$	—		—		6,761,050
2/01/05 – 2/28/05		180,000		69.40		180,000		6,581,050
3/01/05 – 3/31/05		220,000		70.68		220,000		6,361,050

Total		400,000	$	70.10		400,000

⁽¹⁾

On February 9, 2000, Cooper publicly announced that its Board of Directors authorized the repurchase of up to 5 million shares of Cooper common stock. On November 2, 2004, Cooper’s Board of Directors authorized the repurchase of up to five million additional shares of Cooper’s Class A common stock. Cooper has also announced that the Board authorized the repurchase of shares issued from time to time under its equity compensation plans in order to offset the dilution that results from issuing shares under these plans. For 2005, Cooper’s current estimate is that 1.6 million shares will be issued under equity compensation plans which is reflected in the above table.

Item 6. Exhibits


	4.		Fourth Supplemental Indenture dated as of January 1, 2005 among Cooper Industries, LLC, Cooper Industries, Ltd. and JP Morgan Chase Bank, as Trustee.

	10.1		Summary of Executive Compensation Arrangements for Named Executive Officers.

	10.2		Summary of Nonemployee Director Compensation.

	10.3		Form of Executive Stock Incentive Agreement for the Performance Period 2005-2007.

	10.4		Cooper Industries Amended and Restated Stock Incentive Plan (Amended and Restated February 9, 2005).

	10.5		Form of Management Continuity Agreement between Cooper Industries, Ltd., Cooper US, Inc. and key management personnel which applies if there is a change in control of Cooper.

	12.		Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2000 through 2004 and the Three Months Ended March 31, 2005 and 2004.

	23.		Consent of Bates White, LLC.

	31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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	32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Signatures

Pursuant to the requirements 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, Ltd.

		(Registrant)

Date: May 9, 2005		/s/ Terry A. Klebe

		Terry A. Klebe
		Senior Vice President and Chief Financial Officer

Date: May 9, 2005		/s/ J. B. Levos

		Jeffrey B. Levos
		Vice President and Controller and Chief Accounting Officer

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Exhibit Index

Exhibit No.


	4.		Fourth Supplemental Indenture dated as of January 1, 2005 among Cooper Industries, LLC, Cooper Industries, Ltd. and JP Morgan Chase Bank, as Trustee.

	10.1		Summary of Executive Compensation Arrangements for Named Executive Officers.

	10.2		Summary of Nonemployee Director Compensation.

	10.3		Form of Executive Stock Incentive Agreement for the Performance Period 2005-2007.

	10.4		Cooper Industries Amended and Restated Stock Incentive Plan (Amended and Restated February 9, 2005).

	10.5		Form of Management Continuity Agreement between Cooper Industries, Ltd., Cooper US, Inc. and key management personnel which applies if there is a change in control of Cooper.

	12.		Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2000 through 2004 and the Three Months Ended March 31, 2005 and 2004.

	23.		Consent of Bates White, LLC.

	31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-4 2 h25228exv4.htm FOURTH SUPPLEMENTAL INDENTURE exv4

EXHIBIT 4

Cooper Industries, LLC

Cooper Industries, Ltd.

and

JPMorgan Chase Bank

as Trustee

FOURTH SUPPLEMENTAL INDENTURE

Dated as of January 1, 2005

DEBENTURES

Supplement to Indenture dated as of January 15, 1990
As Amended by the
First Supplemental Indenture dated as of May 15, 2002, and the
Second Supplemental Indenture dated as of June 21, 2002, and the
Third Supplemental Indenture dated as of October 28, 2002

This FOURTH SUPPLEMENTAL INDENTURE, dated as of January 1, 2005 (“Supplemental Indenture”), is made and entered into between Cooper Industries, LLC, a Delaware limited liability company, having its principal office at 600 Travis, Suite 5800, Houston, Texas 77002, Cooper Industries, Ltd., a Bermuda company, having its principal office at 600 Travis, Suite 5800, Houston, Texas 77002 (the “Guarantor”) and JPMorgan Chase Bank, a New York banking corporation, as Trustee (the “Trustee”).

WHEREAS, Cooper Industries, LLC is a wholly owned, indirect subsidiary and a Restricted Subsidiary of the Guarantor; and

WHEREAS, Cooper Industries, Inc. merged with and into Cooper Industries, LLC effective January 1, 2005; and

WHEREAS, Cooper Industries, Inc. entered into an Indenture dated as of January 15, 1990 (the “Indenture”), with The Chase Manhattan Bank (National Association), for the purpose of issuing its debentures, notes, bonds or other evidences of indebtedness (the “Debentures”) in one or more series, unlimited as to aggregate principal amount and bearing such rates of interest, if any, maturing at such time or times and having such other designations as shall be fixed in accordance with the Indenture; and

WHEREAS, pursuant to the First Supplemental Indenture among Cooper Industries, Inc., the Guarantor and the Trustee dated as of May 15, 2002, the Guarantor has guaranteed to each holder of a Debenture the payment of the principal of, premium, if any, and interest, if any, on the Debentures and all other obligations of Cooper Industries, Inc. under the Indenture; and

WHEREAS, the Trustee is the successor by merger to The Chase Manhattan Bank (National Association) and has succeeded to all interests of such national association under the Indenture; and

WHEREAS, Cooper Industries, Inc., the Guarantor and the Trustee entered into a Second Supplemental Indenture dated as of June 21, 2002 and a Third Supplemental Indenture dated as of October 28, 2002; and

WHEREAS, the entry into this Supplemental Indenture by the parties hereto is required by Article 12 of the Indenture and is in all respects permitted by the provisions of Section 11.01 of the Indenture; and

WHEREAS, all corporate and other action necessary to make this Supplemental Indenture a valid and binding agreement of Cooper Industries, LLC and the Guarantor in accordance with its terms have been done.

NOW, THEREFORE, in consideration of the foregoing premises and the acceptance and purchase of the Notes by the holders thereof, it is mutually covenanted and agreed as follows:

Section 1. In accordance with Article 12 of the Indenture, Cooper Industries, LLC hereby assumes the due and punctual payment of the principal of, premium, if any and interest, if any, on all the Debentures and the performance or observance of every covenant of the Indenture on the part of the Company to be performed or observed.

Section 2. The Indenture is hereby amended by amending and restating in its entirety the following definition in Section 1.01:

Company:

The term “Company” shall mean Cooper Industries, LLC, a Delaware limited liability company, and subject to the provisions of Article Twelve, shall mean its successors and assigns.

Section 3. The Indenture, as supplemented and amended by this Supplemental Indenture and all other supplemental indentures thereto, is in all respects ratified and confirmed, and the Indenture, the Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument.

Section 4. If and to the extent any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Supplemental Indenture by any provision of the Trust Indenture Act of 1939, such required provision shall control.

Section 5. In case any provision in this Supplemental Indenture or in the Debentures of any series shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (or of the other series of Debentures) shall not in any way be affected or impaired thereby.

Section 6. If the provisions of any subsequent series of the Debentures issued hereunder are inconsistent or conflict with the provisions of this Supplemental Indenture, the provisions of the Debentures of such series shall be controlling with respect to such series.

Section 7. This Supplemental Indenture and each Debenture of any series shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of the said State.

Section 8. Capitalized terms used in this Supplemental Indenture that are not otherwise defined herein that are defined in the Indenture shall remain as set forth therein.

Section 9. This Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument.

Section 10. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and the Guarantor.

IN WITNESS WHEREOF, the parties have caused this Fourth Supplemental Indenture to be duly executed as of the day and year first above written.


COMPANY:

COOPER INDUSTRIES, LLC.		JPMORGAN CHASE BANK,
		AS TRUSTEE

By: /s/ Alan J. Hill		By: /s/ Paul Schmalzel
Name: Alan J. Hill		Name: Paul Schmalzel
Title: Vice President and Treasurer		Title: Vice President

GUARANTOR:

COOPER INDUSTRIES, LTD.
By: /s/ Terry A. Klebe
Name: Terry A. Klebe
Title: Senior Vice President and Chief Financial Officer

By: /s/ Alan J. Hill
Name: Alan J. Hill
Title: Vice President and Treasurer

EX-10.1 3 h25228exv10w1.htm SUMMARY OF EXECUTIVE COMPENSATION ARRANGEMENTS exv10w1

Exhibit 10.1

SUMMARY OF COMPENSATION ARRANGEMENTS FOR
NAMED EXECUTIVE OFFICERS

Following is a description of compensation arrangements that have been approved by the Management Development and Compensation Committee (“Committee”) of the Company’s Board of Directors for the Chief Executive Officer and the other four most highly compensated executive officers in 2004 (the “Named Executive Officers”).

Base Salary – The current annual base salaries of the Company’s Named Executive Officers are as follows:


H. J. Riley, Jr. – Chairman and Chief Executive Officer	$	1,100,000

K.S. Hachigian – President and Chief Operating Officer	$	800,000	¹

T.A. Klebe – Senior Vice President and Chief Financial Officer	$	466,000

D.K. Schumacher – Senior Vice President, General Counsel and Chief Compliance Officer	$	430,000

D.R. Sheil – Senior Vice President, Human Resources and Chief Administrative Officer	$	388,500

Reflects the increase to Mr. Hachigian’s base salary as a result of his promotion to Chief Executive Officer effective May 1, 2005.

Annual Incentive Compensation

On February 8, 2005, the Committee established performance goals and maximum bonus opportunities for the Named Executive Officers and other executives for the fiscal year ending December 31, 2005. The 2005 annual incentive compensation awards are made pursuant to the Company’s Management Annual Incentive Plan, as amended, which was filed as Exhibit 10.18 to Cooper’s Form 10-K for the fiscal year ended December 31, 2003. The performance goals for 2005 are based upon actual results as compared to budgeted performance on two financial measures: (1) earning per share; and (2) free cash flow, with the award being determined by reference to a matrix of different performance levels. Participants can receive a bonus based on a percentage of their annual salary if the Company meets threshold, good, target or maximum attainments. In determining the actual annual incentive award to be part to an executive, the Committee may also consider the executive’s individual performance objectives and personal contributions.

The following table sets forth the minimum and maximum annual incentive award payouts for each of the Company’s Named Executive Officers based on the achievement of the Company’s performance criteria for the year ending December 31, 2005.


	Minimum			Maximum
	Payout			Payout
H.J. Riley, Jr.		0	%		200	%

K.S. Hachigian		0	%		180	%

T.A. Klebe		0	%		120	%

D.K. Schumacher		0	%		100	%

D.R. Sheil		0	%		100	%

Stock Options

The Company’s Amended and Restated Stock Incentive Plan provides for the granting of stock options, restricted stock units and performance-based share awards to the Named Executive Officers and other key executives. On February 8, 2005, the Committee approved the following nonqualified stock option grants to the Named Executive Officers at an exercise price of $70.94, which was the fair market value of the Company’s stock on the grant date.


H.J. Riley, Jr.		0 shares

K.S. Hachigian		47,500 shares

T.A. Klebe		30,400 shares

D.K. Schumacher		23,800 shares

D.R. Sheil		21,400 shares

In addition, in connection with Mr. Hachigian’s promotion to Chief Executive Officer and Mr. Riley’s continued service as Chairman of the Company, on April 25, 2005, the Committee approved the following non-qualified stock option grants at an exercise price of $65.47, which was the fair market value of the Company’s stock on the grant date.


H.J. Riley, Jr.		150,000 shares

K.S. Hachigian		52,500 shares

All the stock option grants disclosed above vest in three equal annual installments and expire seven years after the grant date, except the options granted to Mr. Riley will expire on December 1, 2010.

Performance Shares

On February 8, 2005 the Committee also set performance goals for performance – based share awards for the Named Executive Officers and other key executives for a three-year performance period beginning on January 1, 2005 and ending on December 31, 2007. The Committee set performance goals tied to the cumulative compound growth in earnings per share during the performance period. The Committee determined that compound earnings per share growth over the period of the at least 4% was required before any award would be earned and at least 16% was required for a payout at the maximum level. The awards, to the extent earned, will be distributed in Class A common shares of Cooper, or at the executive’s election and upon approval by the Committee, up to 50% of the earned award may be paid in cash. The following table presents information about the long term incentive award granted in 2005 to the Named Executive Officers.


	Performance or		Estimated Future
	Other Period until		Payouts Under
	Maturation or		Non-Stock Price-
	Payout		Based Plans
			Threshold		Target		Maximum
			(shares)		(shares)		(shares)
H.J. Riley, Jr.		—		0		0		0

K.S. Hachigian²	February 2008			20,000		60,000		80,000

T.A. Klebe	February 2008			4,350		13,040		17,380

D.K. Schumacher	February 2008			3,400		10,200		13,600

D.R. Sheil	February 2008			3,060		9,170		12,220

Includes the following performance-based share awards granted to Mr. Hachigian in recognition of his promotion to Chief Executive Officer effective My 1, 2005: threshold 13,210 shares; target 39,640 shares; and maximum 52,860 shares.

EX-10.2 4 h25228exv10w2.htm SUMMARY OF NONEMPLOYEES DIRECTOR COMPENSATION exv10w2

Exhibit 10.2

Summary of Nonemployee Director Compensation

Cooper pays nonemployee directors an annual retainer fee of $45,000. In addition, nonemployee directors are paid meeting attendance fees of $2,000 for regular Board meetings, $1,500 for regular committee meetings and $2,000 for special Board or committee meetings. The Audit Committee chairman receives a supplemental annual retainer of $10,000. Each nonemployee chairman of a standing committee other than the Audit Committee receives a supplemental annual retainer of $7,500. The Board has established a stock ownership guideline of three times the annual retainer for each director.

In lieu of receiving the annual retainer and meeting fees in cash, each nonemployee director may elect, under the Directors Deferred Compensation Plan, to defer receipt of such amounts until a date determined by the director or until retirement from the Board. Alternatively, each nonemployee director may elect to receive all or a portion of the annual retainer fee and meeting fees in Cooper Class A common shares instead of cash, under the Directors’ Retainer Fee Stock Plan, which was approved by shareholders in April 1998. The Directors’ Retainer Fee Stock Plan also provides that each nonemployee director may elect to defer the receipt of all or a portion of the shares of Cooper stock otherwise payable under the Plan.

Under the Directors’ Stock Plan, which was approved by the shareholders in April 1996, each nonemployee director receives an annual stock award of 500 Cooper Class A common shares and 1,000 restricted stock units on each annual meeting date. Restricted stock units represent one Class A common share each and vest during the year following grant on a pro rata basis depending on the number of regularly scheduled board meetings during the year. Restricted stock units are credited with additional shares equal to the amount of dividends that would have been paid on an equal number of outstanding shares. Upon a director’s cessation of service on the board, restricted stock units are converted into Class A common shares and are distributed to the director in accordance with the director’s payment election. Each newly elected or appointed nonemployee director receives, upon election or appointment, a pro rata stock and restricted stock unit award according to the time remaining before the next annual meeting date. Each nonemployee director may elect under the Directors’ Stock Plan to defer receipt of all or a portion of the Class A common shares payable under the Plan until a date determined by the director or until retirement from the Board. Each nonemployee director is also granted annually a stock option for 2,000 shares at fair market value under the Directors’ Stock Plan. The option vests on the third anniversary of the date of grant and has a 10-year term. As of December 31, 2004, options for 84,000 shares were outstanding under the Directors’ Stock Plan.

EX-10.3 5 h25228exv10w3.htm FORM OF EXECUTIVE STOCK INCENTIVE AGREEMENT exv10w3

EXHIBIT 10.3

Cooper US, Inc.
Executive Stock Incentive Agreement

This Agreement is made as of the 8^th day of February 2005 between Cooper US, Inc., a Delaware corporation, having its principal place of business in Houston, Texas (the “Company”) and , an Executive of the Company (“Executive”). All capitalized terms used in this Agreement are as defined in the Cooper Industries Stock Incentive Plan (the “Plan”), unless otherwise defined in this Agreement.

1. Performance Share Award

(a) Performance Period. For purposes of this Agreement, the “Performance Period” shall be January 1, 2005 to December 31, 2007.

(b) Performance Share Grant. Pursuant to Section IX of the Plan and subject to Paragraph 7 of this Agreement, the Company hereby grants to the Executive, as of the date hereof, an award of Performance Shares that may be earned based on the financial performance of the Company during the Performance Period, subject to the restrictions and conditions set forth in this Agreement (“Performance Share Grant”). The Committee has established Performance Goals such that if the Company achieves a cumulative annual growth rate of earnings per share (“EPS”) for the Performance Period of four (4) percent or greater, then the Executive will be issued Performance Shares in accordance with the following chart:


		Fully Diluted EPS
	Annual EPS	Cumulative Total Over	Performance Shares
Performance Goal	Growth Rate	Performance Period	That May Be Earned
Threshold	4%	$11.62
Good	8%	$12.55
Target	12%	$13.53
Maximum	16%	$14.56

The number of shares appearing under the heading “Performance Shares That May Be Earned” shall constitute the number of Performance Shares which may be earned by the

Executive based upon achievement of that specific Performance Goal as established by the Committee based on cumulative EPS performance during the Performance Period (Threshold, Good, Target or Maximum). In the event the Company’s actual annual growth rate of EPS for the Performance Period exceeds the Threshold level of 4% but is lower than the Maximum level of 16%, the number of Performance Shares earned by the Executive shall be determined by interpolation. In the event the Company’s actual annual growth rate of EPS for the Performance Period is below the Threshold (4%) level, no Performance Shares will be earned. The Maximum number of Performance Shares will be earned if the annual growth rate of EPS equals or exceeds 16% during the Performance Period.

At the end of the Performance Period, the Committee shall determine the Performance Goal achieved and the number of Performance Shares, if any, earned by the Executive. Except for shares withheld by the Company as provided in Paragraph 4 or shares the receipt of which has been deferred as provided in Paragraph 5, the Company shall then cause its parent, Cooper Industries, Ltd., to issue a stock certificate or book entry shares in the Executive’s name for the number of shares of Common Stock equal to the Performance Shares earned by the Executive upon lapse of the forfeiture restrictions set forth in Paragraph 3(a). The Company shall then provide stock certificate or book-entry shares to the Executive.

2. Dividends. Upon distribution of earned Performance Shares to Executive, the Company shall pay to the Executive in cash an amount equal to the aggregate amount of cash dividends that the Executive would have received had the Executive been the owner of record of all such earned Performance Shares, including shares withheld as provided under Paragraph 4, if any, from the effective date of this Agreement to the date of distribution.

3. Restrictions and Limitations. The Executive hereby accepts the Performance Share Grant and agrees to the following restrictions and conditions.

(a) Forfeiture. Except as provided in (b) below, if the Executive’s active employment with the Company terminates for any reason prior to the effective date upon which the Committee determines the number of Performance Shares, if any, earned by the Executive,

-2-

all earned and unearned Performance Shares granted under this Agreement shall be forfeited by the Executive and this Performance Share Grant shall be null and void.

(b) Termination Upon Death or Disability. In the event of the Executive’s death or permanent and total disability under the Cooper Industries, Inc. Salaried Employees Retirement Plan (or such other pension plan in which the Executive participates) on or after January 1, 2007, the Executive or his heirs or beneficiaries shall receive a pro-rata share of the Performance Shares which would have been earned by the Executive under this Agreement had he or she remained actively employed throughout the Performance Period. In determining the pro-rata Performance Shares for which the Executive or his heirs or beneficiaries may be eligible, the Company will multiply the total Performance Shares earned during the Performance Period by a fraction the numerator of which is the months in the Performance Period during which Executive was actively employed and the denominator is thirty-six (36). Any Performance Shares earned and awarded under this provision shall be approved by the Committee and distributed at the conclusion of the Performance Period.

(c) Limitations on Transferability. The Executive shall not sell, exchange, transfer, pledge, hypothecate or otherwise dispose of this Performance Share Grant prior to the conclusion of the Performance Period and distribution of earned Performance Shares in accordance with Paragraph 1 of this Agreement.

4. Tax. Upon the issuance of Common Shares to the Executive for Performance Shares earned under this Agreement, the Executive shall pay the Company any taxes required to be withheld by reason of the receipt of compensation resulting from the issuance of such Common Shares. In lieu thereof, the Company shall have the right to retain, or the Executive may direct the Company to retain, a sufficient number of Common Shares to satisfy the Company’s withholding obligations, provided the value of the Common Shares used to satisfy the withholding obligations does not exceed the minimum required tax withholding for the transaction. The value of any Common Shares used to satisfy the tax withholding requirement shall be determined by the average of the high and the low trading prices of the Common Shares on the New York Stock Exchange on the date the restrictions lapse (or if shares are not traded on the Exchange on such date, then on the immediately preceding trading date).

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5. Election to Defer Shares. The Executive may elect to defer the issuance and receipt of Common Shares for all or any portion of the Performance Shares earned under this Agreement until either the Executive’s termination of employment with the Company or a calendar year specified by the Executive. In such an event, the Company shall credit to an account maintained on behalf of such Executive (the “Executive Deferred Account”) the shares deferred. The Executive Deferred Account shall be credited with all dividends or other distributions that the Executive would have received had he or she been the owner of record of such deferred shares during the deferral period. Accrued dividends credited to the Executive Deferred Account shall bear interest equal to the average quarterly prime rate of interest charged by J.P.Morgan Chase Bank. Until the deferred shares are issued to the Executive, the Executive shall have no other rights as a shareholder of Cooper Industries, Ltd. with respect to such deferred shares.

The deferred shares shall be issued in a lump sum or in up to five (5) annual installments in accordance with the deferral election of the Executive unless the Executive dies prior to issuance of all of the deferred shares. Upon issuance of any or all of such deferred shares, the Company also shall pay to the Executive in cash a pro rata portion of the accrued dividends and interest in the Executive Deferred Account. If the Executive elects deferral until termination of employment, the first installment shall be made in January of the year following such termination. If the Executive elects deferral until a specified calendar year, the first installment or, if elected, the entire amount deferred shall be made in January of such year. If the Executive dies prior to issuance of all of the deferred shares or the payment of cash with respect thereto, all deferred shares shall be issued and all cash payments shall be made in January of the year following the Executive’s death to the Executive’s beneficiary or beneficiaries as such Executive may designate in writing to the Company. A deferral election by an Executive hereunder must be made in writing to the Company on or before December 31 of the year preceding the date the Performance Period concludes, shall specify the percentage of Performance Shares earned, if any, to be deferred and shall be irrevocable.

6. Change in Control. In the event of a Change in Control, the Performance Share Grant shall be deemed earned at the Target level, all restrictions on those Performance Shares

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shall immediately lapse and distribution of the Target level of Performance Shares shall be governed by the terms of the Plan.

7. Consideration. The parties agree that the consideration for any issuance of Common Shares for Performance Shares earned hereunder shall be past services by the Executive having a value not less than the par value of such Common Shares.

8. Plan Incorporated. The Executive acknowledges receipt of a copy of the Plan, which is incorporated by reference into this Agreement. The Executive agrees that this Performance Share Grant shall be subject to all of the terms and provisions of the Plan and this Agreement.

9. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Executive.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and the Executive has executed this Agreement, all as of the date first above written.


		COOPER US, INC.

		By:

				(name) (title)

		EXECUTIVE

		By:

				(name) (title)

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EX-10.4 6 h25228exv10w4.htm AMENDED AND RESTATED STOCK INCENTIVE PLAN exv10w4

EXHIBIT 10.4

COOPER INDUSTRIES
AMENDED AND RESTATED
STOCK INCENTIVE PLAN
(Amended and Restated February 9, 2005)

I. Purpose of the Plan

The Cooper Industries Stock Incentive Plan is intended to provide Cooper US, Inc. (the “Company”) and its affiliates a means by which such companies can engender and sustain a sense of proprietorship and personal commitment on the part of the executives, managers and other key employees in the continued growth, development and financial success of the publicly-traded parent, Cooper Industries, Ltd. (“CBE”) and encourage them to remain with and devote their best efforts to the business of the Company and its affiliates, thereby advancing the interests of the Company, its affiliates and CBE shareholders. Accordingly, the Company may award to certain employees shares of the Common Stock of CBE, on the terms and conditions established herein.

II. Definitions

2.1 “Award” means any form of Stock Option, Restricted Stock or Performance Share granted under the Plan, whether singly or in combination, to a Participant by the Committee pursuant to such terms, conditions, restrictions and limitations, if any, as the Committee may establish by the Award Agreement or otherwise.

2.2 “Award Agreement” means a written agreement with respect to an Award between the Company and a Participant establishing the terms, conditions, restrictions and limitations applicable to an Award. To the extent an Award Agreement is inconsistent with the terms of the Plan, the Plan shall govern the rights of the Participant thereunder.

2.3 “Board” shall mean the Board of Directors of CBE.

2.4 A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(1) any Person is or becomes the Beneficial Owner, directly or indirectly, of CBE securities (not including in the securities beneficially owned by such Person or any securities acquired directly from CBE or its affiliates) representing 25% or more of the combined voting power of CBE’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or

(2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who on the date hereof constitute the Board and any new director (other than a director whose initial assumption of office is in

connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CBE) whose appointment or election by the Board or nomination for election by CBE’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

(3) there is consummated a merger or consolidation of CBE or any direct or indirect subsidiary of CBE with any other corporation, other than (i) a merger or consolidation which results in the directors of CBE immediately prior to such merger or consolidation continuing to constitute at least a majority of the board of directors of CBE, the surviving entity or any parent thereof, or (ii) a merger or consolidation effected to implement a recapitalization of CBE (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of CBE securities (not including in the securities Beneficially Owned by such Person any securities acquired directly from CBE or its Affiliates) representing 25% or more of the combined voting power of CBE’s then outstanding securities; or

(4) the stockholders of CBE approve a plan of complete liquidation or dissolution of CBE or there is consummated an agreement for the sale or disposition by CBE of all or substantially all of CBE’s assets, other than a sale or disposition by CBE of all or substantially all of CBE’s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of CBE in substantially the same proportions as their ownership of CBE immediately prior to such sale.

For purposes of this Section 2.4, “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act; “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act; and “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) CBE or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of CBE or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) a corporation owned, directly or indirectly, by the shareholders of CBE in substantially the same proportions as their ownership of stock of CBE or (v) any individual, entity or group whose ownership of securities of CBE is reported on Schedule 13G pursuant to Rule 13d-1 promulgated under the Exchange Act (but only for so long as such ownership is so reported).

2.5 “Change in Control Price” means the higher of (i) the Fair Market Value on the date of determination of the Change in Control, or (ii) the highest price per share actually paid for the Common Stock in connection with the Change in Control of CBE.

2.6 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.7 “Commission” shall mean the Securities and Exchange Commission.

2.8 “Committee” means the Management Development and Compensation Committee of the Board, or such other committee designated by the Board to administer the Plan, provided that the Committee shall consist of three or more persons, each of whom is an “outside director” within the meaning of Section 162(m) of the Code and a “disinterested person” within the meaning of Rule 16b-3 under the Exchange Act.

2.9 “Common Stock” or “Shares” shall mean the Class A common shares, par value $0.01 a share, of CBE and other such securities of CBE as the Committee may from time to time determine.

2.10 “Dividend Equivalent” shall mean any right granted pursuant to Section X hereof.

2.11 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

2.12 “Executive Officer” means an executive officer as defined in Rule 3b-7 promulgated under the Exchange Act.

2.13 “Fair Market Value” of a share of Common Stock, as of any date, means the average of the high and low sales prices of a share of Common Stock as reported on the Stock Exchange composite tape on the applicable date, provided that if no sales of Common Stock were made on the Stock Exchange on that date, the average of the high and low prices as reported on the composite tape for the preceding day on which sales of Common Stock were made.

2.14 “Incentive Stock Option” shall mean an option granted under Section VII hereof that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

2.15 “Nonstatutory Stock Option” shall mean an option granted under Section VII hereof that is not intended to be an Incentive Stock Option.

2.16 “Option” shall mean any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such prices and during such Period or Periods as the Committee shall determine.

2.17 “Participant” means an officer or key employee of the Company or its affiliates who is selected by the Committee to participate in the Plan.

2.18 “Performance Goals” or “Targets” in respect to Awards of Performance Shares are defined as the performance criterion or criteria established by the Committee, pursuant to Section 9.3 hereof.

2.19 “Performance Period” shall mean that period established by the Committee at the time any Performance Shares are granted, provided that a Performance Period shall be a minimum of one year.

2.20 “Performance Share” shall mean any grant pursuant to Section IX hereof of a unit valued by reference to a designated number of Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including cash, Shares or any combination thereof, upon achievement of such Performance Goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter, or as a reward to recognize significant personal contributions to Company initiatives under the Cooper Star Program as approved by the Committee.

2.21 “Plan” shall mean the Cooper Industries Amended and Restated Stock Incentive Plan (dated November 7, 1995, as amended and restated February 9, 2005).

2.22 “Restricted Stock” shall mean any Shares issued pursuant to Section VIII (or any restricted stock units granted pursuant to Section VIII that are valued by reference to a designated number of Shares) and which are subject to such terms, conditions and restrictions as the Committee deems appropriate, including but not limited to restrictions on transferability, which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.

2.23 “Section 162(m)” means Section 162(m) of the Code and the regulations promulgated thereunder.

2.24 “Stock Exchange” means the New York Stock Exchange, Inc. (“NYSE”) or, if the Common Stock is no longer included on the NYSE, then such other market price reporting system on which the Common Stock is traded or quoted.

2.25 “Voting Stock” means securities entitled to vote in an election of Directors of CBE.

III. Administration

3.1 The Plan shall be administered by the Committee.

3.2 Subject to the provisions of the Plan, the Committee shall have the authority in its sole discretion to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to select the Participants; to determine the type of Awards to be made to Participants; to determine the Shares subject to any Award and the terms, conditions and restrictions relating to any Award; to determine whether, to what extent and under what circumstances any Award may be settled, cancelled, forfeited, exchanged, or surrendered; to waive or modify any condition applicable to an Award (other than a Performance Share Award to Executive Officers if inconsistent with Section 162(m)); to make adjustments in

the performance goals of an Award (i) in recognition of unusual or nonrecurring events affecting CBE or the financial statements of CBE (with respect to Awards made to Executive Officers, to the extent in accordance with Section 162(m), if applicable) or (ii) in response to changes in applicable laws, regulations, or accounting principles; to interpret the Plan; to establish, amend or rescind any administrative policies; to determine the terms and provisions of any agreements entered into hereunder; and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry it into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive: provided, however, that no action shall be taken which will prevent Awards granted under the Plan from meeting the requirements for exemption from Section 16(b) of the Exchange Act, or subsequent comparable statute, as set forth in Rule 16b-3 under the Exchange Act or any subsequent comparable rule; and, provided further, that no action shall be taken which will prevent Awards hereunder that are intended to provide “performance-based compensation,” within the meaning of Section 162(m), from doing so.

3.3 In order to enable Participants who are foreign nationals or employed outside the United States, or both, to receive Awards under the Plan, the Committee may adopt such amendments, subplans and the like as are necessary or advisable, in the opinion of the Committee, to effectuate the purposes of the Plan.

3.4 Notwithstanding the powers and authorities of the Committee set forth in this Section III, the Committee shall not permit the repricing of Stock Options by any method, including by cancellation and reissuance.

IV. Eligibility

Any key employee of the Company or any of its subsidiaries or affiliates is eligible to receive one or more Awards under the Plan.

V. Shares Subject to the Plan

5.1 There shall be available for Awards granted wholly or partly in Common Stock (including rights or options which may be exercised for or settled in Common Stock) during the term of this Plan an aggregate of 17,000,000 shares of Common Stock, subject to the adjustments provided for in Section XIV hereof. The 17,000,000 Shares available for Awards consist of 12,000,000 Shares previously approved by the Company and CBE shareholders and 5,000,000 Shares being submitted for approval by shareholders at the 2004 annual meeting. Of the 12,000,000 Shares previously approved by shareholders, no Shares remain available for future grants following the Board’s approval of equity compensation awards granted in February 2004. Of the 5,000,000 Shares being submitted for shareholder approval at the 2004 annual meeting, no more than 2,500,000 Shares are available for Restricted Stock and Performance Shares.

5.2 Shares of Common Stock available for issuance under the Plan may be authorized and unissued Shares, outstanding CBE Class A common shares held by the Company, or CBE Class B common shares convertible into Class A common shares for issuance under the Plan, as the Company and CBE may from time to time determine. The Board of Directors and the appropriate officers of CBE shall from time to time take whatever actions are necessary to file required documents with governmental authorities and the Stock Exchange to make shares of Common Stock available for issuance pursuant to Awards. Common Stock related to Awards that are forfeited or otherwise terminated, or expire unexercised, or are settled in a manner such that all or some of the Shares covered by an Award are not issued to a Participant (other than an exchange for cash or other property of comparable value) shall immediately become available for Awards hereunder. If an Award is exchanged for cash or other property of comparable value, the Common Stock related to the Award will be deducted from the Shares available for Awards hereunder. Any Shares issued by CBE in respect of the assumption or substitution of outstanding awards from a corporation or other business entity acquired by CBE shall not reduce the number of Shares available for Awards under this Plan. The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum as it may deem appropriate under Rule 16b-3 issued pursuant to the Exchange Act.

5.3 The number of shares of Common Stock subject to Awards granted under the Plan to any individual who is an Executive Officer shall not exceed the limits set forth below:

• Stock Options — a total of 1,500,000 Shares in a continuous five (5) year period.

• Restricted Stock and Performance Shares — the greater of 125,000 Shares per calendar year or a total of 500,000 Shares in a continuous four (4) year period.

Determinations under the preceding sentence shall be made in a manner that is consistent with Section 162(m).

VI. Awards

Awards under the Plan may consist of: Stock Options (either Incentive Stock Options within the meaning of Section 422 of the Code or Nonstatutory Stock Options), Restricted Stock, or Performance Shares. Awards of Performance Shares and Restricted Stock may provide the Participant with dividends or Dividend Equivalents and voting rights prior to vesting (whether based on a period of time or based on attainment of specified performance conditions). The terms, conditions and restrictions of each Award shall be set forth in an Award Agreement.

VII. Stock Options

7.1 Grants. Awards may be granted in the form of Stock Options. Stock Options may be Incentive Stock Options within the meaning of Section 422 of the Code or Nonqualified Stock Options or a combination of both, or any particular type of tax-advantaged option authorized by the Code from time to time, and approved by the Committee.

7.2 Terms and Conditions of Options. A Stock Option shall be exercisable in whole or in such installments and at such times and upon such terms as may be determined by the Committee: provided, however, that no Stock Option shall be exercisable more than 10 years after the date of grant thereof. The option exercise price shall be established by the Committee, but such price shall not be less than the Fair Market Value on the date of the Stock Option’s grant, subject to adjustment as provided in Section XIV hereof.

7.3 Restrictions Relating to Incentive Stock Options. Stock Options issued in the form of Incentive Stock Options shall, in addition to being subject to all applicable terms, conditions, restrictions and limitations established by the Committee, comply with Section 422 of the Code. Incentive Stock Options shall be granted only to key employees of the Company and its subsidiaries within the meaning of Section 424 of the Code.

7.4 Payment. Upon exercise, a Participant may pay the option exercise price of a Stock Option in cash or Shares, or a combination of cash and Shares, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock and may impose such conditions as it deems appropriate on the use of Common Stock to exercise a Stock Option.

7.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or otherwise, establish such other terms, conditions or restrictions, if any, on any Stock Option Award, provided they are not inconsistent with the Plan. The Committee may condition the vesting of Stock Options on the achievement of financial performance criteria established by the Committee at the time of grant.

VIII. Restricted Stock Awards

8.1 Grants. Awards may be granted in the form of Restricted Stock (“Restricted Stock Awards”). Restricted Stock Awards shall be awarded in such numbers and at such times as the Committee shall determine.

8.2 Award Restrictions. Restricted Stock Awards shall be subject to such terms, conditions or restrictions as the Committee deems appropriate, including, but not limited to, restrictions on transferability, requirements of continued employment, individual performance or the financial performance of CBE. The period of vesting and the forfeiture restrictions shall be established by the Committee at the time of grant, provided that the period of vesting shall be at least one year from the date of grant, except as provided in Section XVIII.

8.3 Rights as Shareholders. The Committee may, in its discretion, grant to the Participant to whom such Restricted Stock has been awarded, all or any of the rights of a shareholder with respect to such shares of Restricted Stock, including the right to receive dividends or Dividend Equivalents.

8.4 Evidence of Award. Any Restricted Stock Award granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book entry registration or issuance of a stock certificate or certificates.

IX. Performance Share Awards

9.1 Grants. Awards may be granted in the form of Performance Shares.

9.2 Performance Shares. The Committee may grant an Award of Performance Shares to Participants as of the first day of each Performance Period. Performance Goals will be established by the Committee not later than 90 days after the commencement of the Performance Period relating to the specific Award. At the end of the Performance Period, the Performance Shares shall be converted into Common Stock (or cash or a combination of Common Stock and cash, as determined by the Award Agreement) and distributed to Participants based upon such entitlement. The Committee may also grant Performance Shares as a reward to employees to recognize significant personal contributions to Company initiatives under the Cooper Star Program. Award payment in respect of Performance Shares made in cash rather than the issuance of Common Stock shall not, by reason of such payment in cash, result in additional Shares being available for reissuance pursuant to Section V hereof.

9.3 Performance Criteria. Notwithstanding anything to the contrary contained in this Section IX, Performance Share Awards shall be made to Executive Officers only in compliance with Section 162(m). Performance criteria used to establish Performance Goals for Performance Share Awards granted to Executive Officers must include one or any combination of the following: (i) CBE’s return on equity, assets, capital or investment; (ii) pre-tax or after-tax profit levels expressed in earnings per share of CBE or any subsidiary or business segment of CBE; (iii) cash flow or similar measure; (iv) total shareholder return; (v) change in the market price of the Common Stock; or (vi) market share. The Performance Goals established by the Committee for each Performance Share Award will specify achievement targets with respect to each applicable performance criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). To the extent applicable, any such Performance Goals shall be determined in accordance with generally accepted accounting principles. Each Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable Performance Targets. The Performance Goals established by the Committee may be (but need not be) different for each Performance Period and different Performance Goals may be applicable for Awards to different Executive Officers in the same Performance Period. Payment shall be made with respect to a Performance Share Award to an Executive Officer only after the attainment of the applicable Performance Goals has been certified in writing by the Committee.

9.4 Adjustments. The Committee shall be authorized to make adjustments in the method of calculating attainment of Performance Goals in recognition of: (i) extraordinary or non-recurring items; (ii) changes in tax laws; (iii) changes in generally accepted accounting principles or changes in accounting policies; (iv) charges related to restructured or discontinued operations; (v) restatement of prior period financial results; and (vi) any other unusual, non-

recurring gain or loss that is separately identified and quantified in CBE’s financial statements. Notwithstanding the foregoing, the Committee may, at its sole discretion, modify the performance results upon which Awards are based under the Plan, to offset any unintended result(s) arising from events not anticipated when the Performance Goals were established, provided, that such adjustment is permitted by Section 162(m).

9.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or otherwise, determine the manner of payment of Awards of Performance Shares and other terms, conditions or restrictions, if any, on any Award of Performance Shares, provided they are consistent with the Plan.

X. Dividends

Upon issuance of Performance Shares earned under the Plan, the Company also shall pay to the Participant an amount equal to the aggregate amount of dividends that the Participant would have received had the Participant been the owner of record of such earned Performance Shares during the Performance Period. Upon the grant of restricted stock units, the Committee may, in its discretion, provide for the accrual or payment of dividends that the Participant would have received had the Participant been the owner of record of the underlying Shares during the vesting period.

XI. Deferrals and Settlements

The Committee may require or permit Participants to elect to defer the issuance of Shares or the settlement of Awards in cash as set out in any Award Agreement or under such administrative policies as it may establish under the Plan. It also may provide that deferred settlements include the payment or crediting of interest on the deferral amounts, or the payment or crediting of Dividend Equivalents where the deferral amounts are denominated in Shares.

XII. Termination of Employment

Upon the termination of employment by a Participant, any unexercised, deferred or unpaid Awards shall be treated as provided in the specific Award Agreement evidencing the Award, except that the Committee may, in its discretion, accelerate the vesting or exercisability of an Award, eliminate or make less restrictive any restrictions contained in an Award, waive any restriction or other provision of this Plan or an Award or otherwise amend or modify the Award in any manner that is either: (i) not adverse to such Participant; or (ii) consented to by such Participant.

XIII. Transferability and Exercisability

Awards granted under the Plan shall not be transferable or assignable other than: (i) by will or the laws of descent and distribution; (ii) by gift or other transfer of an Award (other than an Incentive Stock Option unless permitted by the Code) to any trust or estate in which the original Award recipient or such recipient’s spouse or other immediate relative has a substantial

beneficial interest, or to a spouse or other immediate relative, provided that any such transfer is permitted subject to Rule 16b-3 issued pursuant to the Exchange Act as in effect when such transfer occurs and the Board does not rescind this provision prior to such transfer; or (iii) pursuant to a qualified domestic relations order (as defined by the Code). However, any Award so transferred shall continue to be subject to all the terms and conditions contained in the Award Agreement.

XIV. Adjustments

14.1 The existence of outstanding Awards shall not affect in any manner the right or power of CBE or its shareholders to make or authorize: (i) any adjustments, recapitalizations, reorganizations or other changes in the capital stock of CBE or its business; (ii) any merger or consolidation of CBE; (iii) any issuance of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock); (iv) the dissolution or liquidation of CBE, or any sale or transfer of all or any part of its assets or business; or (v) any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above.

14.2 In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment may be made in (i) the aggregate number and/or kind of Shares or other property reserved for issuance under the Plan and (ii) the number, kind and/or exercise price of Shares or other property subject to outstanding Awards granted under the Plan, including but not limited to, the substitution of new options for previously issued Stock Options, in each case as may be determined by the Committee in its sole discretion. Such other equitable substitutions or adjustments may be made as determined by the Committee in its sole discretion. “Change in Capitalization” means any increase, reduction, change or exchange of Shares for a different number or kind of shares or other securities or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise; or any other corporate action, such as declaration of a special dividend, that affects the capitalization of CBE.

XV. Withholding Taxes

The Company shall have the right to deduct from any payment to be made pursuant to the Plan the amount of any taxes required by law to be withheld therefrom, or to require a Participant to pay to the Company such amount required to be withheld prior to the issuance or delivery of any shares of Common Stock or the payment of cash under the Plan. The Committee may, in its discretion, permit a Participant to elect to satisfy such withholding obligation by (i) having the Company retain the number of shares of Common Stock, or (ii) tendering the number of shares of Common Stock, in either case, whose Fair Market Value equals the amount required to be withheld. Any fraction of a share of Common Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash, to or by the Participant, as the case may be.

XVI. Regulatory Approvals and Listings

Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates evidencing Shares under this Plan prior to: (i) the obtaining of any approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable; (ii) the listing of such Shares on the Stock Exchange; and (iii) the completion of any registration or other qualification of the Shares under any state or federal law or ruling of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable.

XVII. No Right to Continued Employment or Grants

No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or its subsidiaries or affiliates. Further, the Company and its subsidiaries and affiliates expressly reserve the right at any time to terminate the employment of any Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder.

XVIII. Change in Control

18.1 Vesting and Deferral.

(i) Vesting. Immediately upon a Change in Control, all outstanding Awards shall vest automatically, all forfeiture restrictions shall lapse and all Performance Share Awards shall be deemed earned at the commendable Performance Goal level.

(ii) Deferral. In connection with a Change in Control, the Committee may permit Participants to change a prior deferral election with respect to amounts deferred pursuant to Article XI of the Plan, under such administrative policies as the Committee may establish under the Plan, which policies shall not be inconsistent with the provisions of Article XI of the Plan. Accounts denominated in cash immediately prior to a Change in Control shall continue to be denominated in cash following a Change in Control. Accounts denominated in Shares immediately prior to a Change in Control shall, following such Change in Control, be denominated in (a) such form of consideration as the Participant would have received had the Participant been the owner of record of such Shares at the time of such Change in Control, in the case of a Change in Control With Consideration and (b) Shares, in the case of a Change in Control Without Consideration.

(iii) Definitions. “Change in Control With Consideration” shall mean a Change in Control in which Shares are exchanged or surrendered for shares, cash or other property. “Change in Control Without Consideration” shall mean a Change in Control

pursuant to which Shares are not exchanged or surrendered for shares, cash or other property.

18.2 Payment and Rollover.

(i) Payment of Deferral Accounts. In the absence of a timely deferral election (or redeferral election, as the case may be) by a Participant, the Company shall, within 10 days after the occurrence of a Change in Control, (a) issue, or cause to be issued, for any Shares credited to a Participant’s deferral account, (1) such form of consideration as the Participant would have received had the Participant been the owner of record of such Shares at the time of such Change in Control, in the case of a Change in Control With Consideration and (2) Shares, in the case of a Change in Control Without Consideration and (b) make, or cause to be made, a cash lump sum payment to the Participant for any deferred cash Awards and any accrued interest and Dividend Equivalents.

(ii) Payment of Restricted Stock Awards and Performance Share Awards. With respect to outstanding Restricted Stock Awards and Performance Share Awards deemed earned pursuant to Section 18.1 of the Plan, the Company shall, within 10 days after the occurrence of a Change in Control, (a) issue or cause to be issued, for any Shares covered by such Awards, (i) such form of consideration as the Participant would have received had the Participant been the owner of record of such Shares at the time of such Change in Control, in the case of a Change in Control With Consideration and (ii) Shares, in the case of a Change in Control Without Consideration and (b) make, or cause to be made, a lump sum cash payment to the Participant for any accrued interest and Dividend Equivalents.

(iii) Stock Option Rollover or Cash-Out. With respect to outstanding Stock Options which have vested pursuant to Section 18.1 of the Plan, unless the Committee has determined to make an equitable adjustment or substitution of such Stock Options pursuant to Section 14.2 of the Plan as a result of the Change in Control, upon a Change in Control the Company shall cancel such Stock Options and, within 10 days thereafter, the Company shall make or cause to be made a cash payment to each holder thereof in an amount equal to the excess, if any, of the Change in Control Price over the option exercise price, multiplied by the number of Shares subject to such Stock Option.

18.3 It is recognized that under certain circumstances: (a) payments or benefits provided to a Participant might give rise to an “excess parachute payment” within the meaning of Section 280G of the Code; and (b) it might be beneficial to a Participant to disclaim some portion of the payment or benefit in order to avoid such “excess parachute payment” and thereby avoid the imposition of an excise tax resulting therefrom; and (c) under such circumstances it would not be to the disadvantage of the Company or CBE to permit the Participant to disclaim any such payment or benefit in order to avoid the “excess parachute payment” and the excise tax resulting therefrom.

Accordingly, the Participant may, at the Participant’s option, exercisable at any time or from time to time, disclaim any entitlement to any portion of the payment or benefits arising under this Plan which would constitute “excess parachute payments,” and it shall be the Participant’s choice as to which payments or benefits shall be so surrendered, if and to the extent that the Participant exercises such option, so as to avoid “excess parachute payments.”

18.4 The granting of Awards under the Plan shall in no way affect the right of the Company or CBE to adjust, reclassify, reorganize or otherwise change its capital or business structures or to merge, consolidate, dissolve, liquidate, sell or transfer all or any portion of its business or assets.

XIX. Amendment, Modification, Suspension
or Termination

The Board may amend, modify, suspend or terminate (individually or in the aggregate, a “Change”) this Plan for any purpose except that: (i) no Change that would impair the rights of any Participant under any Award previously granted to such Participant shall be made without such Participant’s consent, (ii) no Change shall be effective prior to approval by CBE’s shareholders to the extent such approval is required: (a) pursuant to Rule 16b-3 in order to preserve the applicability of any exemption provided by such rule to any Award then outstanding (unless the holder of such Award consents); (b) pursuant to Section 162(m) of the Code; or (c) otherwise required by applicable legal requirements including applicable requirements of the Stock Exchange on which CBE is listed and (iii) following a Change in Control, the terms and conditions of deferrals under the Plan may not be changed to the detriment of any Participant without such Participant’s written consent.

XX. Governing Law

The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Ohio and applicable Federal law.

XXI. Rights as Shareholder

Except as otherwise provided in the Award Agreement, a Participant shall have no rights as a shareholder until he or she becomes the holder of record.

XXII. Other Benefit and Compensation Programs

Unless otherwise specifically provided to the contrary in the relevant plan, program or practice, settlements of Awards received by Participants under the Plan shall not be deemed a part of a Participant’s regular, recurring compensation for purposes of calculating payments or benefits from any Company or CBE benefit plan, program or practice or any severance pay law of any country. Further, the Company and CBE may adopt other compensation programs, plans or arrangements as it deems appropriate or necessary.

XXIII. Unfunded Plan

Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any Participant or other person. To the extent any person holds any rights by virtue of an Award granted under the Plan, such rights (unless otherwise determined by the Committee) shall be no greater than the rights of an unsecured general creditor of the Company.

XXIV. Use of Proceeds

The cash proceeds received by the Company from the issuance of Shares pursuant to Awards under the Plan shall constitute general funds of the Company.

XXV. Successors and Assigns

The Plan shall be binding on all successors and assigns of a Participant, including, without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant’s creditors.

XXVI. Effective Date

This Plan shall be effective as of the date it is approved by the Board of Directors of CBE. Notwithstanding the foregoing, the authorization of an additional 5,000,000 Shares available for Awards under the Plan and the extension of the Plan’s term to November 7, 2010 is expressly conditioned upon approval by CBE’s shareholders at the 2004 annual meeting. If the shareholders of CBE shall fail to approve the authorization of such additional Shares and extension of the Plan’s term, any grants of Awards hereunder shall be null and void to the extent the Awards are made from such additional Shares. Subject to earlier termination pursuant to Section XIX, the term of the Plan shall be extended from November 7, 2005 to November 7, 2010. After termination of the Plan, no future Awards may be granted but previously granted Awards shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the Plan.

XXVII. Interpretation

The Plan as applicable to certain employees is designed and intended to comply with Rule 16b-3 promulgated under the Exchange Act and with Section 162(m) of the Code, and all provisions hereof shall be construed in a manner to so comply with respect to such employees.

EX-10.5 7 h25228exv10w5.htm FORM OF MANAGEMENT CONTINUITY AGREEMENT exv10w5

EXHIBIT 10.5

MANAGEMENT CONTINUITY AGREEMENT

THIS AGREEMENT, dated as of January 1, 2005 is made by and between Cooper Industries, Ltd., a Bermuda corporation (“Cooper”), Cooper US, Inc., a Delaware corporation (the “Company”), and _____ (the “Executive”).

WHEREAS, the Company is a significant subsidiary of Cooper and Executive is employed by the Company in a key management position; and

WHEREAS, Cooper considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel of the Company; and

WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and

WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; and

WHEREAS, Cooper will derive substantial direct and indirect benefit from this Agreement as the Company’s parent and desires to guaranty the Company’s obligations hereunder in order to induce the Executive to enter into this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, Cooper, the Company and the Executive hereby agree as follows:

1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in Section 17 hereof.

2. Term of Agreement. The Term of this Agreement shall commence on the date hereof and shall continue in effect through December 31, 2005; provided, however, that commencing on January 1, 2006 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred. Notwithstanding any other provision hereof, (a) the Term shall expire upon any termination of the Executive’s employment prior to a Potential Change in Control and (b) the Term shall expire (and for purposes of the application of the provisions of the Agreement, shall be deemed to have expired) on the date (or scheduled date, as the case may be) of the Executive’s Retirement.

3. Company’s Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive’s covenants set forth

in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there has been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive’s employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.

4. The Executive’s Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive intends to remain in the employ of the Company until there occurs a Change in Control.

5. Compensation Other Than Severance Payments.

5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive’s full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive’s employment is terminated by the Company for Disability.

5.2 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination (without giving effect to any reduction in base salary, which reduction constitutes an event of Good Reason) or, if higher, the rate in effect immediately prior to the Change in Control, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company’s compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination (without giving effect to any reduction in compensation or benefits, which reduction constitutes an event of Good Reason) or, if more favorable to the Executive, as in effect immediately prior to the Change in Control.

5.3 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive’s normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination (without giving effect to any adverse change in such plans, programs and arrangements, which adverse change constitutes an event of Good Reason) or, if more favorable to the Executive, as in effect immediately prior to the Change in Control.

6. Severance Payments.

6.1 Subject to Section 6.2 hereof, if (i) the Executive’s employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death, Disability or Retirement, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 (“Severance Payments”) and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive’s employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive’s employment is terminated by the Company without Cause after the occurrence of a Potential Change in Control and prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control or (ii) the Executive terminates his employment for Good Reason after the occurrence of a Potential Change in Control and prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person.

(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to _______ [ ] (or, if less, the number of full and partial years between the Date of Termination and the Executive’s scheduled date of Retirement) times the sum of (i) the Executive’s base annual salary as in effect immediately prior to the Date of Termination (without giving effect to any reduction in base annual salary, which reduction constitutes an event of Good Reason) or, if higher, in effect immediately prior to the Change in Control, and (ii) the higher of (A) the average annual bonus earned by the Executive pursuant to the annual bonus or incentive plan maintained by the Company in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination (without giving effect to any reduction in bonus caused by an adverse change in the Executive’s bonus plan participation, which adverse constitutes an event of Good Reason) or, if higher, immediately prior to the fiscal year in which occurs the Change in Control or (B) the Executive’s target annual bonus for the fiscal year in which occurs the Date of Termination (without giving effect to any reduction in bonus caused by an adverse change in the Executive’s bonus plan participation, which adverse change constitutes an event of Good Reason) or, if higher, the fiscal year in which occurs the Change in Control.

(B) For the [ ] month period (or, if less, the number of months between the Date of Termination and the Executive’s scheduled date of Retirement) immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents with life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination (without giving effect to any reduction in benefits, which reduction constitutes an event of Good Reason) or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the Change in Control, at no greater cost to the Executive than the cost to the Executive immediately prior to such date; provided, however, that, unless the Executive consents to a different method (after taking into account the effect of such method on the calculation of “parachute payments” pursuant to Section 6.2 hereof), such health insurance

benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1 (B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the _______ [ ] (or, if less, the number of months between the Date of Termination and the Executive’s scheduled date of Retirement) month period following the Executive’s termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the date on which the Change in Control occurs. If the Severance Payments shall be decreased pursuant to Section 6.2 hereof, and the Section 6.1(B) benefits which remain payable after the application of Section 6.2 hereof are thereafter reduced pursuant to the immediately preceding sentence, the Company shall, no later than five (5) business days following such reduction, pay to the Executive the least of (a) the amount of the decrease made in the Severance Payments pursuant to Section 6.2 hereof, (b) the amount of the subsequent reduction in these Section 6.1(B) benefits, or (c) the maximum amount which can be paid to the Executive without being, or causing any other payment to be, nondeductible by reason of section 280G of the Code.

In the event the Executive receives health insurance benefits during the _______ [ ] month period following the Date of Termination pursuant to the foregoing provisions of this Section 6.1(B), the Executive and his or her dependents shall continue to be eligible for health insurance benefits for up to an additional sixty (60) months, provided however, that no benefits will be provided (i) if health insurance benefits are available to the Executive through another employer during such period, or (ii) after the insured individual reaches age 65. Such health insurance benefits shall be substantially similar to, and have no greater cost to the Executive than those in effect for the ________ [ ] month period following the Date of Termination.

(C) Notwithstanding any provision of any annual incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the product of (i) the target bonus to which the Executive would have been entitled under the Company’s annual incentive plan in respect of the year in which the Date of Termination occurs and (ii) a fraction, the numerator of which shall be the number of months (including fractions thereof) from the first day of the fiscal year during which the Date of Termination occurs to the Date of Termination, and the denominator of which shall be twelve (12); provided, however, that if the Date of Termination occurs during the same year as the Change in Control, the payment under this Section 6.1(C) shall be offset by any payments received under the Company’s annual incentive plan in connection with such Change in Control.

(D) In addition to the retirement benefits to which the Executive is entitled under each Pension Plan or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (i) the pay related credits the Executive would have accrued under the Salaried Employees’ Retirement Plan of Cooper Industries and the Cooper Industries Supplemental Excess Defined Benefit Plan; and (ii) the Company-Matching Contributions the Executive would have accrued under the Cooper Industries Savings and Stock Ownership Plan and the Cooper Industries Supplemental Excess Defined Contribution Plan (the plans referred to in subsections (i) and (ii) hereof, “The Plans”), in each case, during the

[ ] month (or, if less, the number of months between the Date of Termination and the Executive’s scheduled date of Retirement) period immediately following the Executive’s Date of Termination based upon: (1) the terms and provisions of The Plans as in effect immediately prior to the Change in Control; (2) the lump sum payment set forth in Section 6.1(A) hereof, which lump sum shall be deemed to have been earned ratably over such period; and (3) the assumption that the Executive was making the maximum allowable pre-tax contributions under The Plans during such period.

(E) The Company shall provide the Executive with outplacement services suitable to the Executive’s position for a period of one year or, if earlier, until the first acceptance by the Executive of an offer of employment.

(F) Cooper shall continue to maintain officers’ indemnification insurance for the Executive for a period of five years following the Date of Termination, the terms and conditions of which shall be no less favorable than the terms and conditions of the officers’ indemnification insurance maintained by Cooper for the Executive immediately prior to the date on which the Change in Control occurs.

6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive’s employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called “Total Payments”) will be subject (in whole or part) to the Excise Tax, then, subject to the provisions of subsection (B) of this Section 6.2, the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income tax which could be obtained from deduction of such state and local taxes.

(B) In the event that the amount of the Total Payments does not exceed 110% of the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (the “Safe Harbor”), then subsection (A) of this Section 6.2 shall not apply and the noncash Severance Payments shall first be reduced (if necessary, to zero), and the cash Severance Benefits shall thereafter be reduced (if necessary, to zero) so that the amount of the Total Payments is equal to the Safe Harbor; provided, however, that the Executive may elect to have the cash Severance Payments reduced (or eliminated) prior to any reduction of the noncash Severance Payments.

(C) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as “parachute payments” within the meaning of section 280G(b)(2) of the Code, unless in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, Cooper’s independent auditor (the “Auditor”), such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all “excess parachute payments” within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section 6.2(C) and such supporting materials as are reasonably necessary for the Executive to evaluate the Company’s calculations. If the Executive disputes the Company’s calculations (in whole or in part), the reasonable opinion of Tax Counsel with respect to the matter in dispute shall prevail.

(D) In the event that (i) amounts are paid to the Executive pursuant to subsection (A) of this Section 6.2, (ii) the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, and (iii) after giving effect to such redetermination, the Severance Payments are to be reduced pursuant to subsection (B) of this Section 6.2, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in (i) no portion of the Total Payments being subject to the Excise Tax and (ii) a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that (x) the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment) and (y) after giving effect to such redetermination, the Severance Payments should not have been reduced pursuant to subsection (B) of this Section 6.2, the Company shall make an additional Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which the Company had not previously made a Gross-Up Payment (plus any interest, penalties or additions payable by the Executive with respect to such excess and such portion) within five (5) business days following the time that the amount of such excess is finally determined.

6.3 The payments provided in subsections (A), (C) and (D) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments, and the limitations on such payments set forth in Section 6.2 hereof, cannot be finally determined on or before such

day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder [or on all such payments to the extent the Company fails to make such payments when due] at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).

6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive’s written request(s) for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

7. Termination Procedures and Compensation During Dispute.

7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from the Company to the Executive (or in the case of a termination for Good Reason, from the Executive to the Company) in accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.

7.2 Date of Termination. “Date of Termination,” with respect to any purported termination of the Executive’s employment after a Change in Control and during the Term, shall mean (i) if the Executive’s employment is terminated for Disability, thirty (30) days after Notice

of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive’s duties during such thirty (30) day period), and (ii) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).

7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.

7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.

8. No Mitigation. The Company agrees that, if the Executive’s employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than Section 6.1(B) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

9. Successors; Binding Agreement.

9.1 In addition to any obligations imposed by law upon any successor to Cooper or the Company, Cooper or the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Cooper or the Company, as the case may be, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Cooper or the Company would be

required to perform it if no such succession had taken place. Failure of Cooper or the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive’s employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.

9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive’s estate.

10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive’s signature on the final page hereof and, if to Cooper or the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

To the Company:
Cooper US, Inc.
P.O. Box 4446
Houston, Texas 77210-4446
Attention: Senior Vice President, Human Resources

To Cooper:
Cooper Industries, Ltd.
P.O. Box 4446
Houston, Texas 77210-4446
Attention: General Counsel

11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and authorized officers of Cooper and the Company. No waiver by any party hereto at any time of any breach by another party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by any party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the

Executive’s employment with the Company is terminated on or following a Change in Control by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be reduced to the extent necessary so that the Company may satisfy any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of Cooper, the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.

12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

14. Settlement of Disputes; Arbitration.

14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive’s claim has been denied.

14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Houston, Texas in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive’s right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

14.3 The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of Executive’s employment, or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement. Such payment shall be made within five (5) business days after delivery of the Executive’s written request for payment, accompanied by such evidence or fees and expenses incurred as the Company reasonably may require.

15. Termination of Prior Management Continuity Agreement. This Agreement supercedes any Management Continuity Agreement previously executed by Cooper Industries, Inc. and the Executive and any such previous agreement is terminated effective as of the date hereof.

16. Guarantee by Cooper. Cooper, as direct obligor and not merely as a surety, absolutely and unconditionally guarantees the punctual payment, performance and observance of each and every covenant, agreement, duty or any other obligation of the Company under or arising out of this Agreement (collectively, the “Guaranteed Obligations”). This is an irrevocable and continuing guarantee of payment and performance and not merely a guarantee of collection and shall remain in full force and effect until the Guaranteed Obligations have been satisfied, paid and performed in full. Cooper waives any right to require that an Executive proceed against any other person or entity or asset liable on or securing the Guaranteed Obligations or pursue or exhaust any other remedy whatsoever. To the fullest extent permitted by applicable law, Cooper further waives any legal or equitable defense to the enforceability of its obligations hereunder, and agrees that its obligations shall be absolute and unconditional and shall not be affected or discharged by any circumstance, act or event whatsoever (including without limitation the insolvency, voluntary or involuntary bankruptcy, liquidation, dissolution, winding up, merger, consolidation or reorganization of the Company), except payment and performance in full of the Guaranteed Obligations.

17. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:

(A) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

(B) “Auditor” shall have the meaning set forth in Section 6.2 hereof.

(D) “Beneficial Owner” shall have the meaning set forth in Rule 13d3 under the Exchange Act.

(E) “Board” shall mean the Board of Directors of Cooper.

(F) “Cause” for termination by the Company of the Executive’s employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x)

no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.

(G) A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Cooper (not including in the securities beneficially owned by such Person any securities acquired directly from Cooper or its Affiliates) representing 25% or more of the combined voting power of Cooper’s then outstanding securities (other than Cooper’s Class B Common Shares), excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or

(II) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cooper) whose appointment or election by the Board or nomination for election by Cooper’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

(III) there is consummated a merger or consolidation of Cooper or any direct or indirect subsidiary of Cooper with any other corporation, other than (i) a merger or consolidation which results in the directors of Cooper immediately prior to such merger or consolidation continuing to constitute at least a majority of the board of directors of Cooper, the surviving entity or any parent thereof, or (ii) a merger or consolidation effected to implement a recapitalization of Cooper (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Cooper (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Cooper or its Affiliates) representing 25% or more of the combined voting power of Cooper’s then outstanding securities (other than Cooper’s Class B Common shares); or

(IV) the shareholders of Cooper approve a plan of complete liquidation or dissolution of Cooper or there is consummated an agreement for the sale or disposition by Cooper of all or substantially all of Cooper’s assets, other than a sale or disposition by Cooper of all or substantially all of Cooper’s assets to an entity, at least 60% of the combined voting power of the voting securities of

which are owned by shareholders of Cooper in substantially the same proportions as their ownership of Cooper immediately prior to such sale.

(H) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(I) “Company” shall mean Cooper US, Inc. and, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise.

(J) “Cooper” shall mean Cooper Industries, Ltd., a Bermuda corporation and, except in determining under Section 17(G) hereof whether any Change in Control has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise.

(K) “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.

(L) “Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.

(M) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(N) “Excise Tax” shall mean any excise tax imposed under section 4999 of the Code.

(O) “Executive” shall mean the individual named in the first paragraph of this Agreement.

(P) “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence (without the Executive’s express written consent) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a “Change in Control” as references to a “Potential Change in Control”), of any one of the following acts by Cooper or the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

(I) the assignment to the Executive of any duties inconsistent with the Executive’s status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities or

reporting relationship from those in effect immediately prior to the Change in Control;

(II) a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time;

(III) the relocation of the Executive’s principal place of employment to a location which increases the Executive’s one-way commuting distance by more than 50 miles or the Company’s requiring the Executive to be based anywhere other than the Executive’s principal place of employment immediately prior to the Change in Control (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations immediately prior to the Change in Control;

(IV) the failure by the Company to pay to the Executive any portion of the Executive’s current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due, unless paid by Cooper pursuant to Section 16 of this Agreement;

(V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive’s total compensation, including but not limited to the Stock Incentive Plan, the Amended and Restated Management Annual Incentive Plan and the Management Incentive Compensation Deferral Plan or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed immediately prior to the Change in Control;

(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company’s pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control, the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is

entitled on the basis of years of service with the Company in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control;

(VII) any purported termination of the Executive’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive’s right to terminate the Executive’s employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness. The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder; or

(VIII) any failure of Cooper or the Company to obtain assumption of this Agreements, as set forth in Section 9.1 hereof.

For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.

(Q) “Gross-Up Payment” shall have the meaning set forth in Section 6.2 hereof.

(R) “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.

(S) “Pension Plan” shall mean any tax-qualified, supplemental or excess benefit pension plan maintained by the Company and any other plan or agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits.

(T) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Cooper or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of Cooper in substantially the same proportions as their ownership of Cooper stock or (v) any individual, entity or group whose ownership of Cooper securities is reported on Schedule 13G pursuant to Rule 13d-1 promulgated under the Exchange Act (but only for so long as such ownership is so reported).

(U) “Potential Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(I) Cooper enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

(II) Cooper or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of Cooper representing 15% or more of either the then outstanding Class A Common Shares of Cooper or the combined voting power of Cooper’s then outstanding securities other than Cooper’s Class B Common Shares (not including in the securities beneficially owned by such Person any securities acquired directly from Cooper or its Affiliates); or

(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(V) “Retirement” shall mean the termination of the Executive’s employment in accordance with the Company’s mandatory retirement policy as in effect immediately prior to the Change in Control.

(W) “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.

(X) “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.

(Y) “Term” shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).

(Z) “Total Payments” shall mean those payments so described in Section 6.2 hereof.


COOPER INDUSTRIES, LTD		COOPER US, INC.

By:		By:

Name:	H. John Riley, Jr.	Name:	David R. Sheil
Title:	Chairman and Chief	Title:	Senior Vice President,
	Executive Officer		Human Resources and
			Chief Administrative Officer


		EXECUTIVE

		Address

EX-12 8 h25228exv12.htm COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES exv12

Exhibit 12

COOPER INDUSTRIES, LTD.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
(Unaudited)


	Three Months Ended
	March 31,						Year Ended December 31,
	2005			2004			2004			2003			2002			2001			2000
Interest Expense	$	17,800		$	17,100		$	68,100		$	74,100		$	74,500		$	84,700		$	100,300

Capitalized Interest		—			—			—			—			—			1,462			3,946

Estimated Interest Portion of Rent Expense		2,318			2,831			11,666			12,183			14,679			13,369			15,614


Fixed Charges	$	20,118		$	19,931		$	79,766		$	86,283		$	89,179		$	99,531		$	119,860


Income From Continuing Operations Before Income Taxes	$	111,900		$	97,100		$	428,500		$	346,500		$	280,200		$	316,400		$	549,900

Add: Fixed Charges		20,118			19,931			79,766			86,283			89,179			98,069			115,914

Less: Equity in (Earnings) Losses of Less Than 50% Owned Companies		(189	)		(688	)		(2,903	)		(2,534	)		(2,969	)		(2,922	)		(3,367	)


Earnings Before Fixed Charges	$	131,829		$	116,343		$	505,363		$	430,249		$	366,410		$	411,547		$	662,447


Ratio of Earnings to Fixed Charges		6.6x			5.8x			6.3x			5.0x			4.1x			4.1x			5.5x

EX-23 9 h25228exv23.htm CONSENT OF BATES WHITE, LLC exv23

EXHIBIT 23

May 3, 2005

Cooper Industries, Ltd.
600 Travis, Suite 5800
Houston, Texas 77002-1001

Ladies and Gentlemen:

We consent to the incorporation by reference in the following Registration Statements of Cooper Industries, Ltd. (the “Company”) and/or Cooper Industries, Inc., as applicable, and in each related Prospectus of the use of our name and the reference to an analysis, with which our firm assisted, concerning the contingent liability exposure of the Company for certain asbestos-related claims, under “Part I; Item 1. Financial Statements; Note 12. Charge Related to Discontinued Operations”, and under “Part II — Other Information; Item 1. Legal Proceedings” included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.


No. 2-33-14542		Form S-8 Registration Statement for Cooper Industries, Inc. 1989 Employee Stock Purchase Plan

No. 333-02847		Form S-8 Registration Statement for Cooper Industries, Inc. Amended and Restated Directors Stock Plan

No. 333-120337		Form S-8 Registration Statement for Cooper Industries, Inc. Amended and Restated Stock Incentive Plan

No. 333-24237		Form S-3D Registration Statement for Cooper Industries, Inc. Dividend Reinvestment and Stock Purchase Plan

No. 333-101451		Form S-3D Registration Statement for Cooper Industries, Ltd. Dividend Reinvestment and Stock Purchase Plan

No. 333-51439		Form S-8 Registration Statement for Cooper Industries, Inc. Director’s Retainer Fee Stock Plan

No. 333-51441		Form S-8 Registration Statement for Cooper Industries, Inc. Amended and Restated Management Annual Incentive Plan

No. 333-37580		Form S-8 Registration Statement for Cooper (UK) Employee Share Purchase Plan

Sincerely,

/s/ Charles E. Bates

Charles E. Bates, Ph.D.
President and Senior Partner
Bates White, LLC

EX-31.1 10 h25228exv31w1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 302 exv31w1

Exhibit 31.1

Certifications

I, Kirk S. Hachigian, certify that:

1.   I have reviewed this report on Form 10-Q of Cooper Industries, Ltd.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 9, 2005		/s/ Kirk S. Hachigian
		Kirk S. Hachigian Chief Executive Officer, President and Chief Operating Officer

EX-31.2 11 h25228exv31w2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 302 exv31w2

Exhibit 31.2

I, Terry A. Klebe, certify that:


Date: May 9, 2005		/s/ Terry A. Klebe
		Terry A. Klebe Senior Vice President and Chief Financial Officer

EX-32.1 12 h25228exv32w1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 906 exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES — OXLEY ACT OF 2002

In connection with the Quarterly Report of Cooper Industries, Ltd. (the “Company”) on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kirk S. Hachigian, Chief Executive Officer, President and Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Kirk S. Hachigian
Kirk S. Hachigian Chief Executive Officer, President and Chief Operating Officer

May 9, 2005

EX-32.2 13 h25228exv32w2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 906 exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES — OXLEY ACT OF 2002

In connection with the Quarterly Report of Cooper Industries, Ltd. (the “Company”) on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry A. Klebe, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:


/s/ Terry A. Klebe
Terry A. Klebe Senior Vice President and Chief Financial Officer

May 9, 2005

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	•	Stock Options — a total of 1,500,000 Shares in a continuous five (5) year period.

	•	Restricted Stock and Performance Shares — the greater of 125,000 Shares per calendar year or a total of 500,000 Shares in a continuous four (4) year period.

	1.	I have reviewed this report on Form 10-Q of Cooper Industries, Ltd.;

	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.