UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 1-4329
COOPER TIRE & RUBBER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 34-4297750
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Lima and Western Avenues, Findlay, Ohio 45840
(Address of principal executive offices)
(Zip code)
(419) 423-1321
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Number of shares of common stock of registrant outstanding
at April 23, 1999: 75,837,268
1
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COOPER TIRE & RUBBER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per-share amounts)
March 31,
1999 December 31,
(Unaudited) 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 23,294 $ 41,966
Accounts receivable, less allowances
of $5,248 ($4,806 in 1998) 338,289 319,685
Inventories at lower of cost (last-in,
first-out) or market:
Finished goods 143,768 132,696
Work in process 19,193 20,368
Raw materials and supplies 28,951 33,322
--------- ---------
191,912 186,386
Prepaid expenses and deferred income taxes 21,729 21,436
--------- ---------
Total current assets 575,224 569,473
Property, plant and equipment - net 897,008 885,282
Intangibles and other assets 93,935 86,520
--------- ---------
$1,566,167 $1,541,275
LIABILITIES AND STOCKHOLDERS' EQUITY ========= =========
Current liabilities:
Notes payable $ 8,939 $ 8,129
Accounts payable 81,436 94,502
Accrued liabilities 88,999 87,274
Income taxes 17,002 2,834
Current portion of debt 242 249
--------- ---------
Total current liabilities 196,618 192,988
Long-term debt 205,218 205,285
Postretirement benefits other than pensions 153,001 151,520
Other long-term liabilities 48,497 48,741
Deferred income taxes 73,685 74,805
Stockholders' equity:
Preferred stock, $1 par value; 5,000,000 shares
authorized; none issued - -
Common stock, $1 par value; 300,000,000 shares
authorized; 83,824,868 shares issued
(83,781,058 in 1998) 83,825 83,781
Capital in excess of par value 4,103 3,296
Retained earnings 969,403 945,975
Cumulative other comprehensive income (12,419) (9,867)
--------- ---------
1,044,912 1,023,185
Less: 7,989,600 common shares in
treasury at cost (155,249) (155,249)
Deferred compensation on
restricted stock (515) -
--------- ---------
Total stockholders' equity 889,148 867,936
--------- ---------
$1,566,167 $1,541,275
<FN> ========= =========
See accompanying notes.
2
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(Dollar amounts in thousands except per-share amounts)
1999 1998
-------- --------
Revenues:
Net sales $467,887 $437,558
Other income 859 578
------- -------
468,746 438,136
Costs and expenses:
Cost of products sold 383,127 363,470
Selling, general and administrative 32,092 28,512
Interest 3,903 3,849
------- -------
419,122 395,831
------- -------
Income before income taxes 49,624 42,305
Provision for income taxes 18,233 15,780
------- -------
Net income 31,391 26,525
Other comprehensive income (loss):
Currency translation adjustment (2,552) 216
------ ------
Comprehensive income $28,839 $26,741
====== ======
Basic and diluted earnings per share $.41 $.34
=== ===
Weighted average number of
shares outstanding (000's) 75,877 78,848
====== ======
Dividends per share $.105 $.095
==== ====
<FN>
See accompanying notes.
3
COOPER TIRE & RUBBER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(Dollar amounts in thousands)
1999 1998
-------- --------
Operating activities:
Net income $31,391 $26,525
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 25,650 24,259
Deferred income taxes (1,861) 3,581
Changes in operating assets
and liabilities:
Accounts receivable (21,543) (14,558)
Inventories and prepaid expenses (6,813) (14,466)
Accounts payable and
accrued liabilities (10,556) (16,408)
Other liabilities 10,077 5,060
------- -------
Net cash provided by
operating activities 26,345 13,993
Investing activities:
Property, plant and equipment (39,304) (27,382)
Other - 160
------- -------
Net cash used in investing
activities (39,304) (27,222)
Financing activities:
Issuance of debt 1,072 900
Payment on debt (72) (346)
Payment of dividends (7,963) (7,482)
Issuance of common shares 336 27
------- -------
Net cash used in financing
activities (6,627) (6,901)
Effects of exchange rate changes on cash 914 95
------- -------
Changes in cash and cash equivalents (18,672) (20,035)
Cash and cash equivalents at
beginning of period 41,966 52,910
------- -------
Cash and cash equivalents at
end of period $23,294 $32,875
======= =======
Cash payments for interest $ 8,067 $ 8,185
======= =======
Cash payments for income taxes $ 5,567 $ 7,402
======= =======
<FN>
See accompanying notes.
4
COOPER TIRE & RUBBER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements at March 31, 1999 and for the
three-month periods ended March 31, 1999 and 1998 are unaudited and
include all adjustments, consisting only of normal recurring accruals,
which the Company considers necessary for a fair presentation of financial
position and operating results. The unaudited consolidated financial
statements have been prepared in accordance with Article 10 of Regulation
S-X and, therefore, do not contain all information and footnotes normally
contained in annual financial statements; accordingly, they should be read
in conjunction with the Financial Statements and notes thereto appearing
in the Annual Report on Form 10-K of the Company for the year ended
December 31, 1998.
2. The results of operations for the three-month period ended March 31,1999
are not necessarily indicative of those to be expected for the year ending
December 31, 1999.
3. Information on the Company's operating segments is as follows:
Three months ended March 31
1999 1998
-------- --------
Revenues from external customers:
Tires $352,062 $330,326
Engineered products 115,825 107,232
------- -------
Net sales $467,887 $437,558
Segment profit:
Tires $ 33,259 $ 29,797
Engineered products 15,506 11,931
------- -------
48,765 41,728
Other 859 577
------- -------
Income before income taxes $ 49,624 $ 42,305
4. During the first quarter of 1999 the Company adopted Statement of
Financial Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," requiring the capitalization of
certain costs previously expensed by the Company. The effect of adoption
was not material to the Company's consolidated financial position or
results of operations.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement will become effective
for fiscal years beginning after June 15, 1999, with earlier adoption
permitted. The Company is currently evaluating the effect of the
provisions of this Statement on its accounting and reporting policies, but
does not anticipate adoption of this Statement will have a material
adverse effect on the Company's consolidated financial position or results
of operations. The Company does not have derivative instruments at
March 31, 1999.
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net sales and earnings achieved new first quarter records for the three months
ended March 31, 1999. Net sales increased 6.9% when compared to the first
quarter of 1998. Shipments were strong for both engineered products and tires
during the quarter with increases in net sales of 8.0% and 6.6%, respectively,
from 1998. Other income was higher as compared to the 1998 period due to
higher amounts of interest income.
Cost of products sold, as a percent of net sales, decreased more than one
percent in the first quarter of 1999 as compared with the first quarter of
1998. Decreases in raw material costs and improvements in product mix were
partially offset by price concessions.
Selling, general and administrative expenses were higher for the quarter
compared to one year ago. As a percent of net sales, selling, general and
administrative expenses were 6.9% compared to 6.5% in 1998 due primarily to
costs related to the Company's national advertising program.
Interest expense was unchanged from the first quarter of 1998. The effective
income tax rate of 36.7% in 1999 is lower than the 37.3% in 1998 as a result
of foreign tax initiatives.
Segment profit for the quarter was $48.8 million in 1999, an increase of 16.9%
from $41.7 million reported in the first quarter of 1998. Tire operations
segment profit increased 11.6% from the first quarter of 1998 and engineered
products segment profit increased 30.0%. Income before income taxes for the
quarter increased 17.3% from the quarter one year ago. The 1999 quarter
benefited from strong sales, reductions in raw material costs and richer
product mix which were partially offset by a continuation of intense price
competition in the replacement tire market and price concessions to automotive
customers.
Working capital of $379 million is up slightly from December 31, 1998 and
March 31, 1998. The current ratio of 2.9 is down slightly from 3.0 at both
December 31, 1998 and March 31, 1998. Long-term debt, as a percent of total
capitalization, is 18.8% compared to 19.4% one year ago. The financial
position of the Company at March 31, 1999 continues to be excellent.
The cash flows generated by operating activities of $26 million during the
first three months of 1999 are higher than the $14 million for the three-month
period one year ago due primarily to the increase in income. Investments in
property, plant and equipment of $39 million compare to $27 million in last
year's quarter. Financing activities in 1999 and 1998 primarily reflect the
payment of dividends. The Company expects that available cash and existing
lines of credit will be sufficient to meet normal operating requirements over
the near term.
The Company has developed and initiated plans to address the possible
exposures related to the impact of the Year 2000 on its systems and computer
equipment, including those involved in its manufacturing operations. The
Company initiated its planning in 1995, commenced identification of exposures
in 1996, and began remediation of its systems in 1997. Other information
systems' projects were not significantly delayed as a result of the allocation
of resources to Year 2000 remediation.
The Year 2000 issue is the result of computer programs being written in the
past using two digits rather than four to define the applicable year.
Computer equipment and systems that have date-sensitive chips or codes may not
be able to correctly recognize a two-digit year in dates beyond December 31,
1999. There is potential for failure of systems and equipment around the
world due to this logic on January 1, 2000.
(continued)
6
The Company's key financial information and operational systems have been
assessed and detailed plans have been implemented to address modifications
required by December 31, 1999. The Company is on schedule with these plans,
with more than 90 percent of its originally non-compliant systems and
equipment now compliant, and expects remaining modifications to be completed
and tested by July 1999. The Company will continue to refine its contingency
plans in the event the remaining systems and equipment cannot be modified as
expected. In the event the Company is unable to modify its remaining non-
compliant systems and equipment, based upon currently available information,
management believes no material adverse impact on its operations would result.
The financial impact of making the required changes is comprised primarily of
internal costs and estimated to be less than $3 million. Internal costs and
other non-capital costs incurred to upgrade and replace systems have been
expensed as incurred since 1997. Capital expenditures required for Year 2000
remediation in 1998 and 1997 were not significant and are not anticipated to
be significant in 1999. These expenditures include amounts for upgrades of
manufacturing control systems, more powerful personal computers able to handle
upgrades to application software, and information systems' technical
infrastructure for the transfer of data between computers.
The Company continues to communicate with its significant suppliers and
customers to ensure they have appropriate plans to resolve Year 2000 issues
where failure of their systems could adversely affect the Company's
operations. Contingency plans have been developed to address potential
failures by these third parties. Certain electronic communication systems of
the Company's trading partners have been tested and are compliant and the
Company believes minimal risk exists for their failure on January 1, 2000.
The "most likely worst case scenario" for Year 2000 issues is the failure of
the systems and equipment of other parties throughout the world which could
result in the unavailability of global communications, financial resources,
transportation, critical raw materials, energy and other vital commercial
systems. The Company's ability to maintain its operations on domestic and
international levels could be disrupted by these failures until corrected.
Certain member states of the European Union adopted a common currency on
January 1, 1999 known as the euro. The many requirements for adoption of the
new currency include the single-document invoicing of customers in both the
euro and their domestic currency during a three-year transition period. After
2001 businesses must conduct all transactions in the euro and convert their
financial records and reports to be euro-based. Certain of the Company's
information systems have been converted for compliance with the requirements
of this new currency at minimal cost. The Company does not anticipate
adoption of the euro will have a material impact on the results of its
operations, financial position or liquidity.
Certain information set forth herein may constitute forward-looking statements
regarding events and trends which may affect the Company's future operating
results and financial position. Actual results may differ materially as a
result of factors over which the Company has no control. These risk factors
and additional information are included in the Company's reports on file with
the Securities and Exchange Commission.
7
Part II. OTHER INFORMATION
Item 6(a). Exhibits.
(10) Material Contracts
Employment agreement dated as of January 1, 1999 between Cooper
Tire & Rubber Company and Thomas A. Dattilo
(27) Financial Data Schedule
Item 6(b). Reports on Form 8-K.
No Form 8-K has been filed.
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 TIRE & RUBBER COMPANY
/S/ P. G. Weaver
---------------------
P. G. Weaver
Vice President and Chief
Financial Officer
(Principal Financial Officer)
/S/ E. B. White
-----------------
E. B. White
Corporate Controller
(Principal Accounting Officer)
April 30, 1999
--------------
(Date)
8
INDEX TO EXHIBITS
DESCRIPTION
Part II. Item 6(a).
(10) Employment agreement dated as of January 1, 1999 between Cooper Tire &
Rubber Company and Thomas A. Dattilo
(27) Financial Data Schedule
9
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of January 1, 1999, between COOPER TIRE & RUBBER
COMPANY, a Delaware corporation with its principal offices located at 701 Lima
Avenue, Findlay, Ohio, (the "Company"), and Thomas A. Dattilo, 26730 West
River Road, Perrysburg, Ohio 43551 ("Executive").
WITNESSETH:
----------
WHEREAS, the Executive has been employed by the Company in the capacity of
President and Chief Operating Officer, commencing on the date hereof;
WHEREAS, the Company desires to retain the services of the Executive in the
future; and
WHEREAS, the Executive desires to serve in the capacity of President and Chief
Operating Officer of the Company, pursuant to the terms and provisions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment and Duties.
(a) General. The Company hereby employs Executive and Executive agrees
upon the terms and conditions herein set forth to serve as President
and Chief Operating Officer and in such capacity, shall perform such
duties as may be delineated in the by-laws of the Company, and such
other duties, commensurate with Executive's title and position of
President and Chief Operating Officer, as may be assigned to Executive
from time to time by the Board of Directors of the Company (the
"Board") or such officer of the Company as may be designated by the
Board. If elected, Executive will serve as a member of the Board or
on committees of the Board.
(b) Exclusive Services. Throughout the Period (as defined in paragraph 2
below), Executive shall, except as may from time to time be otherwise
agreed in writing by the Company and during reasonable vacations and
unless prevented by ill health, devote his full-time and undivided
attention during normal business hours to the business and affairs of
the Company consistent with his senior executive position, shall in
all respects conform to and comply with the lawful and reasonable
directions and instructions given to him by the Board or such officer
of the Company as may be designated by the Board, and shall use his
best efforts to promote and serve the interests of the Company.
(c) Restrictions on Other Employment. Throughout the Period and provided
that such activities do not contravene the provisions of subparagraph
l(b) hereof or paragraph 5 hereof:
(i) Executive may engage in charitable and community affairs;
(ii) Executive may perform inconsequential services without specific
compensation therefor in connection with the management of
personal investments; and,
(continued)
10
(iii) Executive may, directly or indirectly, render services to any
other person or organization (including service as a member of
the Board of Directors of any other unaffiliated company), for
which he receives compensation, that is not in competition
with the Company, subject in each case to the approval of the
Board. Executive may retain all fees he receives for such
services, and the Company shall not reduce his compensation by
the amount of such fees. For purposes of this subparagraph
l(c)(iii) competition shall have the same meaning as intended
for the purposes of paragraph 5.
2. Term of Employment. Subject to the provisions of paragraph 4. hereof, the
Company shall retain Executive and Executive shall serve in the employ of
the Company for a period (the "Period") commencing on the date hereof
and continuing in effect through December 31, 2002; provided, however,
that commencing on January 1, 2000, and each January 1 thereafter until
the year in which Executive's 62nd birthday occurs, the Period shall
automatically be extended for one additional year unless, no later than
September 30 of the preceding year, the Company or Executive shall have
given notice to the other that it does not wish to extend this Agreement.
3. Compensation and Other Benefits. Subject to the provisions of this
Agreement, the Company shall pay and provide the following compensation
and other benefits to Executive during the Period as compensation for
services rendered hereunder:
(a) Base Salary. The Company shall pay to Executive an annual base
salary, as defined in the Company's Top Management Compensation Plan
adopted by the Board on April 28, 1973 (the "Compensation Plan"), at
the rate of $375,000 per annum, payable biweekly. The Company shall
be entitled to deduct or withhold all taxes and charges which the
Company may be required to deduct or withhold therefrom. The base
salary will be reviewed not less than annually by the Board or by the
Audit and Compensation Committee of the Board and may be increased,
but not decreased.
(b) Employee Benefit Plans. At all times during the Period, Executive
shall be provided the opportunity to participate in such pension and
welfare plans, programs and arrangements (the "Plans") as are
generally made available to executives of the Company. Unless
otherwise required by law, the Plans, when considered as a whole,
will provide for benefits to Executive no less favorable than those
currently provided.
(c) Incentive Compensation. The Company shall pay to Executive annual
incentive compensation under the system established by the
Compensation Plan.
4. Termination of Employment.
(a) Termination for Cause; Resignation Without Good Reason.
(i) If, prior to the expiration of the Period, Executive's
employment is terminated by the Company for Cause, as defined
in subparaqraph 4(a)(ii), or if Executive resigns from his
employment hereunder without Good Reason, as defined in
subparagraph 4(b)(vii) hereof, Executive shall not be
eligible to receive base salary under subparagraph 3(a) or to
participate in any Plans under subparagraph 3(b) with respect
to future periods after the date of such termination or
resignation except for the right to receive vested benefits
under any Plan in accordance with the terms of such Plan.
(continued)
11
However, Executive shall be eligible to receive a pro rata
portion of any incentive compensation for the Company's fiscal
year during which the date of termination or resignation
occurs, but not for any later years.
(ii) Termination for "Cause" shall mean termination of Executive's
employment with the Company by the Board because of:
(A) any act or omission constituting a material breach by
Executive of any of his significant obligations or
agreements under this Agreement or the continued failure
or refusal of Executive to adequately perform the duties
reasonably required hereunder which is materially
injurious to the financial condition or business
reputation of, or is otherwise materially injurious to,
the Company or any affiliate thereof, after notification
by the Board of such breach, failure or refusal and
failure of Executive to correct such breach, failure or
refusal within thirty (30) days of such notification
(other than by reason of the incapacity of Executive due
to physical or mental illness), or
(B) the commission by and conviction of Executive of a
felony, or the perpetration by and criminal conviction of
or civil verdict finding Executive committed a dishonest
act or common law fraud against the Company or any
affiliate thereof (for the avoidance of doubt, conviction
and civil verdict, in each case, shall mean when no
further appeals may be taken by Executive from such
conviction or civil verdict and such conviction or civil
verdict becomes final and binding upon Executive with no
further right of appeal), or
(C) any other willful act or omission which is materially
injurious to the financial condition or business
reputation of, or is otherwise materially injurious to,
the Company or any affiliate thereof, and failure of
Executive to correct such act or omission after
notification by the Board of any such act or omission.
Any notification to be given by the Board in accordance with
clause (A) or (C) of the preceding sentence shall specifically
identify the breach, failure, refusal, act or omission to
which the notification relates and, in the case of clauses (A)
and (C), shall describe the injury to the Company, and such
notification must be given within twelve (12) months of the
Board becoming aware, or within twelve (12) months of when the
Board should have reasonably become aware of the breach,
failure, refusal, act, or omission identified in the
notification. Notwithstanding paragraph 8, failure to notify
Executive within any such twelve (12) month period shall be
deemed to be a waiver by the Board of any such breach,
failure, refusal, act or omission by Executive and any such
breach, failure, refusal, act or omission by Executive shall
not then be determined to be a breach of this Agreement.
For the avoidance of doubt and for the purpose of determining
Cause pursuant to this subparagraph 4(a)(ii), the exercise of
business judgment by Executive shall not be determined to be
Cause under this subparagraph 4(a)(ii), even if such business
judgment materially injures the financial condition or
business reputation of, or is otherwise materially injurious
(continued)
12
to the Company or any affiliate thereof, unless such business
judgment by Executive was not made in good faith, or
constitutes willful or wanton misconduct, or was an
intentional violation of state or federal law.
(iii) The date of termination of employment by the Company under
this subparagraph 4(a) shall be the date specified in a
written notice of termination (which date shall be no earlier
than the date of furnishing such notice), or if no such date
is specified therein, the date of receipt by Executive of
such written notice of termination. The date of resignation
under this subparagraph 4(a) shall be two weeks after receipt
by the Company of written notice of resignation.
(b) Termination Without Cause; Resignation for Good Reason.
(i) Subject to the provisions of subparagraph 4(b)(iii) and
subparagraph 4(b)(vi), if, prior to the expiration of the
Period, Executive's employment is terminated by the Company
without Cause or if Executive resigns from his employment
hereunder for Good Reason as defined in subparagraph 4(b)(vii)
hereof, Executive shall be entitled to receive as "Severance
Benefits" biweekly payments at the rate of his average
compensation for the remainder of the Period. As used in this
subparagraph, "average compensation" means Executive's average
annual compensation, including any incentive compensation,
during the five (5) years prior to the year in which such
termination or such resignation occurs.
(ii) If Severance Benefits become payable to Executive under
subparagraph 4(b)(i),the Company shall, in addition to paying
Severance Benefits, pay or provide to Executive the payments
and benefits described below:
(A) The Company shall pay to Executive all legal fees and
expenses incurred by him as a result of or in connection
with his termination or resignation (including all such
fees and expenses, if any, incurred in contesting or
disputing any termination or in seeking to obtain or
enforce any right or benefit provided by this Agreement).
(B) For the remainder of the Period after such termination or
such resignation, the Company shall arrange to provide
executive with life, accident and health insurance
benefits substantially similar to those to which he was
entitled immediately prior to the termination or
resignation. Benefits otherwise receivable by Executive
pursuant to this subparagraph 4(b)(ii)(B) shall be
reduced to the extent comparable benefits are actually
received by Executive during the remainder of the
Period following his termination or resignation, and any
such benefits actually received by Executive shall be
reported to the Company.
(C) In addition to the pension benefits to which Executive is
entitled under the Company's Salaried Employees'
Retirement Plan and the Company's Nonqualified
Supplementary Benefit Plan or any successor plans
thereto which provide comparable benefits (the
"Retirement Plans"), the Company shall pay Executive in
one sum in cash within thirty (30) days following the
date of termination or resignation, a lump sum equal to
the actuarial equivalent of the excess of (1) the
(continued)
13
retirement pension (determined as a straight life
annuity commencing at age sixty-five (65)) which he
would have accrued under the terms of the Retirement
Plans (without regard to any amendment to such Retirement
Plans or other pension benefit program described in
subparagraph 4(b)(vii)(C) hereof), determined as if
Executive were fully vested thereunder and had
accumulated (after the date of termination or
resignation) twenty-four (24) additional months (or, if
greater, the number of months remaining in the Period) of
service credit thereunder at his highest annual rate of
compensation during the twelve (12) months immediately
preceding the date of termination or resignation (but in
no event shall Executive be deemed to have accumulated
additional months of service credit after his sixty-fifth
(65th) birthday), over (2) the retirement pension
(determined as a straight life annuity commencing at age
sixty-five (65)) which Executive had then accrued
pursuant to the provisions of the Retirement Plans. For
purposes of this subsection, "actuarial equivalent" shall
be determined using the same methods and assumptions
utilized under the Retirement Plans.
(D) Within thirty (30) days after termination of Executive's
employment described in subparagraph 4(b)(i) above, the
Company shall pay to Executive in cash an amount equal to
the aggregate of the difference between the exercise
price of each stock option granted to Executive prior to
the date of such termination, and the fair market value
of the Company's stock subject to the related option,
determined as of the date of such termination. Such cash
payment shall be deemed to be in lieu of and in
substitution for any right Executive may have to exercise
such stock option or a related stock appreciation right
under the terms of the relevant stock option plan
describing such rights, and Executive agrees to surrender
all stock options and related stock appreciation rights
being cashed out hereunder prior to receiving the cash
payment described above.
(iii) If, following a termination of employment without Cause or
resignation for Good Reason, Executive breaches the provisions
of paragraph 5 hereof, Executive shall not be eligible, as of
the date of such breach, for the payment of Severance Benefits
as provided in subparagraph 4(b)(i) and all obligations and
agreements of the Company to pay such Severance Benefits shall
thereupon cease.
(iv) The date of termination of employment by the Company under this
subparagraph 4(b) shall be the date specified in a written
notice of termination to Executive (which date shall be no
earlier than the date of furnishing such notice) or, if no such
date is specified therein, the date on which such notice is
given to Executive. The date of resignation by Executive under
this subparagraph 4(b) shall be two (2) weeks after the receipt
by the Company of written notice of resignation.
(v) Severance Benefits shall be paid in equal installments
commencing within thirty (30) days following the date of the
termination or resignation under subparagraph 4(b).
(vi) In the event that the Severance Benefits would not be
deductible in whole or in part in the calculation of Federal
income tax owed by the Company or any of its affiliates or any
(continued)
14
other person or entity making such payment or providing such
benefit by reason of Section 280G of the Internal Revenue Code
of 1986, as amended, (the "Code"), the Severance Benefits shall
be reduced until no portion of the Severance Benefits is not
deductible by reason of Section 280G of the Code; provided,
however, that the foregoing reduction shall be made only if and
to the extent that such reduction would result in an increase
in the aggregate payment and benefits to be provided to
Executive, determined on an after-tax basis (taking into
account the excise tax imposed pursuant to Section 4999 of the
Code, or any successor provision thereto, any tax imposed by
any comparable provision of state law, and any applicable
federal, state and local income or other taxes).
(vii) Executive shall be entitled to terminate his employment for
Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without Executive's express, prior written consent,
any of the following:
(A) a material breach by the Company of paragraph 1 or
paragraph 3 of this Agreement, including but not limited
to, the assignment to Executive of any duties inconsistent
with his status as President and Chief Operating Officer
of the Company, or his removal from such position, or a
substantial alteration in the nature or status of his
responsibilities from those described herein, except, in
each case, in connection with a promotion of Executive,
and the failure of the Company to remedy such breach
within thirty (30) days after receipt of written notice of
such breach from Executive;
(B) the relocation of the office of the Company where
Executive is employed to a location other than Findlay,
Ohio, except for required travel on the Company's business
to an extent reasonably required to perform his duties
hereunder;
(C) except as required by law, the failure by the Company to
continue to provide Executive with benefits at least as
favorable as those provided to him under the Plans, the
taking of any action by the Company which would directly
or indirectly materially reduce any of such benefits or
deprive Executive of any material fringe benefits enjoyed
by him or the failure by the Company to provide Executive
with the number of paid vacation days to which he 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 date of this Agreement; or
(D) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Agreement, as contemplated in paragraph 6
hereof or, if the business of the Company for which
Executive's services are principally performed is sold,
the purchaser of such business shall fail to agree to
assume this Agreement or to provide Executive with the
same or a comparable position, duties, benefits, and base
salary and incentive compensation as provided in paragraph
3 of this Agreement.
(E) The failure of the Board to elect Executive to the
position of Chairman of the Board and Chief Executive
Officer when such position is vacated by Patrick W. Rooney
for whatever reason.
(continued)
15
(F) Voluntary termination by Executive for any reason, or
without reason, during a period of three hundred sixty-
five (365) days from the date a change of control of the
Company has occurred. "Change of control", as used
herein, shall mean when any person (as a person is defined
in Section 13d-3 of the Securities Exchange Act of 1934,
as amended,) through or as a result of a merger,
consolidation or other business combination, tender or
exchange offer, open market purchases, privately
negotiated purchases, or otherwise, has become the
beneficial owner (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly
or indirectly without the express approval of the Board,
of at least 50% of the capital stock of the Company
entitled to vote for the election of directors of the
Company.
(c) Termination by Death. If Executive dies prior to the expiration of
the Period, his beneficiary or estate shall be entitled to receive
(i) for a period of 90 days beginning on the date of Executive's
death a biweekly amount equal to the biweekly amount paid to
Executive by the Company for the payroll period immediately
prior to his death, and (ii) any pro rata portion of Executive's
incentive compensation for the fiscal year in which Executive's
death occurs.
(d) Termination by Disability. If, prior to the expiration of the
Period, Executive becomes Disabled (as defined below), the Company
or Executive shall be entitled to terminate his employment, and
Executive shall be entitled to all available benefits under the
Plans, including any pro rata portion of Executive's incentive
compensation for the fiscal year in which Executive's disability
occurs.
Executive shall be deemed "Disabled" for purposes of this Agreement
when, and only when, he has been totally disabled by bodily injury or
disease so as to prevent him from being physically able to perform
the job duties as required under this Agreement, and such total
disability shall have continued for five (5) consecutive months, and,
in the opinion of a qualified physician selected by the Company, such
disability will presumably be permanent and continuous during the
remainder of Executive's life.
(e) Termination by Retirement. If, prior to the expiration of the
Period, Executive voluntarily elects to retire under the Company's
Salaried Employees' Retirement Plan, Executive's employment will be
terminated as of the date of such retirement.
(f) Mitigation. Nothing in this Agreement shall be construed to require
Executive to mitigate his damages upon termination of employment
without Cause or resignation for Good Reason.
5. Secrecy and Noncompetition.
(a) No Competing Employment. For so long as Executive is employed by the
Company and continuing for two (2) years after the termination of
such employment for any reason other than pursuant to subparagraph
4(b)(i) or (vii) hereof (such period being referred to hereinafter as
the "Restricted Period"), Executive shall not, unless he receives the
prior written consent of the Board, directly or indirectly, whether
as owner, consultant, employee, partner, venturer, agent, through
stock ownership (except ownership of less than one percent (1.0%) of
the number of shares outstanding of any securities which are publicly
traded), investment of capital, lending of money or property,
(continued)
16
rendering of services, or otherwise, compete with any of the
businesses engaged in by the Company or any subsidiary, affiliate or
predecessor of the Company ("Affiliate") at the time of the
termination of Executive's employment hereunder (such businesses are
herein after referred to as the "Business"), or assist, become
interested in or be connected with any Corporation, firm,
partnership, joint venture, sole proprietorship or other entity which
so competes with the Business. The restrictions imposed by this
subparagraph shall not apply to any geographic area in which neither
the Company nor any Affiliate is engaged in the Business.
(b) No Interference. During the Restricted Period, Executive shall not,
whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business
organization or entity (other than the Company), intentionally
solicit, endeavor to entice away from the Company or any Affiliate or
otherwise interfere with the relationship of the Company or any
Affiliate with, any person who is employed by or associated with the
Company or any Affiliate (including, but not limited to, any
independent sales representatives or organizations) or any person or
entity who is, or was within the then most recent 12-month period, a
customer or client of the Company or any Affiliate.
(c) Secrecy. Executive recognizes that the services to be performed by
him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder and his past employment with the
Company, he may acquire or has acquired confidential information and
trade secrets concerning the operation of the Company or any
Affiliate, the use or disclosure of which could cause the Company
substantial loss and damages which could not be readily calculated
and for which no remedy at law would be adequate. Accordingly,
Executive covenants and agrees with the Company that he will not at
any time, except in performance of Executive's obligations to the
Company hereunder or with the prior written consent of the Board,
directly or indirectly, disclose any secret or confidential
information that he may learn or has learned by reason of his
association with the Company or any Affiliate, or use any such
information to the detriment of the Company or any Affiliate. The
term "confidential information", includes, without limitation,
information not previously disclosed to the public or to the trade by
the Company's management with respect to the Company's or any
Affiliate's products, manufacturing processes, facilities and
methods, research and development, trade secrets, know-how and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, marketing plans or
strategies, financial information (including the revenues, costs or
profits associated with the Company's or any Affiliate's products),
business plans, prospects or opportunities. Executive understands
and agrees that the rights and obligations set forth in this
subparagraph 5(c) are perpetual and, in any case, shall extend beyond
the Restricted Period and Executive's employment hereunder.
(d) Exclusive Property. Executive confirms that all confidential
information is and shall remain the exclusive property of the
Company. All business records, papers and documents kept or made by
Executive relating to the business of the Company shall be and remain
the property of the Company. Upon the termination of his employment
with the Company or upon the request of the Company at anytime,
Executive shall promptly deliver to the Company, and shall not,
without the consent of the Board (which consent shall not be
unreasonably withheld), retain copies of, any written materials not
previously made available to the public, records and documents made
by Executive or coming into his possession concerning the business
(continued)
17
or affairs of the Company excluding records relating exclusively to
the terms and conditions of his employment relationship with the
Company. Executive understands and agrees that the rights and
obligations set forth in this subparagraph 5(d) are perpetual and, in
any case, shall extend beyond the restricted Period and Executive's
employment hereunder.
(e) Stock Ownership. Other than as specified in subparagraph l(c) or
5(a) hereof, nothing in this Agreement shall prohibit Executive from
acquiring or holding any issue of stock or securities of any company
or other business entity.
(f) Injunctive Relief. Without intending to limit the remedies available
to the Company, executive acknowledges that a breach of any of the
covenants contained in this paragraph 5 may result in material
irreparable injury to the Company for which there is no adequate
remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of such a breach or
threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction
restraining Executive from engaging in activities prohibited by this
paragraph 5 or such other relief as may be required to specifically
enforce any of the covenants in this paragraph 5.
(g) Extension of Restricted Period. In addition to the remedies the
Company may seek and obtain pursuant to subparagraph (f) of this
paragraph 5, the Restricted Period shall be extended by any and all
periods during which Executive shall be found by a court possessing
personal jurisdiction over him to have been in violation of the
covenants contained in this paragraph 5.
6. Successors; Assignability.
(a) By Executive. Neither this Agreement nor any right, duty, obligation
or interest hereunder shall be assignable or delegable by Executive
without the Company's prior written consent; provided, however, that
nothing in this paragraph shall preclude Executive from designating
any of his beneficiaries to receive any benefits payable hereunder
upon his death, or the executors, administrators, or other legal
representatives, from assigning any rights hereunder to the person or
persons entitled thereto.
(b) By the Company. 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 the
Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
Failure of 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 Executive to compensation from the
Company in the same amount and on the same terms as Executive would
be entitled to hereunder if Executive had terminated his employment
for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the Date of Termination or if earlier the date of
resignation specified in subparagraph 4(b)(iv). As used in this
Agreement, "Company," shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law,
or otherwise.
18
7. Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected,
that any term or provision hereof is invalid or unenforceable, (a) the
remaining terms and provisions hereof shall be unimpaired and (b) the
invalid or unenforceable term or provision shall be replaced by a term or
provision that is mutually agreeable to the parties hereto and is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.
8. Amendment; Waiver. This Agreement may not be modified, amended or waived
in any manner except by an instrument in writing signed by both parties
hereto. The waiver by either party of compliance with any provision of
this Agreement by the other party shall not operate or be construed as a
waiver of any other provision of this Agreement, or of any subsequent
breach by such party of a provision of this Agreement.
9. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in
accordance with the laws of the State of Ohio.
10. Notices. Any notice hereunder by either party to the other shall be given
in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or
mailed to Executive at the address specified under Executive's signature
hereto or such other address as Executive shall give notice in writing
in accordance herewith. If addressed to the Company, the notice shall be
delivered or mailed to the Company at its executive offices to the
attention of the Board. A notice shall be deemed given, if by personal
delivery, on the date of such delivery or, if by certified mail, on the
date shown on the applicable return receipt.
11. Previous Agreements. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not expressly set forth in this Agreement;
provided, however, that this Agreement shall not supersede or in any way
limit the rights, duties or obligations of the Employee or the Company
under the Plans.
12. Counterparts. This Agreement may be executed by either of the parties
hereto in counterpart, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same
instrument.
13. Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
19
IN WITNESS WHEREOF, the Company has caused the Agreement to be signed by its
officers pursuant to the authority of its Board, and Executive has executed
this Agreement, as of the day and year first written above.
COOPER TIRE & RUBBER COMPANY
/S/ P. W. Rooney
----------------------
Title: Chairman & CEO
/S/ John Fahl
----------------------
Title: Vice President
Thomas A. Dattilo
----------------------
(Executive)
/S/ Thomas A. Dattilo
----------------------
(Signature)
26730 W. River Road
----------------------
Perrysburg, OH 43551
----------------------
(Address)
20