Table of Contents
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware (State or other jurisdiction of incorporation or organization) |
13-3386776 (I.R.S. Employer Identification No.) |
|
| 21557 Telegraph Road, Southfield, MI (Address of principal executive offices) |
48034 (Zip code) |
(Registrant’s telephone number, including area code)
| Page No. | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 7 | ||||||||
| 28 | ||||||||
Item 3 - Quantitative and Qualitative Disclosures about Market Risk (included in Item 2) |
||||||||
| 45 | ||||||||
| 46 | ||||||||
| 48 | ||||||||
| 48 | ||||||||
| 49 | ||||||||
| 50 | ||||||||
| Long-Term Stock Incentive Plan 2005 Restricted Stock Unit Terms and Conditions | ||||||||
| Long-Term Stock Incentive Plan Stock Appreciation Rights Terms and Conditions | ||||||||
| Long-Term Stock Incentive Plan Supplemental Restricted Stock Unit Terms and Conditions | ||||||||
| Employment Agreement | ||||||||
| Employment Agreement | ||||||||
| Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer | ||||||||
| Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer | ||||||||
| Certification by Chief Executive Officer | ||||||||
| Certification by Chief Financial Officer | ||||||||
2
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3
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| October 1, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 135.4 | $ | 584.9 | ||||
Accounts receivable |
2,725.1 | 2,584.9 | ||||||
Inventories |
688.9 | 621.2 | ||||||
Recoverable customer engineering and tooling |
285.6 | 205.8 | ||||||
Other |
327.7 | 375.2 | ||||||
Total current assets |
4,162.7 | 4,372.0 | ||||||
LONG-TERM ASSETS: |
||||||||
Property, plant and equipment, net |
1,976.4 | 2,019.8 | ||||||
Goodwill, net |
2,294.7 | 3,039.4 | ||||||
Other |
545.8 | 513.2 | ||||||
Total long-term assets |
4,816.9 | 5,572.4 | ||||||
| $ | 8,979.6 | $ | 9,944.4 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Short-term borrowings |
$ | 42.7 | $ | 35.4 | ||||
Accounts payable and drafts |
3,036.6 | 2,777.6 | ||||||
Accrued liabilities |
1,210.4 | 1,202.1 | ||||||
Current portion of long-term debt |
7.6 | 632.8 | ||||||
Total current liabilities |
4,297.3 | 4,647.9 | ||||||
LONG-TERM LIABILITIES: |
||||||||
Long-term debt |
2,291.5 | 1,866.9 | ||||||
Other |
632.1 | 699.5 | ||||||
Total long-term liabilities |
2,923.6 | 2,566.4 | ||||||
STOCKHOLDERS’ EQUITY: |
||||||||
Common stock, $0.01 par value, 150,000,000 shares authorized;
73,280,978 shares issued as of October 1, 2005 and
73,147,178 shares issued as of December 31, 2004 |
0.7 | 0.7 | ||||||
Additional paid-in capital |
1,102.0 | 1,064.4 | ||||||
Common stock held in treasury, 6,112,891 shares as of October 1, 2005 and
5,730,476 shares as of December 31, 2004, at cost |
(226.3 | ) | (204.1 | ) | ||||
Retained earnings |
981.2 | 1,810.5 | ||||||
Accumulated other comprehensive income (loss) |
(98.9 | ) | 58.6 | |||||
Total stockholders’ equity |
1,758.7 | 2,730.1 | ||||||
| $ | 8,979.6 | $ | 9,944.4 | |||||
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Net sales |
$ | 3,986.6 | $ | 3,897.8 | $ | 12,691.9 | $ | 12,673.9 | ||||||||
Cost of sales |
3,900.2 | 3,577.6 | 12,184.8 | 11,635.2 | ||||||||||||
Selling, general and administrative expenses |
142.7 | 161.1 | 484.6 | 487.5 | ||||||||||||
Goodwill impairment charge |
670.0 | — | 670.0 | — | ||||||||||||
Interest expense |
45.1 | 43.3 | 138.1 | 121.6 | ||||||||||||
Other expense, net |
16.4 | 10.0 | 55.5 | 38.9 | ||||||||||||
Income (loss) before
provision (benefit) for income taxes |
(787.8 | ) | 105.8 | (841.1 | ) | 390.7 | ||||||||||
Provision (benefit) for income taxes |
(37.7 | ) | 14.1 | (62.2 | ) | 91.5 | ||||||||||
Net income (loss) |
$ | (750.1 | ) | $ | 91.7 | $ | (778.9 | ) | $ | 299.2 | ||||||
Basic net income (loss) per share |
$ | (11.17 | ) | $ | 1.34 | $ | (11.60 | ) | $ | 4.37 | ||||||
Diluted net income (loss) per share |
$ | (11.17 | ) | $ | 1.26 | $ | (11.60 | ) | $ | 4.08 | ||||||
5
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| Nine Months Ended | ||||||||
| October 1, | October 2, | |||||||
| 2005 | 2004 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income (loss) |
$ | (778.9 | ) | $ | 299.2 | |||
Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |
||||||||
Goodwill impairment charge |
670.0 | — | ||||||
Fixed asset impairment charge |
87.3 | 3.0 | ||||||
Depreciation and amortization |
290.9 | 258.4 | ||||||
Net change in recoverable customer engineering and tooling |
(100.1 | ) | (5.3 | ) | ||||
Net change in working capital items |
(260.6 | ) | (61.4 | ) | ||||
Other, net |
41.0 | 20.5 | ||||||
Net cash provided by (used in) operating activities before
net change in sold accounts receivable |
(50.4 | ) | 514.4 | |||||
Net change in sold accounts receivable |
279.2 | (70.4 | ) | |||||
Net cash provided by operating activities |
228.8 | 444.0 | ||||||
Cash Flows from Investing Activities: |
||||||||
Additions to property, plant and equipment |
(414.3 | ) | (283.7 | ) | ||||
Cost of acquisition, net of cash required |
— | (73.9 | ) | |||||
Other, net |
15.1 | 10.4 | ||||||
Net cash used in investing activities |
(399.2 | ) | (347.2 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Issuance (repayment) of senior notes |
(600.0 | ) | 399.2 | |||||
Long-term debt borrowings (repayments), net |
434.1 | (51.5 | ) | |||||
Short-term debt repayments, net |
(4.1 | ) | (37.0 | ) | ||||
Dividends paid |
(50.4 | ) | (54.6 | ) | ||||
Proceeds from exercise of stock options |
4.7 | 20.1 | ||||||
Repurchase of common stock |
(25.4 | ) | (50.6 | ) | ||||
Increase in drafts |
3.8 | 3.6 | ||||||
Other, net |
0.6 | — | ||||||
Net cash provided by (used in) financing activities |
(236.7 | ) | 229.2 | |||||
Effect of foreign currency translation |
(42.4 | ) | 6.3 | |||||
Net Change in Cash and Cash Equivalents |
(449.5 | ) | 332.3 | |||||
Cash and Cash Equivalents as of Beginning of Period |
584.9 | 169.3 | ||||||
Cash and Cash Equivalents as of End of Period |
$ | 135.4 | $ | 501.6 | ||||
Changes in Working Capital: |
||||||||
Accounts receivable |
$ | (548.3 | ) | $ | (222.0 | ) | ||
Inventories |
(86.8 | ) | (89.7 | ) | ||||
Accounts payable |
396.9 | 160.2 | ||||||
Accrued liabilities and other |
(22.4 | ) | 90.1 | |||||
Net change in working capital items |
$ | (260.6 | ) | $ | (61.4 | ) | ||
Supplementary Disclosure: |
||||||||
Cash paid for interest |
$ | 113.7 | $ | 93.5 | ||||
Cash paid for income taxes |
$ | 94.1 | $ | 100.1 | ||||
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| Utilization | Accrual as of | |||||||||||||||
| Charges | Cash | Non-cash | October 1, 2005 | |||||||||||||
Employee termination benefits |
$ | 28.1 | $ | (10.3 | ) | $ | — | $ | 17.8 | |||||||
Asset impairments |
13.5 | — | (13.5 | ) | — | |||||||||||
Contract termination costs |
10.5 | (1.0 | ) | — | 9.5 | |||||||||||
Other related costs |
3.1 | (3.1 | ) | — | — | |||||||||||
Total |
$ | 55.2 | $ | (14.4 | ) | $ | (13.5 | ) | $ | 27.3 | ||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income (loss), as reported |
$ | (750.1 | ) | $ | 91.7 | $ | (778.9 | ) | $ | 299.2 | ||||||
Add: Stock-based employee compensation expense
included in reported net income (loss), net of tax |
4.4 | 2.4 | 12.5 | 7.3 | ||||||||||||
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of tax |
(4.4 | ) | (4.5 | ) | (15.9 | ) | (15.9 | ) | ||||||||
Net income (loss), pro forma |
$ | (750.1 | ) | $ | 89.6 | $ | (782.3 | ) | $ | 290.6 | ||||||
Net income (loss) per share: |
||||||||||||||||
Basic — as reported |
$ | (11.17 | ) | $ | 1.34 | $ | (11.60 | ) | $ | 4.37 | ||||||
Basic — pro forma |
$ | (11.17 | ) | $ | 1.31 | $ | (11.65 | ) | $ | 4.24 | ||||||
Diluted — as reported |
$ | (11.17 | ) | $ | 1.26 | $ | (11.60 | ) | $ | 4.08 | ||||||
Diluted — pro forma |
$ | (11.17 | ) | $ | 1.23 | $ | (11.65 | ) | $ | 3.97 | ||||||
8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Consideration paid to former owner |
$ | 73.9 | ||
Debt assumed |
86.3 | |||
Fees and expenses |
3.2 | |||
Cost of acquisition |
$ | 163.4 | ||
Property, plant and equipment |
$ | 100.5 | ||
Net working capital |
39.7 | |||
Restructuring accrual |
(12.6 | ) | ||
Other assets purchased and liabilities assumed, net |
(22.7 | ) | ||
Goodwill |
22.6 | |||
Intangible assets |
35.9 | |||
Total cost allocation |
$ | 163.4 | ||
| October 1, | December 31, | |||||||
| 2005 | 2004 | |||||||
Raw materials |
$ | 516.9 | $ | 487.8 | ||||
Work-in-process |
45.8 | 43.8 | ||||||
Finished goods |
126.2 | 89.6 | ||||||
Inventories |
$ | 688.9 | $ | 621.2 | ||||
| October 1, | December 31, | |||||||
| 2005 | 2004 | |||||||
Land |
$ | 141.5 | $ | 138.6 | ||||
Buildings and improvements |
720.3 | 759.2 | ||||||
Machinery and equipment |
2,922.5 | 2,844.7 | ||||||
Construction in progress |
71.4 | 52.8 | ||||||
Total property, plant and equipment |
3,855.7 | 3,795.3 | ||||||
Less — accumulated depreciation |
(1,879.3 | ) | (1,775.5 | ) | ||||
Net property, plant and equipment |
$ | 1,976.4 | $ | 2,019.8 | ||||
9
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Electronic and | ||||||||||||||||
| Seating | Interior | Electrical | Total | |||||||||||||
Balance as of December 31, 2004 |
$ | 1,075.7 | $ | 1,017.8 | $ | 945.9 | $ | 3,039.4 | ||||||||
Goodwill impairment charge |
— | (670.0 | ) | — | (670.0 | ) | ||||||||||
Foreign currency translation and other |
(33.1 | ) | (5.5 | ) | (36.1 | ) | (74.7 | ) | ||||||||
Balance as of October 1, 2005 |
$ | 1,042.6 | $ | 342.3 | $ | 909.8 | $ | 2,294.7 | ||||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| October 1, 2005 | December 31, 2004 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Long-Term | Average | Long-Term | Average | |||||||||||||
| Debt Instrument | Debt | Interest Rate | Debt | Interest Rate | ||||||||||||
Amended and restated
primary credit facility |
$ | 454.6 | 5.48 | % | $ | — | — | |||||||||
5.75% Senior Notes, due August 2014 |
399.3 | 5.635 | % | 399.2 | 5.635 | % | ||||||||||
Zero-coupon Convertible Senior Notes,
due February 2022 |
296.6 | 4.75 | % | 286.3 | 4.75 | % | ||||||||||
8.125% Euro-denominated Senior Notes,
due April 2008 |
300.3 | 8.125 | % | 338.5 | 8.125 | % | ||||||||||
8.11% Senior Notes, due May 2009 |
800.0 | 8.24 | % | 800.0 | 7.74 | % | ||||||||||
7.96% Senior Notes, due May 2005 |
— | — | 600.0 | 6.95 | % | |||||||||||
Other |
48.3 | 5.05 | % | 75.7 | 4.22 | % | ||||||||||
| 2,299.1 | 2,499.7 | |||||||||||||||
Current portion |
(7.6 | ) | (632.8 | ) | ||||||||||||
Long-term debt |
$ | 2,291.5 | $ | 1,866.9 | ||||||||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Pension | Other Postretirement | |||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Service cost |
$ | 10.2 | $ | 8.9 | $ | 3.2 | $ | 3.6 | ||||||||
Interest cost |
9.4 | 6.9 | 3.5 | 3.3 | ||||||||||||
Expected return on plan assets |
(7.5 | ) | (4.6 | ) | — | — | ||||||||||
Amortization of actuarial loss |
0.8 | 0.7 | 1.0 | 1.0 | ||||||||||||
Amortization of transition (asset) obligation |
— | (0.1 | ) | 0.6 | 0.3 | |||||||||||
Amortization of prior service cost |
1.3 | 0.8 | (1.1 | ) | (0.7 | ) | ||||||||||
Curtailment loss |
0.4 | — | — | — | ||||||||||||
Net periodic benefit cost |
$ | 14.6 | $ | 12.6 | $ | 7.2 | $ | 7.5 | ||||||||
| Pension | Other Postretirement | |||||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Service cost |
$ | 30.5 | $ | 30.2 | $ | 9.3 | $ | 10.8 | ||||||||
Interest cost |
27.7 | 25.8 | 10.3 | 9.5 | ||||||||||||
Expected return on plan assets |
(22.2 | ) | (18.8 | ) | — | — | ||||||||||
Amortization of actuarial loss |
2.2 | 2.3 | 2.8 | 3.0 | ||||||||||||
Amortization of transition (asset) obligation |
(0.1 | ) | (0.3 | ) | 1.9 | 0.9 | ||||||||||
Amortization of prior service cost |
3.8 | 3.5 | (3.3 | ) | (2.1 | ) | ||||||||||
Special termination benefits |
— | 0.1 | 0.2 | 0.2 | ||||||||||||
Settlement loss |
1.0 | — | — | — | ||||||||||||
Curtailment loss (gain) |
0.8 | — | 0.7 | (7.7 | ) | |||||||||||
Net periodic benefit cost |
$ | 43.7 | $ | 42.8 | $ | 21.9 | $ | 14.6 | ||||||||
12
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Other expense |
$ | 20.4 | $ | 11.6 | $ | 55.9 | $ | 44.1 | ||||||||
Other income |
(4.0 | ) | (1.6 | ) | (0.4 | ) | (5.2 | ) | ||||||||
Other expense, net |
$ | 16.4 | $ | 10.0 | $ | 55.5 | $ | 38.9 | ||||||||
13
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income (loss), as reported |
$ | (750.1 | ) | $ | 91.7 | $ | (778.9 | ) | $ | 299.2 | ||||||
Add: After-tax interest expense on convertible debt |
— | 2.3 | — | 7.0 | ||||||||||||
Net income (loss), for diluted
net income (loss)per share |
$ | (750.1 | ) | $ | 94.0 | $ | (778.9 | ) | $ | 306.2 | ||||||
Weighted average common shares outstanding |
67,144,073 | 68,327,106 | 67,163,429 | 68,506,459 | ||||||||||||
Dilutive effect of common stock equivalents |
— | 1,375,770 | — | 1,684,196 | ||||||||||||
Shares issuable upon conversion of convertible debt |
— | 4,813,056 | — | 4,813,056 | ||||||||||||
Diluted shares outstanding |
67,144,073 | 74,515,932 | 67,163,429 | 75,003,711 | ||||||||||||
Diluted net income (loss) per share |
$ | (11.17 | ) | $ | 1.26 | $ | (11.60 | ) | $ | 4.08 | ||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Options |
||||||||||||||||
Antidilutive options outstanding |
3,023,005 | 16,000 | 3,023,005 | — | ||||||||||||
Exercise price |
$ | 22.12 - $55.33 | $ | 55.33 | $ | 22.12 - $55.33 | — | |||||||||
Restricted stock units |
1,137,448 | — | 1,137,448 | — | ||||||||||||
Performance units |
1,036,441 | — | 1,036,441 | — | ||||||||||||
14
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income (loss) |
$ | (750.1 | ) | $ | 91.7 | $ | (778.9 | ) | $ | 299.2 | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Derivative instruments and hedging
activities |
(5.9 | ) | 1.8 | (2.1 | ) | 11.5 | ||||||||||
Foreign currency translation adjustment |
2.0 | 21.9 | (155.4 | ) | 3.6 | |||||||||||
Other comprehensive income (loss) |
(3.9 | ) | 23.7 | (157.5 | ) | 15.1 | ||||||||||
Comprehensive income (loss) |
$ | (754.0 | ) | $ | 115.4 | $ | (936.4 | ) | $ | 314.3 | ||||||
| October 1, | December 31, | |||||||
| 2005 | 2004 | |||||||
Current |
$ | 285.6 | $ | 205.8 | ||||
Long-term |
239.7 | 245.1 | ||||||
Recoverable customer engineering and tooling |
$ | 525.3 | $ | 450.9 | ||||
15
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Balance as of December 31, 2004 |
$ | 43.4 | ||
Expense, net |
14.7 | |||
Settlements |
(21.6 | ) | ||
Foreign exchange and other |
(1.5 | ) | ||
Balance as of October 1, 2005 |
$ | 35.0 | ||
16
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Three Months Ended October 1, 2005 | ||||||||||||||||||||
| Electronic and | ||||||||||||||||||||
| Seating | Interior | Electrical | Other | Consolidated | ||||||||||||||||
Revenues from external customers |
$ | 2,564.3 | $ | 731.4 | $ | 690.9 | $ | — | $ | 3,986.6 | ||||||||||
Income (loss) before goodwill
impairment charge, interest,
other expense and income taxes |
71.2 | (113.7 | ) | 35.7 | (49.5 | ) | (56.3 | ) | ||||||||||||
Depreciation and amortization |
36.5 | 31.7 | 26.6 | 4.8 | 99.6 | |||||||||||||||
Capital expenditures |
50.9 | 51.7 | 22.2 | 10.4 | 135.2 | |||||||||||||||
Total assets |
4,776.6 | 1,921.7 | 2,288.2 | (6.9 | ) | 8,979.6 | ||||||||||||||
| Three Months Ended October 2, 2004 | ||||||||||||||||||||
| Electronic and | ||||||||||||||||||||
| Seating | Interior | Electrical | Other | Consolidated | ||||||||||||||||
Revenues from external customers |
$ | 2,592.7 | $ | 665.0 | $ | 640.1 | $ | — | $ | 3,897.8 | ||||||||||
Income (loss) before, interest,
other expense and income taxes |
166.4 | 8.2 | 42.2 | (57.7 | ) | 159.1 | ||||||||||||||
Depreciation and amortization |
31.0 | 27.2 | 24.5 | 5.6 | 88.3 | |||||||||||||||
Capital expenditures |
40.7 | 18.4 | 25.3 | 6.7 | 91.1 | |||||||||||||||
Total assets |
4,346.6 | 2,413.7 | 2,455.9 | 360.3 | 9,576.5 | |||||||||||||||
18
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Nine Months Ended October 1, 2005 | ||||||||||||||||||||
| Electronic and | ||||||||||||||||||||
| Seating | Interior | Electrical | Other | Consolidated | ||||||||||||||||
Revenues from external customers |
$ | 8,192.9 | $ | 2,261.2 | $ | 2,237.8 | $ | — | $ | 12,691.9 | ||||||||||
Income (loss) before goodwill
impairment charge, interest
other expense and income taxes |
169.9 | (139.9 | ) | 146.0 | (153.5 | ) | 22.5 | |||||||||||||
Depreciation and amortization |
108.2 | 89.2 | 78.3 | 15.2 | 290.9 | |||||||||||||||
Capital expenditures |
181.1 | 129.5 | 73.3 | 30.4 | 414.3 | |||||||||||||||
Total assets |
4,776.6 | 1,921.7 | 2,288.2 | (6.9 | ) | 8,979.6 | ||||||||||||||
| Nine Months Ended October 2, 2004 | ||||||||||||||||||||
| Electronic and | ||||||||||||||||||||
| Seating | Interior | Electrical | Other | Consolidated | ||||||||||||||||
Revenues from external customers |
$ | 8,488.5 | $ | 2,221.4 | $ | 1,964.0 | $ | — | $ | 12,673.9 | ||||||||||
Income before interest, other expense
and income taxes |
501.8 | 56.8 | 161.2 | (168.6 | ) | 551.2 | ||||||||||||||
Depreciation and amortization |
98.0 | 81.2 | 62.1 | 17.1 | 258.4 | |||||||||||||||
Capital expenditures |
140.2 | 64.9 | 71.3 | 7.3 | 283.7 | |||||||||||||||
Total assets |
4,346.6 | 2,413.7 | 2,455.9 | 360.3 | 9,576.5 | |||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Income (loss) before goodwill impairment charge,
interest, other expense and income taxes |
$ | (56.3 | ) | $ | 159.1 | $ | 22.5 | $ | 551.2 | |||||||
Goodwill impairment charge |
670.0 | — | 670.0 | — | ||||||||||||
Interest expense |
45.1 | 43.3 | 138.1 | 121.6 | ||||||||||||
Other expense, net |
16.4 | 10.0 | 55.5 | 38.9 | ||||||||||||
Income (loss) before
provision (benefit) for income taxes |
$ | (787.8 | ) | $ | 105.8 | $ | (841.1 | ) | $ | 390.7 | ||||||
19
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Proceeds from (repayments of) securitizations |
$ | (17.0 | ) | $ | — | $ | 112.9 | $ | — | |||||||
Proceeds from collections reinvested in
securitizations |
1,060.3 | 1,041.0 | 3,213.0 | 3,627.5 | ||||||||||||
Servicing fees received |
1.2 | 1.3 | 3.8 | 4.1 | ||||||||||||
20
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| October 1, 2005 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (Unaudited; in millions) | ||||||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 6.2 | $ | 4.4 | $ | 124.8 | $ | — | $ | 135.4 | ||||||||||
Accounts receivable |
122.4 | 626.3 | 1,976.4 | — | 2,725.1 | |||||||||||||||
Inventories |
25.7 | 245.8 | 417.4 | — | 688.9 | |||||||||||||||
Recoverable customer engineering and tooling |
(5.1 | ) | 178.7 | 112.0 | — | 285.6 | ||||||||||||||
Other |
118.0 | 52.2 | 157.5 | — | 327.7 | |||||||||||||||
Total current assets |
267.2 | 1,107.4 | 2,788.1 | — | 4,162.7 | |||||||||||||||
LONG-TERM ASSETS: |
||||||||||||||||||||
Property, plant and equipment, net |
202.2 | 756.2 | 1,018.0 | — | 1,976.4 | |||||||||||||||
Goodwill, net |
105.0 | 1,230.5 | 959.2 | — | 2,294.7 | |||||||||||||||
Investments in subsidiaries |
4,085.9 | 2,326.5 | — | (6,412.4 | ) | — | ||||||||||||||
Other |
102.6 | 107.4 | 335.8 | — | 545.8 | |||||||||||||||
Total long-term assets |
4,495.7 | 4,420.6 | 2,313.0 | (6,412.4 | ) | 4,816.9 | ||||||||||||||
| $ | 4,762.9 | $ | 5,528.0 | $ | 5,101.1 | $ | (6,412.4 | ) | $ | 8,979.6 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Short-term borrowings |
$ | — | $ | — | $ | 42.7 | $ | — | $ | 42.7 | ||||||||||
Accounts payable and drafts |
282.4 | 1,003.8 | 1,750.4 | — | 3,036.6 | |||||||||||||||
Accrued liabilities |
206.7 | 270.0 | 733.7 | — | 1,210.4 | |||||||||||||||
Current portion of long-term debt |
2.0 | 2.3 | 3.3 | — | 7.6 | |||||||||||||||
Total current liabilities |
491.1 | 1,276.1 | 2,530.1 | — | 4,297.3 | |||||||||||||||
LONG-TERM LIABILITIES: |
||||||||||||||||||||
Long-term debt |
2,251.1 | 9.4 | 31.0 | — | 2,291.5 | |||||||||||||||
Intercompany accounts, net |
35.8 | 1,120.2 | (1,156.0 | ) | — | — | ||||||||||||||
Other |
226.2 | 178.6 | 227.3 | — | 632.1 | |||||||||||||||
Total long-term liabilities |
2,513.1 | 1,308.2 | (897.7 | ) | — | 2,923.6 | ||||||||||||||
STOCKHOLDERS’ EQUITY |
1,758.7 | 2,943.7 | 3,468.7 | (6,412.4 | ) | 1,758.7 | ||||||||||||||
| $ | 4,762.9 | $ | 5,528.0 | $ | 5,101.1 | $ | (6,412.4 | ) | $ | 8,979.6 | ||||||||||
22
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| December 31, 2004 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 123.5 | $ | 3.8 | $ | 457.6 | $ | — | $ | 584.9 | ||||||||||
Accounts receivable |
54.6 | 443.2 | 2,087.1 | — | 2,584.9 | |||||||||||||||
Inventories |
17.5 | 193.2 | 410.5 | — | 621.2 | |||||||||||||||
Recoverable customer engineering and tooling |
9.8 | 110.5 | 85.5 | — | 205.8 | |||||||||||||||
Other |
116.7 | 64.8 | 193.7 | — | 375.2 | |||||||||||||||
Total current assets |
322.1 | 815.5 | 3,234.4 | — | 4,372.0 | |||||||||||||||
LONG-TERM ASSETS: |
||||||||||||||||||||
Property, plant and equipment, net |
156.3 | 759.2 | 1,104.3 | — | 2,019.8 | |||||||||||||||
Goodwill, net |
105.0 | 1,920.5 | 1,013.9 | — | 3,039.4 | |||||||||||||||
Investments in subsidiaries |
4,556.1 | 2,543.8 | — | (7,099.9 | ) | — | ||||||||||||||
Other |
119.3 | 90.8 | 303.1 | — | 513.2 | |||||||||||||||
Total long-term assets |
4,936.7 | 5,314.3 | 2,421.3 | (7,099.9 | ) | 5,572.4 | ||||||||||||||
| $ | 5,258.8 | $ | 6,129.8 | $ | 5,655.7 | $ | (7,099.9 | ) | $ | 9,944.4 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Short-term borrowings |
$ | — | $ | — | $ | 35.4 | $ | — | $ | 35.4 | ||||||||||
Accounts payable and drafts |
229.5 | 810.8 | 1,737.3 | — | 2,777.6 | |||||||||||||||
Accrued liabilities |
190.6 | 295.7 | 715.8 | — | 1,202.1 | |||||||||||||||
Current portion of long-term debt |
626.5 | 2.4 | 3.9 | — | 632.8 | |||||||||||||||
Total current liabilities |
1,046.6 | 1,108.9 | 2,492.4 | — | 4,647.9 | |||||||||||||||
LONG-TERM LIABILITIES: |
||||||||||||||||||||
Long-term debt |
1,826.1 | 12.0 | 28.8 | — | 1,866.9 | |||||||||||||||
Intercompany accounts, net |
(549.6 | ) | 1,222.7 | (673.1 | ) | — | — | |||||||||||||
Other |
205.6 | 190.0 | 303.9 | — | 699.5 | |||||||||||||||
Total long-term liabilities |
1,482.1 | 1,424.7 | (340.4 | ) | — | 2,566.4 | ||||||||||||||
STOCKHOLDERS’ EQUITY |
2,730.1 | 3,596.2 | 3,503.7 | (7,099.9 | ) | 2,730.1 | ||||||||||||||
| $ | 5,258.8 | $ | 6,129.8 | $ | 5,655.7 | $ | (7,099.9 | ) | $ | 9,944.4 | ||||||||||
23
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| For the Three Months Ended October 1, 2005 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (Unaudited; in millions) | ||||||||||||||||||||
Net sales |
$ | 296.9 | $ | 1,663.8 | $ | 2,651.7 | $ | (625.8 | ) | $ | 3,986.6 | |||||||||
Cost of sales |
339.6 | 1,705.9 | 2,480.5 | (625.8 | ) | 3,900.2 | ||||||||||||||
Selling, general and administrative expenses |
38.2 | 33.6 | 70.9 | — | 142.7 | |||||||||||||||
Goodwill impairment charge |
— | 670.0 | — | — | 670.0 | |||||||||||||||
Interest expense |
16.5 | 21.9 | 6.7 | — | 45.1 | |||||||||||||||
Intercompany (income) expense, net |
(54.3 | ) | 75.1 | (20.8 | ) | — | — | |||||||||||||
Other expense, net |
8.1 | 5.8 | 2.5 | — | 16.4 | |||||||||||||||
Income (loss) before provision (benefit) for income taxes
and equity in net loss of subsidiaries |
(51.2 | ) | (848.5 | ) | 111.9 | — | (787.8 | ) | ||||||||||||
Provision (benefit) for income taxes |
(13.3 | ) | (51.4 | ) | 27.0 | — | (37.7 | ) | ||||||||||||
Equity in net loss of subsidiaries |
712.2 | 3.5 | — | (715.7 | ) | — | ||||||||||||||
Net income (loss) |
$ | (750.1 | ) | $ | (800.6 | ) | $ | 84.9 | $ | 715.7 | $ | (750.1 | ) | |||||||
| For the Three Months Ended October 2, 2004 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (Unaudited; in millions) | ||||||||||||||||||||
Net sales |
$ | 282.3 | $ | 1,658.6 | $ | 2,584.6 | $ | (627.7 | ) | $ | 3,897.8 | |||||||||
Cost of sales |
299.3 | 1,509.9 | 2,396.1 | (627.7 | ) | 3,577.6 | ||||||||||||||
Selling, general and administrative expenses |
38.6 | 38.6 | 83.9 | — | 161.1 | |||||||||||||||
Interest expense |
8.3 | 26.5 | 8.5 | — | 43.3 | |||||||||||||||
Intercompany (income) expense, net |
(82.5 | ) | 80.3 | 2.2 | — | — | ||||||||||||||
Other expense, net |
1.6 | 6.8 | 1.6 | — | 10.0 | |||||||||||||||
Income (loss) before provision (benefit) for income taxes
and equity in net income of subsidiaries |
17.0 | (3.5 | ) | 92.3 | — | 105.8 | ||||||||||||||
Provision (benefit) for income taxes |
(14.1 | ) | 7.6 | 20.6 | — | 14.1 | ||||||||||||||
Equity in net income of subsidiaries |
(60.6 | ) | (26.5 | ) | — | 87.1 | — | |||||||||||||
Net income |
$ | 91.7 | $ | 15.4 | $ | 71.7 | $ | (87.1 | ) | $ | 91.7 | |||||||||
24
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| For the Nine Months Ended October 1, 2005 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (Unaudited; in millions) | ||||||||||||||||||||
Net sales |
$ | 927.5 | $ | 5,208.5 | $ | 8,409.3 | $ | (1,853.4 | ) | $ | 12,691.9 | |||||||||
Cost of sales |
1,049.3 | 5,087.3 | 7,901.6 | (1,853.4 | ) | 12,184.8 | ||||||||||||||
Selling, general and administrative expenses |
142.7 | 103.6 | 238.3 | — | 484.6 | |||||||||||||||
Goodwill impairment charge |
— | 670.0 | — | — | 670.0 | |||||||||||||||
Interest expense |
40.3 | 73.4 | 24.4 | — | 138.1 | |||||||||||||||
Intercompany (income) expense, net |
(227.4 | ) | 235.6 | (8.2 | ) | — | — | |||||||||||||
Other expense, net |
25.1 | 17.9 | 12.5 | — | 55.5 | |||||||||||||||
Income (loss) before provision (benefit) for income taxes
and equity in net (income) loss of subsidiaries |
(102.5 | ) | (979.3 | ) | 240.7 | — | (841.1 | ) | ||||||||||||
Provision (benefit) for income taxes |
(37.7 | ) | (86.5 | ) | 62.0 | — | (62.2 | ) | ||||||||||||
Equity in net (income) loss of subsidiaries |
714.1 | (104.4 | ) | — | (609.7 | ) | — | |||||||||||||
Net income (loss) |
$ | (778.9 | ) | $ | (788.4 | ) | $ | 178.7 | $ | 609.7 | $ | (778.9 | ) | |||||||
| For the Nine Months Ended October 2, 2004 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (Unaudited; in millions) | ||||||||||||||||||||
Net sales |
$ | 794.6 | $ | 5,707.2 | $ | 8,157.6 | $ | (1,985.5 | ) | $ | 12,673.9 | |||||||||
Cost of sales |
866.0 | 5,184.5 | 7,570.2 | (1,985.5 | ) | 11,635.2 | ||||||||||||||
Selling, general and administrative expenses |
119.7 | 143.5 | 224.3 | — | 487.5 | |||||||||||||||
Interest expense |
10.8 | 84.1 | 26.7 | — | 121.6 | |||||||||||||||
Intercompany (income) expense, net |
(254.3 | ) | 269.0 | (14.7 | ) | — | — | |||||||||||||
Other (income) expense, net |
(16.0 | ) | 17.6 | 37.3 | — | 38.9 | ||||||||||||||
Income before provision (benefit) for income taxes
and equity in net income of subsidiaries |
68.4 | 8.5 | 313.8 | — | 390.7 | |||||||||||||||
Provision (benefit) for income taxes |
(14.3 | ) | 32.7 | 73.1 | — | 91.5 | ||||||||||||||
Equity in net income of subsidiaries |
(216.5 | ) | (137.5 | ) | — | 354.0 | — | |||||||||||||
Net income |
$ | 299.2 | $ | 113.3 | $ | 240.7 | $ | (354.0 | ) | $ | 299.2 | |||||||||
25
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| For the Nine Months Ended October 1, 2005 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (Unaudited; in millions) | ||||||||||||||||||||
Net cash provided by operating activities |
$ | 22.5 | $ | (156.2 | ) | $ | 362.5 | $ | — | $ | 228.8 | |||||||||
Cash Flows from Investing Activities: |
||||||||||||||||||||
Additions to property, plant and equipment |
(78.8 | ) | (184.1 | ) | (151.4 | ) | — | (414.3 | ) | |||||||||||
Other, net |
8.7 | 2.8 | 3.6 | — | 15.1 | |||||||||||||||
Net cash used in investing activities |
(70.1 | ) | (181.3 | ) | (147.8 | ) | — | (399.2 | ) | |||||||||||
Cash Flows from Financing Activities: |
||||||||||||||||||||
Repayment of senior notes |
(600.0 | ) | — | — | — | (600.0 | ) | |||||||||||||
Long-term debt borrowings, net |
436.7 | (1.1 | ) | (1.5 | ) | — | 434.1 | |||||||||||||
Short-term debt repayments, net |
— | — | (4.1 | ) | — | (4.1 | ) | |||||||||||||
Dividends paid |
(50.4 | ) | — | — | — | (50.4 | ) | |||||||||||||
Proceeds from exercise of stock options |
4.7 | — | — | — | 4.7 | |||||||||||||||
Repurchase of common stock |
(25.4 | ) | — | — | — | (25.4 | ) | |||||||||||||
Increase in drafts |
(5.5 | ) | 5.3 | 4.0 | — | 3.8 | ||||||||||||||
Other, net |
0.6 | — | — | — | 0.6 | |||||||||||||||
Change in intercompany accounts |
169.6 | 329.8 | (499.4 | ) | — | — | ||||||||||||||
Net cash used in financing activities |
(69.7 | ) | 334.0 | (501.0 | ) | — | (236.7 | ) | ||||||||||||
Effect of foreign currency translation |
— | 4.1 | (46.5 | ) | — | (42.4 | ) | |||||||||||||
Net Change in Cash and Cash Equivalents |
(117.3 | ) | 0.6 | (332.8 | ) | (449.5 | ) | |||||||||||||
Cash and Cash Equivalents as of Beginning of Period |
123.5 | 3.8 | 457.6 | — | 584.9 | |||||||||||||||
Cash and Cash Equivalents as of End of Period |
$ | 6.2 | $ | 4.4 | $ | 124.8 | $ | — | $ | 135.4 | ||||||||||
| For the Nine Months Ended October 2, 2004 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | guarantors | Eliminations | Consolidated | ||||||||||||||||
| (Unaudited; in millions) | ||||||||||||||||||||
Net cash provided by operating activities |
$ | 144.7 | $ | 11.7 | $ | 287.6 | $ | — | $ | 444.0 | ||||||||||
Cash Flows from Investing Activities: |
||||||||||||||||||||
Additions to property, plant and equipment |
(54.5 | ) | (93.6 | ) | (135.6 | ) | — | (283.7 | ) | |||||||||||
Cost of acquisition, net of cash acquired |
— | — | (73.9 | ) | — | (73.9 | ) | |||||||||||||
Other, net |
(3.9 | ) | 7.7 | 6.6 | — | 10.4 | ||||||||||||||
Net cash used in investing activities |
(58.4 | ) | (85.9 | ) | (202.9 | ) | — | (347.2 | ) | |||||||||||
Cash Flows from Financing Activities: |
||||||||||||||||||||
Issuance of senior notes |
399.2 | — | — | — | 399.2 | |||||||||||||||
Long-term debt repayments, net |
(7.5 | ) | — | (44.0 | ) | — | (51.5 | ) | ||||||||||||
Short-term debt repayments, net |
(0.3 | ) | (0.1 | ) | (36.6 | ) | — | (37.0 | ) | |||||||||||
Dividends paid |
(54.6 | ) | — | — | — | (54.6 | ) | |||||||||||||
Proceeds from exercise of stock options |
20.1 | — | — | — | 20.1 | |||||||||||||||
Repurchase of common stock |
(50.6 | ) | — | — | — | (50.6 | ) | |||||||||||||
Increase in drafts |
8.1 | (4.6 | ) | 0.1 | — | 3.6 | ||||||||||||||
Change in intercompany accounts |
(57.5 | ) | 70.2 | (12.7 | ) | — | — | |||||||||||||
Net cash provided by financing activities |
256.9 | 65.5 | (93.2 | ) | — | 229.2 | ||||||||||||||
Effect of foreign currency translation |
— | 0.6 | 5.7 | — | 6.3 | |||||||||||||||
Net Change in Cash and Cash Equivalents |
343.2 | (8.1 | ) | (2.8 | ) | 332.3 | ||||||||||||||
Cash and Cash Equivalents as of Beginning of Period |
40.9 | 9.7 | 118.7 | — | 169.3 | |||||||||||||||
Cash and Cash Equivalents as of End of Period |
$ | 384.1 | $ | 1.6 | $ | 115.9 | $ | — | $ | 501.6 | ||||||||||
26
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| October 1, | December 31, | |||||||
| 2005 | 2004 | |||||||
Amended and restated
primary credit facility |
$ | 454.6 | $ | — | ||||
Senior notes |
1,796.2 | 2,424.0 | ||||||
Other long-term debt |
14.0 | 43.0 | ||||||
| 2,264.8 | ,467.0 | |||||||
Less — current portion |
(4.3 | ) | (628.9 | ) | ||||
| $ | 2,260.5 | $ | 1,838.1 | |||||
27
Table of Contents
RESULTS OF OPERATIONS
28
Table of Contents
29
Table of Contents
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||||||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||||
Net sales |
||||||||||||||||||||||||||||||||
Seating |
$ | 2,564.3 | 64.3 | % | $ | 2,592.7 | 66.5 | % | $ | 8,192.9 | 64.6 | % | $ | 8,488.5 | 67.0 | % | ||||||||||||||||
Interior |
731.4 | 18.4 | 665.0 | 17.1 | 2,261.2 | 17.8 | 2,221.4 | 17.5 | ||||||||||||||||||||||||
Electronic and
electrical |
690.9 | 17.3 | 640.1 | 16.4 | 2,237.8 | 17.6 | 1,964.0 | 15.6 | ||||||||||||||||||||||||
Net sales |
3,986.6 | 100.0 | 3,897.8 | 100.0 | 12,691.9 | 100.0 | 12,673.9 | 100.0 | ||||||||||||||||||||||||
Gross profit |
86.4 | 2.2 | 320.2 | 8.2 | 507.1 | 4.0 | 1,038.7 | 8.2 | ||||||||||||||||||||||||
Selling, general and
administrative expenses |
142.7 | 3.6 | 161.1 | 4.1 | 484.6 | 3.8 | 487.5 | 3.8 | ||||||||||||||||||||||||
Goodwill impairment
charge |
670.0 | 16.8 | — | — | 670.0 | 5.3 | — | — | ||||||||||||||||||||||||
Interest expense |
45.1 | 1.1 | 43.3 | 1.1 | 138.1 | 1.1 | 121.6 | 1.0 | ||||||||||||||||||||||||
Other expense, net |
16.4 | 0.4 | 10.0 | 0.2 | 55.5 | 0.4 | 38.9 | 0.3 | ||||||||||||||||||||||||
Provision (benefit) for
income taxes |
(37.7 | ) | (0.9 | ) | 14.1 | 0.4 | (62.2 | ) | (0.5 | ) | 91.5 | 0.7 | ||||||||||||||||||||
Net income (loss) |
$ | (750.1 | ) | (18.8 | )% | $ | 91.7 | 2.4 | % | $ | (778.9 | ) | (6.1 | )% | $ | 299.2 | 2.4 | % | ||||||||||||||
30
Table of Contents
| Three months ended | ||||||||
| October 1, | October 2, | |||||||
| 2005 | 2004 | |||||||
Net sales |
$ | 2,564.3 | $ | 2,592.7 | ||||
Income before interest, other expense and
income taxes |
71.2 | 166.4 | ||||||
Margin |
2.8 | % | 6.4 | % | ||||
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| Three months ended | ||||||||
| October 1, | October 2, | |||||||
| 2005 | 2004 | |||||||
Net sales |
$ | 731.4 | $ | 665.0 | ||||
Income (loss) before goodwill impairment charge,
interest, other expense and income taxes |
(113.7 | ) | 8.2 | |||||
Margin |
(15.5 | )% | 1.2 | % | ||||
| Three months ended | ||||||||
| October 1, | October 2, | |||||||
| 2005 | 2004 | |||||||
Net sales |
$ | 690.9 | $ | 640.1 | ||||
Income before interest, other expense and
income taxes |
35.7 | 42.2 | ||||||
Margin |
5.2 | % | 6.6 | % | ||||
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| Nine months ended | ||||||||
| October 1, | October 2, | |||||||
| 2005 | 2004 | |||||||
Net sales |
$ | 8,192.9 | $ | 8,488.5 | ||||
Income before interest, other expense and
income taxes |
169.9 | 501.8 | ||||||
Margin |
2.1 | % | 5.9 | % | ||||
| Nine months ended | ||||||||
| October 1, | October 2, | |||||||
| 2005 | 2004 | |||||||
Net sales |
$ | 2,261.2 | $ | 2,221.4 | ||||
Income (loss) before goodwill impairment charge,
interest, other expense and income taxes |
(139.9 | ) | 56.8 | |||||
Margin |
(6.2 | )% | 2.6 | % | ||||
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| Nine months ended | ||||||||
| October 1, | October 2, | |||||||
| 2005 | 2004 | |||||||
Net sales |
$ | 2,237.8 | $ | 1,964.0 | ||||
Income before interest, other expense and
income taxes |
146.0 | 161.2 | ||||||
Margin |
6.5 | % | 8.2 | % | ||||
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| Standard & Poor’s | Moody’s | Fitch | ||||
| Ratings Services | Investors Service | Ratings | ||||
Credit rating of senior unsecured debt
|
BB+ | Ba2 | BBB- | |||
Ratings outlook
|
Negative | Stable | Negative | |||
| Dividend Amount | Declaration Date | Record Date | Payment Date | |||
$0.25 per share |
January 13, 2005 | February 25, 2005 | March 14, 2005 | |||
$0.25 per share |
May 5, 2005 | May 20, 2005 | June 6, 2005 | |||
$0.25 per share |
August 3, 2005 | August 19, 2005 | September 6, 2005 | |||
$0.25 per share |
November 10, 2005 | November 25, 2005 | December 12, 2005 |
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| • | general economic conditions in the markets in which we operate, including changes in interest rates and fuel prices; | ||
| • | fluctuations in the production of vehicles for which we are a supplier; | ||
| • | labor disputes involving us or our significant customers or suppliers or that otherwise affect us; | ||
| • | our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions; | ||
| • | the outcome of customer pricing negotiations; | ||
| • | the impact and timing of program launch costs; | ||
| • | the costs and timing of facility closures, business realignment or similar actions; | ||
| • | increases in our warranty or product liability costs; | ||
| • | risks associated with conducting business in foreign countries; | ||
| • | competitive conditions impacting our key customers and suppliers; | ||
| • | raw material costs and availability; | ||
| • | our ability to mitigate the significant impact of recent increases in raw material, energy and commodity costs; | ||
| • | the outcome of legal or regulatory proceedings to which we are or may become a party; | ||
| • | unanticipated changes in cash flow; | ||
| • | the finalization of our restructuring plan; | ||
| • | the outcome of various strategic alternatives being evaluated with respect to our interior segment; and | ||
| • | other risks described from time to time in our other SEC filings. |
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| Total Number | Average | Total Number of Shares | Maximum Number of Shares | |||||||||||||
| of Shares | Price Paid | Purchased as Part of Publicly | that May Yet be Purchased | |||||||||||||
| Period | Purchased | per Share | Announced Plans or Programs | Under the Program | ||||||||||||
July 3, 2005 through
July 30, 2005 |
— | N/A | — | 4,509,100 | ||||||||||||
July 31, 2005 through
August 27, 2005 |
— | N/A | — | 4,509,100 | ||||||||||||
August 28, 2005 through
October 1, 2005 |
— | N/A | — | 4,509,100 | ||||||||||||
Total |
— | N/A | — | 4,509,100 | ||||||||||||
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Dated: November 10, 2005
|
By: | /s/ Robert E. Rossiter | ||||
| Chairman and Chief Executive Officer | ||||||
| By: | /s/ David C. Wajsgras | |||||
| Executive Vice President and Chief Financial Officer | ||||||
| By: | /s/ James L. Murawski | |||||
| Vice President and Corporate Controller |
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| Exhibit | ||
| Number | ||
10.1 |
Amended and Restated Credit Agreement, dated as of August 11, 2005, among Lear Corporation, Lear Canada, each Foreign Subsidiary Borrower (as defined therein), the Lenders party thereto, Bank of America, N.A., as syndication agent, Citibank, N.A. and Deutsche Bank Securities Inc., as documentation agents, The Bank of Nova Scotia, as documentation agent and Canadian Administrative Agent, the other Agents named therein and JPMorgan Chase Bank, N.A., as General Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 12, 2005). | |
1,2 10.2 |
Long-Term Stock Incentive Plan 2005 Restricted Stock Unit Terms and Conditions | |
1,2 10.3 |
Long-Term Stock Incentive Plan Stock Appreciation Rights Terms and Conditions | |
1,2 10.4 |
Long-Term Stock Incentive Plan Supplemental Restricted Stock Unit Terms and Conditions | |
1,2 10.5 |
Employment Agreement, dated March 15, 2005, between Lear Corporation and Paul Joseph Zimmer | |
1,2 10.6 |
Employment Agreement, dated March 15, 2005, between Lear Corporation and Raymond E. Scott | |
1 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. | |
1 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. | |
1 32.1 |
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
1 32.2 |
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 1 | Filed herewith. | |
| 2 | Compensatory plan or arrangement. |
51
EXHIBIT 10.2 LEAR CORPORATION LONG-TERM STOCK INCENTIVE PLAN 2005 RESTRICTED STOCK UNIT TERMS AND CONDITIONS 1. Definitions. Any term capitalized herein but not defined will have the meaning set forth in the Plan. 2. Grant and Vesting of Restricted Stock Units. (a) As of the Grant Date specified in the letter that accompanies this document, the Employee will be credited with the number of Restricted Stock Units set forth in the letter that accompanies this document. Each Restricted Stock Unit is a notional amount that represents one unvested share of Common Stock, $0.01 par value, of the Company (the "Common Stock"). Each Restricted Stock Unit constitutes the right, subject to the terms and conditions of the Plan and this document, to distribution of a Share if and when the Restricted Stock Unit vests. If the Employee's employment with the Company and all of its Affiliates terminates before the date that all of the Restricted Stock Units vest, his or her right to receive the Shares underlying unvested Restricted Stock Units will be only as provided in Section 4. (b) One-half of the Restricted Stock Units will vest on the second anniversary of the Grant Date, and the remaining half will vest on the fourth anniversary of the Grant Date. Notwithstanding anything contained herein to the contrary, the right (whether or not vested) of an Employee to receive Shares underlying a Restricted Stock Unit will be forfeited (and the Company will have the right to recover any Shares already received by the Employee) if the Committee determines, in its sole discretion, that (i) the Employee has entered into a business or employment relationship that is detrimentally competitive with the Company or substantially injurious to the Company's financial interests; (ii) the Employee has been discharged from employment with the Company or an Affiliate for Cause; or (iii) the Employee has performed acts of willful malfeasance or gross negligence in a matter of material importance to the Company or an Affiliate. 3. Rights as a Stockholder. (a) Unless and until a Restricted Stock Unit has vested and the Share underlying it has been distributed to the Employee, the Employee will not be entitled to vote that Share. (b) If the Company declares a cash dividend on its common stock, then, on the payment date of the dividend, the Employee will be credited with dividend equivalents equal to the amount of cash dividend per share multiplied by the number of Restricted Stock Units credited to the Employee through the record date. The dollar amount credited to an Employee under the preceding sentence will be credited to an account ("Account") established for the Employee for bookkeeping purposes only on the books of the Company. The amounts credited
to the Account will be credited as of the last day of each month with interest, compounded monthly, until the amount credited to the Account is paid to the Employee. The rate of interest credited under the previous sentence will be the prime rate of interest as reported by the Midwest edition of the Wall Street Journal for the second business day of each quarter on an annual basis. The balance in the Account will be subject to the same terms regarding vesting and forfeiture as the Employee's Restricted Stock Units awarded under the accompanying letter and this document, and will be paid in cash in a single sum at the time that the Shares associated with the Employee's Restricted Stock Units are delivered (or forfeited at the time that the Employee's Restricted Stock Units are forfeited). 4. Termination of Employment. Subject to the forfeiture provisions of clause 2(b) above, an Employee's right to receive the Shares underlying his or her Restricted Stock Units after termination of his or her employment will be only as follows: (a) End of Service. If the Employee experiences an End of Service Date, the Employee will be entitled to receive the Shares underlying any Restricted Stock Units that have then vested. In addition, the Employee will be entitled to receive the Shares underlying the number of Restricted Stock Units, if any, that have not yet vested but would have vested under Section 2 if the Employee's End of Service Date had been 24 months following his actual End of Service Date. The Employee will forfeit the right to receive Shares underlying any Restricted Stock Units that have not yet vested or would not have vested in the next 24 months as described in the preceding sentence. The Employee's "End of Service Date" is the date of his or her retirement after attaining age 55 and completing ten years of service (as defined in the Lear Corporation Pension Plan, regardless of whether the Employee participates in such plan). (b) Disability or Death. If an Employee's employment with the Company and all of its Affiliates terminates due to Disability (as determined by the Company or its agent) or death, the Employee or the Employee's beneficiary under the Plan will be entitled to receive the Shares underlying all of the Restricted Stock Units, including both those that have already vested and those that have not yet vested under Section 2 above. (c) Other Termination of Employment. If an Employee's employment with the Company and all Affiliates terminates due to any reason other than those provided in clauses 4(a) or (b), the Employee or his or her estate (in the event of his or her death after termination) will forfeit the right to receive Shares underlying any Restricted Stock Units that have not yet vested, but will be entitled to receive Shares underlying any Restricted Stock Units that, at that time, will have become vested. 5. Timing and Form of Payment. Except as provided in this Section or in clause 2(b) or Section 4, once a Restricted Stock Unit vests, the Employee will be entitled to receive a Share in its place. Delivery of the Share will be made as soon as administratively feasible after its associated Restricted Stock Unit vests or at the later date elected by the Employee under Section 6. Shares will be credited to an account established for the benefit of the Employee with the Company's administrative agent. The Employee will have full legal and beneficial ownership with respect to the Shares at that time. -2-
6. Election to Defer. The Employee may elect to defer delivery of any or all Shares due to him or her under the Award described in this document (and any balance in his Account under clause 3(b)) to a date beyond their vesting date, by making a timely deferral election. In his or her election to defer, the Employee may choose between deferral to a particular calendar year, or to the year following his or her termination of employment, but in no event may the Employee defer delivery of a Share more than ten years beyond the date the Restricted Stock Unit underlying it is due to vest under Section 2 above. If an Employee's employment with the Company and all Affiliates terminates for any reason other than an End of Service Date before the calendar year specified in a deferral election, he or she will be deemed to have elected to defer delivery to the calendar year following his or her termination of employment. In addition, if the Employee dies while employed with the Company or any Affiliate, any Shares remaining to be paid in respect of this Award will be paid to his or her beneficiary designated under the Plan as soon as practicable, regardless of any outstanding election to defer. Shares whose receipt is deferred under this Section 6 will be delivered on or about March 15 of the year to which they were deferred. An election to defer will be considered timely only if it is filed at least one year and one day in advance of the date the Restricted Stock Units subject to the deferral will vest and the Employee remains employed by the Company or an Affiliate for such period of a year and one day. Notwithstanding anything in this Section 6 to the contrary, an election to defer hereunder shall comply with the requirements of Section 409A of the Code or it will not be a valid election. 7. Assignment and Transfers. The Employee may not assign, encumber or transfer any of his or her rights and interests under the Award described in this document, except, in the event of his or her death, by will or the laws of descent and distribution. 8. Withholding Tax. The Company and any Affiliate will have the right to retain Shares or cash that are distributable to the Employee hereunder to the extent necessary to satisfy any withholding taxes, whether federal or state, triggered by the distribution of Shares or cash pursuant to the Award reflected in this document. 9. Securities Law Requirements. (a) The Restricted Stock Units are subject to the further requirement that, if at any time the Committee determines in its discretion that the listing or qualification of the Shares subject to the Restricted Stock Units under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the issuance of Shares under it, then Shares will not be issued under the Restricted Stock Units, unless the necessary listing, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (b) No person who acquires Shares pursuant to the Award reflected in this document may, during any period of time that person is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933 (the "1933 Act")) sell the Shares, unless the offer and sale is made pursuant to (i) an effective registration statement under the 1933 Act, which is current and includes the Shares to be sold, or (ii) an appropriate exemption from the registration -3-
requirements of the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act. With respect to individuals subject to Section 16 of the Exchange Act, transactions under this Award are intended to comply with all applicable conditions of Rule 16b-3, or its successors under the Exchange Act. To the extent any provision of the Award or action by the Committee fails to so comply, the Committee may determine, to the extent permitted by law, that the provision or action will be null and void. 10. No Limitation on Rights of the Company. The grant of the Award described in this document will not in any way affect the right or power of the Company to make adjustments, reclassification or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. 11. Plan, Restricted Stock Units and Award Not a Contract of Employment. Neither the Plan, the Restricted Stock Units nor any other right or interest that is part of the Award reflected in this document is a contract of employment, and no terms of employment of the Employee will be affected in any way by the Plan, the Restricted Stock Units, the Award, this document or related instruments, except as specifically provided therein. Neither the establishment of the Plan nor the Award will be construed as conferring any legal rights upon the Employee for a continuation of employment, nor will it interfere with the right of the Company or any Affiliate to discharge the Employee and to treat him or her without regard to the effect that treatment might have upon him or her as an Employee. 12. Employee to Have No Rights as a Stockholder. Except as provided in Section 3 above, the Employee will have no rights as a stockholder with respect to any Shares subject to the Restricted Stock Units prior to the date on which he or she is recorded as the holder of those Shares on the records of the Company. 13. Notice. Any notice or other communication required or permitted hereunder must be in writing and must be delivered personally, or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered personally or, if mailed, three days after the date of deposit in the United States mail, in the case of the Company to 21557 Telegraph Road, P. O. Box 5008, Southfield, Michigan, 48086-5008, Attention: General Counsel and, in the case of the Employee, to the last known address of the Employee in the Company's records. 14. Governing Law. This document and the Award will be construed and enforced in accordance with, and governed by, the laws of the State of Michigan, determined without regard to its conflict of law rules. 15. Plan Document Controls. The rights granted under this Restricted Stock Unit document are in all respects subject to the provisions of the Plan to the same extent and with the same effect as if they were set forth fully therein. If the terms of this document or the Award conflict with the terms of the Plan document, the Plan document will control. -4-
EXHIBIT 10.3 LEAR CORPORATION LONG-TERM STOCK INCENTIVE PLAN STOCK APPRECIATION RIGHTS TERMS AND CONDITIONS 1. Definitions. Any term capitalized herein but not defined will have the meaning set forth in the Plan. 2. Term, Vesting and Exercise of the SAR. (a) If the Employee remains employed by the Company, the SAR will expire seven years from the Grant Date. If the Employee terminates employment with the Company before the seventh anniversary of the Grant Date, his or her right to exercise the SAR after termination of his or her employment will be only as provided in Section 3. (b) The SAR will vest and become exercisable as to one-third of the Shares to which the SAR relates on each of the first three anniversaries of the Grant Date. Notwithstanding the foregoing, upon the Employee's death or Disability, the SAR will vest and become exercisable as to all of the Shares to which the SAR relates. If the Employee experiences an End of Service Date, the SAR will vest as to those Shares underlying the SAR, if any, that have not yet vested but would have vested hereunder if the Employee's End of Service Date had been 24 months following his actual End of Service Date. The Employee will forfeit that portion of the SAR which has not yet vested or would not have vested in the next 24 months as described in the preceding sentence. Notwithstanding anything contained herein to the contrary, the right (whether or not vested) of an Employee to exercise the SAR will be forfeited if the Committee determines, in its sole discretion, that (i) the Employee has entered into a business or employment relationship which is detrimentally competitive with the Company or substantially injurious to the Company's financial interests; (ii) the Employee has been discharged from employment with the Company or an Affiliate for Cause; or (iii) the Employee has performed acts of willful malfeasance or gross negligence in a matter of material importance to the Company or an Affiliate. (c) The SAR may be exercised by written notice to the Company indicating the number of Shares to which the SAR relates being exercised. When the SAR is vested and exercisable, it may be exercised in whole at any time or in part from time to time as to any or all full Shares under the SAR. Notwithstanding the foregoing, the SAR may not be exercised for fewer than 100 Shares at any one time or, if fewer, all the Shares that are then subject to the SAR. (d) Any amount due to the Employee upon exercise of the SAR will be paid in Shares. The number of Shares delivered to Employee upon exercise of the SAR will be based on the amount, if any, by which the Fair Market Value of a Share on the date of exercise exceeds the grant price ("Grant Price") of the SAR. The Employee will not receive a distribution of Shares if the Fair Market Value on the date of exercise does not exceed the Grant Price. The
Employee's distribution of Shares upon exercise of the SAR will be calculated by dividing (x) the aggregate dollar difference between the Fair Market Value of a Share on the date of exercise and the Grant Price for all SAR's so exercised by (y) the Fair Market Value of a Share on the date of exercise; provided, that the amount of Shares delivered to Employee shall be subject to any minimum withholding as specified in clause 4 hereof. Notwithstanding the foregoing, the Employee may not receive a distribution of more Shares than he or she was granted in the Award. 3. Termination of Employment. Subject to the forfeiture provisions in clause 2(b) above, an Employee's right to exercise the SAR after termination of his or her employment will be only as follows: (a) End of Service. If the Employee experiences an End of Service Date, the SAR will vest, in accordance with Section 2(b) hereof, as to those Shares underlying the SAR, if any, that have not yet vested but would have vested hereunder if the Employee's End of Service Date had been 24 months following his actual End of Service Date, and the Employee will have the right for thirteen months following his or her End of Service Date (but not later than the date on which the SAR would otherwise expire), to exercise the SAR. However, if the Employee dies prior to the end of the thirteen-month period after the End of Service Date, his or her estate will have the right to exercise the SAR within thirteen months following the Employee's End of Service Date (but not later than the date on which the SAR would otherwise expire). The Employee's "End of Service Date" is the date of his or her retirement after attaining age 55 and completing ten years of service (as defined in the Lear Corporation Pension Plan, regardless of whether the Employee participates in such plan). (b) Disability or Death. If an Employee's employment terminates due to Disability or death, the SAR will immediately vest and become exercisable as to all Shares to which the SAR relates, and the Employee (or in the case of death, the Employee's estate) will have the right for a period of thirteen months following the date of the termination (but not later than the date on which the SAR would otherwise expire) to exercise the SAR. (c) Other Termination. In the case of an Employee who terminates employment for any reason other than those provided in clauses 3(a) or (b), the Employee or his or her estate (in the event of his or her death after the Employee's termination): (i) may, within the 30-day period following the termination, exercise the SAR to the extent that it was vested and exercisable on the date his or her employment terminated; and (ii) will forfeit the SAR to the extent that it was not vested and exercisable on the date his or her employment terminated. 4. Medium and Time of Payment. Any withholding tax, up to the minimum withholding requirement for supplemental wages may be paid with Shares issueable to the Employee upon exercise under this SAR. Shares used to satisfy any minimum required withholding tax will be valued at their Fair Market Value as of the date of exercise. -2-
5. Transferability of SAR and Shares Acquired Upon Exercise of SAR. This SAR is transferable only by will or the laws of descent and distribution, or pursuant to a domestic relations order (as defined in Code Section 414(p)). The SAR will be exercisable during the Employee's lifetime only by the Employee or by his or her guardian or legal representative. The Committee may, in its discretion, require a guardian or legal representative to supply it with evidence the Committee deems necessary to establish the authority of the guardian or legal representative to exercise the SAR on behalf of the Employee. Except as limited by applicable securities laws and the provisions of Section 6 hereof, Shares acquired upon exercise of this SAR will be freely transferable. 6. Securities Law Requirements. (a) If required by the Company, the notice of exercise of the SAR must be accompanied by the Employee's written representation: (i) that the stock being acquired is purchased for investment and not for resale or with a view to its distribution; (ii) acknowledging that the stock has not been registered under the Securities Act of 1933, as amended (the "1933 Act"); and (iii) agreeing that the stock may not be sold or transferred unless either there is an effective Registration Statement for it under the 1933 Act, or in the opinion of counsel for the Company, the sale or transfer will not violate the 1933 Act. This SAR will not be exercisable in whole or in part, nor will the Company be obligated to sell or issue any Shares subject to the SAR, if exercise and sale (or issuance) may, in the opinion of counsel for the Company, violate the 1933 Act (or other federal or state statutes having similar requirements), as it may be in effect at that time, or cause the Company to violate the terms of Section 4.1 of the Plan. (b) The SAR is subject to the further requirement that, if at any time the Committee determines in its discretion that the registration, listing or qualification of the Shares subject to the SAR under any federal securities law, securities exchange requirements or under any other applicable law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the granting of the SAR or the issuance of Shares under it, the SAR may not be exercised in whole or in part, unless the necessary registration, listing, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (c) No person who acquires Shares pursuant to this SAR may, during any period of time that person is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the 1933 Act) sell the Shares, unless the offer and sale is made pursuant to (i) an effective registration statement under the 1933 Act, which is current and includes the Shares to be sold, or (ii) an appropriate exemption from the registration requirements of the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act. With respect to individuals subject to Section 16 of the Exchange Act, transactions under this SAR are intended to comply with all applicable conditions of Rule 16b-3, or its successors under the Exchange Act. To the extent any provision of the SAR or action by the Committee fails to so comply, the Committee may determine, to the extent permitted by law, that the provision or action will be null and void. -3-
7. No Obligation to Exercise SAR. The granting of the SAR imposes no obligation upon the Employee (or upon a transferee of an Employee) to exercise the SAR. 8. No Limitation on Rights of the Company. The grant of the SAR will not in any way affect the right or power of the Company to make adjustments, reclassification or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. 9. Plan and SAR Not a Contract of Employment. Neither the Plan nor this SAR is a contract of employment, and no terms of employment of the Employee will be affected in any way by the Plan, this SAR or related instruments except as specifically provided therein. Neither the establishment of the Plan nor this SAR will be construed as conferring any legal rights upon the Employee for a continuation of employment, nor will it interfere with the right of the Company or any Affiliate to discharge the Employee and to treat him or her without regard to the effect that treatment might have upon him or her as an Employee. 10. Employee to Have No Rights as a Stockholder. The Employee will have no rights as a stockholder with respect to any Shares subject to the SAR prior to the date on which he or she is recorded as the holder of those Shares on the records of the Company. 11. No Deferral Rights. Notwithstanding anything in Article 12 of the Plan to the contrary, there shall be no deferral of payment, delivery or receipt of any amounts hereunder. 12. Notice. Any notice or other communication required or permitted hereunder must be in writing and must be delivered personally, or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered personally or, if mailed, three days after the date of deposit in the United States mail, in the case of the Company to 21557 Telegraph Road, P. O. Box 5008, Southfield, Michigan, 48086-5008, Attention: General Counsel and, in the case of the Employee, to the last known address of the Employee in the Company's records. 13. Governing Law. This document and the SAR will be construed and enforced in accordance with, and governed by, the laws of the State of Delaware, determined without regard to its conflict of law rules. 14. Plan Document Controls. The rights granted under this SAR document are in all respects subject to the provisions of the Plan to the same extent and with the same effect as if they were set forth fully herein. If the terms of this document or the SAR conflict with the terms of the Plan document, the Plan document will control. -4-
EXHIBIT 10.4 LEAR CORPORATION LONG-TERM STOCK INCENTIVE PLAN SUPPLEMENTAL RESTRICTED STOCK UNIT TERMS AND CONDITIONS 1. Definitions. Any term capitalized herein but not defined will have the meaning set forth in the Plan. 2. Grant and Vesting of Restricted Stock Units. (a) As of the Grant Date specified in the letter that accompanies this document, the Employee will be credited with the number of Restricted Stock Units set forth in the letter that accompanies this document. Each Restricted Stock Unit is a notional amount that represents one unvested share of Common Stock, $0.01 par value, of the Company (the "Common Stock"). Each Restricted Stock Unit constitutes the right, subject to the terms and conditions of the Plan and this document, to distribution of a Share if and when the Restricted Stock Unit vests. If the Employee's employment with the Company and all of its Affiliates terminates before the date that all of the Restricted Stock Units vest, his or her right to receive the Shares underlying unvested Restricted Stock Units will be only as provided in Section 4. (b) Subject to Section 4, the Restricted Stock Units will vest on the first anniversary of the Grant Date. 3. Rights as a Stockholder. (a) Unless and until a Restricted Stock Unit has vested and the Share underlying it has been distributed to the Employee, the Employee will not be entitled to vote that Share. (b) If the Company declares a cash dividend on its common stock, then, on the payment date of the dividend, the Employee will be credited with dividend equivalents equal to the amount of cash dividend per share multiplied by the number of Restricted Stock Units credited to the Employee through the record date. The dollar amount credited to an Employee under the preceding sentence will be credited to an account ("Account") established for the Employee for bookkeeping purposes only on the books of the Company. The amounts credited to the Account will be credited as of the last day of each month with interest, compounded monthly, until the amount credited to the Account is paid to the Employee. The rate of interest credited under the previous sentence will be the prime rate of interest as reported by the Midwest edition of the Wall Street Journal for the second business day of each quarter on an annual basis. The balance in the Account will be subject to the same terms regarding vesting and forfeiture as the Employee's Restricted Stock Units awarded under the accompanying letter and this document, and will be paid in cash in a single sum at the time that the Shares associated with the Employee's Restricted Stock Units are delivered (or forfeited at the time that the Employee's Restricted Stock Units are forfeited).
4. Termination of Employment. Subject to the forfeiture provisions of clause 2(b) above, if an Employee's employment with the Company shall terminate for any reason, the Employee (or his or her beneficiary under the Plan) will be entitled to receive the Shares underlying one-twelfth of the Restricted Stock Units for every completed month between the Grant Date and the date of termination. 5. Timing and Form of Payment. Except as provided in this Section or in clause 2(b) or Section 4, once a Restricted Stock Unit vests, the Employee will be entitled to receive a Share in its place. Delivery of the Share will be made as soon as administratively feasible after its associated Restricted Stock Unit vests. Shares will be credited to an account established for the benefit of the Employee with the Company's administrative agent. The Employee will have full legal and beneficial ownership with respect to the Shares at that time. 6. [reserved] 7. Assignment and Transfers. The Employee may not assign, encumber or transfer any of his or her rights and interests under the Award described in this document, except, in the event of his or her death, by will or the laws of descent and distribution. 8. Withholding Tax. The Company and any Affiliate will have the right to retain Shares or cash that are distributable to the Employee hereunder to the extent necessary to satisfy any withholding taxes, whether federal or state, triggered by the distribution of Shares or cash pursuant to the Award reflected in this document. 9. Securities Law Requirements. (a) The Restricted Stock Units are subject to the further requirement that, if at any time the Committee determines in its discretion that the listing or qualification of the Shares subject to the Restricted Stock Units under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the issuance of Shares under it, then Shares will not be issued under the Restricted Stock Units, unless the necessary listing, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (b) No person who acquires Shares pursuant to the Award reflected in this document may, during any period of time that person is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933 (the "1933 Act")) sell the Shares, unless the offer and sale is made pursuant to (i) an effective registration statement under the 1933 Act, which is current and includes the Shares to be sold, or (ii) an appropriate exemption from the registration requirements of the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act. With respect to individuals subject to Section 16 of the Exchange Act, transactions under this Award are intended to comply with all applicable conditions of Rule 16b-3, or its successors under the Exchange Act. To the extent any provision of the Award or action by the Committee fails to so comply, the Committee may determine, to the extent permitted by law, that the provision or action will be null and void. -2-
10. No Limitation on Rights of the Company. The grant of the Award described in this document will not in any way affect the right or power of the Company to make adjustments, reclassification or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. 11. Plan, Restricted Stock Units and Award Not a Contract of Employment. Neither the Plan, the Restricted Stock Units nor any other right or interest that is part of the Award reflected in this document is a contract of employment, and no terms of employment of the Employee will be affected in any way by the Plan, the Restricted Stock Units, the Award, this document or related instruments, except as specifically provided therein. Neither the establishment of the Plan nor the Award will be construed as conferring any legal rights upon the Employee for a continuation of employment, nor will it interfere with the right of the Company or any Affiliate to discharge the Employee and to treat him or her without regard to the effect that treatment might have upon him or her as an Employee. 12. Employee to Have No Rights as a Stockholder. Except as provided in Section 3 above, the Employee will have no rights as a stockholder with respect to any Shares subject to the Restricted Stock Units prior to the date on which he or she is recorded as the holder of those Shares on the records of the Company. 13. Notice. Any notice or other communication required or permitted hereunder must be in writing and must be delivered personally, or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered personally or, if mailed, three days after the date of deposit in the United States mail, in the case of the Company to 21557 Telegraph Road, P. O. Box 5008, Southfield, Michigan, 48086-5008, Attention: General Counsel and, in the case of the Employee, to the last known address of the Employee in the Company's records. 14. Governing Law. This document and the Award will be construed and enforced in accordance with, and governed by, the laws of the State of Michigan, determined without regard to its conflict of law rules. 15. Plan Document Controls. The rights granted under this Restricted Stock Unit document are in all respects subject to the provisions of the Plan to the same extent and with the same effect as if they were set forth fully therein. If the terms of this document or the Award conflict with the terms of the Plan document, the Plan document will control. -3-
EXHIBIT 10.5 [LEAR CORPORATION LOGO] March 15, 2005 Mr. P. Joseph Zimmer 20327 Woodhill Drive Northville, MI 48167 Dear Joe: Lear Corporation (the "Company") considers it essential to its best interest and the best interests of its stockholders to foster the continued employment of key management personnel. The Board of Directors of the Company (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 yourself, to their assigned duties. The Board recognizes that, as is the case with many publicly-held companies, the possibility of a Change in Control (as that term is hereafter defined) exists. The Company wishes to assure itself of both present and future continuity of management in the event of any Change in Control. In order to induce you to remain in the employ of the Company, and in consideration of your agreement to the termination of any existing employment contract you may have with the Company or any predecessor, the Company agrees that you shall receive, upon the terms and conditions set forth herein, the compensation and benefits set forth in this letter agreement ("Agreement") during the Term hereof. 1. TERM OF AGREEMENT AND REPLACEMENT OF PRIOR LETTER AGREEMENT. This Agreement shall commence as of March 15, 2005 ("Effective Date"). The initial term of this Agreement shall be three (3) years from the Effective Date. Commencing on the first anniversary of the Effective Date, the term of this Agreement shall at all times be two (2) years, that is, the term of this Agreement shall be automatically extended each day for an additional day such that this Agreement shall continually have an unexpired term of two (2) years, until the date two (2) years after written notice is provided by either the Company or the Executive that this Agreement is not to be further extended (a "Notice of Non-Renewal"), the date set forth in a Notice of Termination provided pursuant to Section 4, the date of the Executive's death, or the date the Executive reaches his or her normal retirement date under the Lear Corporation Pension Plan or its successor, whichever shall first occur (the initial term as so extended is referred to herein as the "Term"). This Agreement replaces the prior letter agreement ("Prior Agreement") between the Company and you,
Mr. P. Joseph Zimmer March 15, 2005 Page 2 of 18 dated July 5, 2000. The Prior Agreement shall terminate upon execution of this Agreement. In consideration of the termination of the Prior Agreement, the Company is continuing your employment on the terms set forth in this Agreement, will pay you $5,000 in cash upon the execution of this Agreement and is providing you other good and valid consideration by entering into this Agreement, the receipt and sufficiency of which consideration you hereby acknowledge by executing this Agreement. 2. TERMS OF EMPLOYMENT. During the Term, you agree to be a full-time employee of the Company serving initially in the position of President, IPD of the Company. You agree to devote substantially all of your working time and attention to the business and affairs of the Company, to discharge the responsibilities associated with your position with the Company, and to use your best efforts to perform faithfully and efficiently such responsibilities. In addition, you agree to serve in such other or different capacities or offices to which you may be assigned, appointed or elected from time to time by the Company. Nothing herein shall prohibit you from devoting your time to civic and community activities, serving as a member of the Board of Directors of other corporations that do not compete with the Company, or managing personal investments, as long as the foregoing do not interfere with the performance of your duties hereunder or violate the terms of the Company's Code of Business Ethics and Conduct, the Company's Corporate Governance Guidelines, or other policies applicable to the Company's executives generally, as those policies may be amended from time to time by the Company. 3. COMPENSATION. (a) As compensation for your services, under this Agreement, you shall be entitled during the Term to receive an initial base salary the annualized amount of which shall be $460,000*, to be paid in accordance with existing payroll practices for executives of the Company. Increases in your base salary, if any, shall be as approved by the Compensation Committee of the Board. In addition, you shall be eligible to receive an annual incentive compensation bonus ("Bonus") to be approved from time to time by the Compensation Committee of the Board. (b) During the Term, you shall be eligible for participation in the welfare, retirement, perquisite and fringe benefit, and other benefit plans, practices, policies and programs, as may be in effect from time to time, for senior executives of the Company generally. (c) During the Term, you shall be eligible for prompt reimbursement for business expenses reasonably incurred by you in accordance with the Company's policies, as may be in effect from time to time, for its senior executives generally. 4. TERMINATION OF EMPLOYMENT. (a) NOTICE. You or the Company may terminate the employment relationship by giving a Notice of Non-Renewal, as described in Section 1. Alternatively, the employment relationship - ----------- * effective December 1, 2005 2
Mr. P. Joseph Zimmer March 15, 2005 Page 3 of 18 may be terminated by the Company with or without Cause, by the Company for Incapacity, or by you with or without Good Reason, all as defined below, by giving a Notice of Termination. 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, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. All notices under this Section 4(a) shall be given in accordance with the requirements of Section 9. (b) INCAPACITY. If the Company reasonably determines that you are unable at any time to perform the duties of your position because of a serious illness, injury, impairment, or physical or mental condition and you are not eligible for or have exhausted all leave to which you may be entitled under the Family and Medical Leave Act ("FMLA") or, if more generous, other applicable state or local law, the Company may terminate your employment for "Incapacity". In addition, at any time that you are on a leave of absence, the Company may temporarily reassign the duties of your position to one or more other executives without creating a basis for your Good Reason resignation, provided that the Company restores such duties to you upon your return to work. (c) CAUSE. Termination of your employment for "Cause" shall mean termination upon: (i) an act of fraud, embezzlement or theft by you in connection with your duties or in the course of your employment with the Company; (ii) your material breach of any provision of this Agreement, provided that in those instances in which your material breach is capable of being cured, you have failed to cure within a thirty (30) day period after notice from the Company; (iii) an act or omission, which is (x) willful or grossly negligent, (y) contrary to established policies or practices of the Company, and (z) materially harmful to the business or reputation of the Company, or to the business of the Company's customers or suppliers as such relate to the Company; or (iv) a plea of nolo contendere to, or conviction for, a felony. (d) GOOD REASON. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following circumstances or events: (i) any reduction by the Company in your base salary or adverse change in the manner of computing your Bonus, as in effect from time to time, except for across-the-board salary reductions or changes to the manner of computing bonuses similarly affecting all executive officers of the Company subject to Section 16(b) of the Securities Exchange Act of 1934, as determined by the Board ("executive officers"); (ii) the failure by the Company to pay or provide to you any amounts of base salary or Bonus or any benefits which are due, owing and payable to you pursuant to the terms 3
Mr. P. Joseph Zimmer March 15, 2005 Page 4 of 18 hereof, except pursuant to an across-the-board compensation deferral similarly affecting all executive officers, or to pay to you any portion of an installment of deferred compensation due under any deferred compensation program of the Company; (iii) except in the case of across-the-board reductions, deferrals, eliminations, or plan modifications similarly affecting all executive officers, the failure by the Company to continue to provide you with benefits substantially similar in the aggregate to the Company's life insurance, medical, dental, health, accident or disability plans in which you are participating at the date of this Agreement; (iv) without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company. However, the language in Sections 4(d)(i) through (iii) concerning reductions, changes, deferrals, eliminations, or plan modifications similarly affecting all executive officers of the Company shall not be applicable to circumstances or events occurring in anticipation of, or within one year after, a Change in Control, as defined in Section 4(e). In addition, upon a Change in Control, you shall have the right to resign for Good Reason if your principal place of employment is transferred to a location fifty (50) or more miles from its location immediately preceding the transfer. Notwithstanding anything else herein, Good Reason shall not exist if, with regard to the circumstances or events relied upon in your Notice of Termination: (x) you failed to provide a Notice of Termination to the Company within sixty (60) days of the date you knew or should have known of such circumstances or events, (y) the circumstances or events are fully corrected by the Company prior to the Date of Termination, or (z) you give your express written consent to the circumstances or events. (e) CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to have occurred as of the first day any one or more of the following paragraphs is satisfied: (i) any Person as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than the Company or a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the Beneficial Owner, as that term is defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act, directly or indirectly, of securities of the Company, representing more than twenty percent of the combined voting power of the Company's then outstanding securities. (ii) during any period of twenty-six consecutive months beginning on or after the Effective Date, individuals who at the beginning of the period constituted the Board cease 4
Mr. P. Joseph Zimmer March 15, 2005 Page 5 of 18 for any reason (other than death, disability or voluntary retirement) to constitute a majority of the Board. For this purpose, any new Director whose election by the Board, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then still in office, and who either were Directors at the beginning of the period or whose election or nomination for election was so approved, will be deemed to have been a Director at the beginning of any twenty-six month period under consideration. (iii) the shareholders of the Company approve: (A) a plan of complete liquidation or dissolution of the Company; or (B) an agreement for the sale or disposition of all or substantially all the Company's assets; or (C) a merger, consolidation or reorganization of the Company with or involving any other corporation, other than a merger, consolidation or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. (f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if your employment is terminated by reason of your death, the date of your death; (ii) if your employment is terminated by the Company for any reason other than because of your death, the date specified in the Notice of Termination (which shall not be prior to the date of the notice); (iii) if your employment is terminated by you for any reason, the Date of Termination shall be not less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given, or such earlier date after the date such Notice of Termination is given as may be identified by the Company. Unless the Company instructs you not to do so, you shall continue to perform services as provided in this Agreement through the Date of Termination. (g) EMPLOYEE BENEFITS. A termination by the Company pursuant to Section 4(c) hereof or by you pursuant to Section 4(d) hereof shall not affect any rights which you may have pursuant to any other agreement, policy, plan, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof and by Section 5; provided, however, that if you shall have received or shall be receiving benefits under Section 5(a), (c), or (d) hereof and, if applicable, Section 6 hereof, you shall not be entitled to receive benefits under any other policy, plan, program or arrangement of the Company providing severance compensation to which you would otherwise be entitled. 5
Mr. P. Joseph Zimmer March 15, 2005 Page 6 of 18 5. COMPENSATION UPON TERMINATION. Upon your termination of employment, you shall receive: (a) If your employment shall be terminated by the Company for Incapacity, (i) for the period from the Date of Termination until the end of the calendar year in which such termination occurs, you shall receive all compensation payable to you under the Company's disability and medical plans and programs, as in effect on the Date of Termination, plus an additional payment from the Company (if necessary) such that the aggregate amount received by you from all sources equals your base salary, at the rate in effect on the Date of Termination, plus any Bonus and all other amounts to which you would have been entitled under any compensation or benefit plans of the Company had your employment continued until the end of the calendar year, (ii) for the period from the end of the calendar year in which such termination occurs until two (2) years from the Date of Termination (the "Payment End Date"), you shall receive all compensation payable to you under the Company's disability and medical plans and programs, as in effect on the Date of Termination, plus an additional payment from the Company (if necessary) such that the aggregate amount received by you from all sources equals your base salary at the rate in effect on the Date of Termination, and (iii) for purposes of outstanding awards and amounts owing or accrued as described in Section 5(d)(iii) of this Agreement, your employment shall be deemed to have been terminated due to your Disability (as that term is defined in the plans, programs, or arrangements described in Section 5(d)(iii) of this Agreement). After the Payment End Date, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. The additional payments by the Company described in this Section 5(a) shall be conditioned upon the execution by you or a representative with legal authority to act on your behalf of a general release relating to your employment in form and substance reasonably acceptable to the Company. (b) If your employment shall be terminated (i) by the Company for Cause or by a Notice of Non-Renewal, or (ii) by you other than for Good Reason, the Company shall pay you your base salary through the Date of Termination, at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are fully vested and irrevocably entitled under any compensation or benefit plans of the Company as of the Date of Termination, and the Company shall have no further obligations in any respect whatsoever for payment of compensation or benefits to you under this Agreement. Provided, however, that if your employment is terminated by you other than for Good Reason, you shall be compensated under this Section 5(b) only to the extent that you actively performed your assigned responsibilities through the Date of Termination. In addition, you acknowledge that a termination of employment described in this Section 5(b) shall not be considered an End of Service Date for any and all outstanding stock options to which you are a party, except to the extent it would otherwise qualify as a Retirement thereunder. (c) If your employment shall be terminated by reason of your death, the Company shall pay your estate or designated beneficiary (as designated by you by written notice to the Company, which designation shall remain in effect for the remainder of the Term and any extensions thereof until revoked or a new beneficiary is designated, in either case by written notice to the Company) your base salary through the Date of Termination, plus a Bonus prorated for the portion of the 6
Mr. P. Joseph Zimmer March 15, 2005 Page 7 of 18 Bonus measurement period occurring prior to the date of your death, plus all other amounts to which you are entitled under any compensation or benefit plans of the Company at the date of your death, including, but not limited to, all life insurance proceeds payable on your death to which your estate or beneficiaries are otherwise entitled in accordance with the terms thereof, and the Company shall have no further obligation to you, your beneficiaries or your estate under this Agreement. (d) If your employment shall be terminated (a) by the Company, except for a termination by the Company for Cause or Incapacity or by a Notice of Non-Renewal (or due to your death), or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given (or, if greater, at the rate in effect at any time within 90 days prior to the time Notice of Termination is given), plus all other amounts to which you are entitled under any compensation or benefit plans of the Company, including, without limitation, a Bonus prorated for the portion of the Bonus measurement period occurring prior to the Date of Termination, at the time such payments are due, except as otherwise provided below. (ii) Conditioned upon your execution of a general release relating to your employment in form and substance reasonably acceptable to the Company, the Company shall pay or cause to be paid to you, in lieu of any further payments to you for the portion of the Term subsequent to the Termination Date an amount (the "Severance Payment"), which shall be equal to the sum of: (A) the aggregate base salary (at the highest rate in effect at any time during the Term) which you would have received pursuant to this Agreement for the Severance Period had your employment with the Company continued for such period, and (B) the aggregate Bonus (based upon the highest annual Bonus that you received with respect to any calendar year during the two years immediately preceding the calendar year in which the Termination Date occurred, or, in the event that the Termination Date occurs prior to the first anniversary of the Effective Date, then based upon the highest annual Bonus that you received with respect to any calendar year during the three years immediately preceding the calendar year in which the Termination Date occurred) which you would have received pursuant to this Agreement for the Severance Period, had your employment with the Company continued for such period. The Severance Payment shall be paid over a period of one (1) year (the "Severance Period") in the following manner: an amount equal to fifty percent (50%) of the value of the Severance Payment, or, if the Severance Period is adjusted per Section 10(e), then an amount equal to twenty-five percent (25%) of the value of the Severance Payment, paid in a lump sum as soon as administratively practicable after your Termination Date; and an 7
Mr. P. Joseph Zimmer March 15, 2005 Page 8 of 18 amount equal to the remaining fifty percent (50%) or seventy-five percent (75%), as applicable, paid in equal semi-monthly installments, without interest, beginning six (6) months after the Termination Date and continuing through the end of the Severance Period. Notwithstanding the foregoing, in the event that the Termination Date occurs prior to the first anniversary of the Effective Date, the Severance Period will be increased by one year. (iii) All outstanding awards, and all amounts owing or accrued, on the Date of Termination under the Lear Corporation Long-Term Stock Incentive Plan ("LTSIP"), the Lear Corporation Management Stock Purchase Plan ("MSPP"), the Lear Corporation Executive Supplemental Savings Plan ("ESSP") and the Lear Corporation Pension Equalization Program ("PEP"), and any other compensation or equity-based plan, program or arrangement of the Company in which you participated (including, following a Change in Control, any additional accruals provided thereunder due to a Change in Control) will be paid to you under the terms and conditions of such plans, programs and arrangements (and the award agreements and other documents thereunder), as modified by this Section 5(d)(iii). Your awards and amounts owing or accrued that vest based on the passage of time and/or continued service (and not based primarily upon the satisfaction of performance measures, as described below) will vest as scheduled during the Severance Period as if you had remained employed; to the extent such awards and amounts owing or accrued have not vested by the end of your Severance Period, they will become vested and nonforfeitable on a pro rata basis determined by multiplying the unvested awards and amounts by a fraction, the numerator of which is the number of full months that elapsed from the grant date to the end of your Severance Period, as adjusted by Section 10(e), and the denominator of which is the number of full months in the total vesting period. Your vested stock options shall be exercisable (A) prior to a Change in Control, for thirteen months following your Date of Termination (but not later than the date on which the stock options would otherwise expire if you remained employed by the Company), and (B) following a Change in Control, throughout their entire term. In the case of those awards and amounts owing or accrued which would otherwise have become vested and nonforfeitable primarily upon the satisfaction of performance measures set forth in the relevant award agreement, plan, program or arrangement, you shall be paid in stock as soon as administratively feasible after the end of the relevant performance period (or such earlier period as the other participants in such award agreement, plan, program or arrangement are eligible to be paid out), a pro rata amount (if and to the extent all relevant performance objectives are actually achieved at target levels), based on a fraction, the numerator of which is the number of full months that elapsed from the grant date to your Date of Termination and the denominator of which is the number of full months in the relevant performance period. You and the Company acknowledge that references in this Section 5(d)(iii) to the PEP, the MSPP, the ESSP, and the LTSIP, shall be deemed to be references to such plans as amended or restated from time to time and to any similar plan of the Company that supplements or supersedes any such plans. In addition, you and the Company acknowledge that references in this Section 5 to any Section of the Code shall be deemed to be references to such Section as amended from time to time or to any successor thereto. 8
Mr. P. Joseph Zimmer March 15, 2005 Page 9 of 18 (iv) The Company shall arrange to provide to you, your dependents, and beneficiaries, for the Severance Period, benefits provided under any "welfare benefit plan" of the Company (as the term "welfare benefit plan" is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) ("Welfare Benefits"). If and to the extent that any such Welfare Benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company (A) solely due to the fact that you are no longer an officer or employee of the Company or did not continue as an officer or employee of the Company during the remainder of the Term or (B) as a result of the amendment or termination of any plan providing for Welfare Benefits, the Company shall then itself pay or provide for the payment of such Welfare Benefits to you, your dependents and beneficiaries. Without otherwise limiting the purposes or effect of the no mitigation obligation in Section 5(h) hereof, Welfare Benefits payable to you (including your dependents and beneficiaries) pursuant to this Section 5(d)(iv) shall be reduced to the extent comparable welfare benefits are actually received by you (including your dependents and beneficiaries) from another employer during such period, and any such benefits actually received by you shall be reported by you to the Company. (v) Your right to acquire any shares of the Company's capital stock under any and all outstanding stock options, or other rights previously granted to you under any equity-based plans of the Company shall be governed by the express terms of such plans and the applicable agreements thereunder, except as provided in Section 5(a), 5(b), or 5(d)(iii) of this Agreement. (e) Any Bonus that is payable to you with respect to a period that is less than a full calendar year (a "partial calendar year") shall be prorated by multiplying (i) the Bonus that would have been payable to you with respect to the entire calendar year had your employment with the Company continued until the end of such year by (ii) a fraction, the numerator of which equals the number of days in the partial calendar year and the denominator of which equals 365. (f) Unless your Date of Termination occurs within one year after a Change in Control, the Company, if permitted by law, may set-off or counterclaim losses, fines or damages in respect of any claim, debt or obligation against any payment to or benefit for you provided for in this Agreement. (g) Without limiting your rights at law or in equity, if the Company fails to make any payment or provide any benefit required to be made or provided hereunder within thirty (30) days of the date it is due, the Company will pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as quoted from time to time during the relevant period in The Wall Street Journal, plus three percent. Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change. (h) The Company acknowledges that its severance pay plans and policies applicable in general to its salaried employees do not provide for mitigation, offset or reduction of any severance 9
Mr. P. Joseph Zimmer March 15, 2005 Page 10 of 18 payment received thereunder. Accordingly, the parties hereto expressly agree that the payment of the severance compensation by the Company to you in accordance with the terms of this Agreement shall be liquidated damages and that you shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of you hereunder or otherwise, except as expressly provided in this Section 5. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (or benefit provided) by the Company to or for your benefit, whether paid or payable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 (or any successor thereto) of the Code, and any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"), including without limitation any Gross-Up Payment made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO"), or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO. The Gross-Up Payment shall be in an amount such that, after payment by you of the Excise Tax, plus any additional taxes, penalties and interest, and any further Excise Taxes imposed upon the Gross-Up Payment, you retain, after payment of all such taxes and Excise Taxes, an amount of the Gross-Up Payment equal to the Payment that you would have received if no Excise Taxes had been imposed upon the Payment and no additional taxes, penalties, and interest or further Excise Taxes had been imposed upon the Gross-Up Payment. (b) Subject to the provisions of Section 6(e) hereof, all determinations required to be made under this Section 6, including whether an Excise Tax is payable by you and the amount of such Excise Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized firm of certified public accountants (the "Accounting Firm") selected by you in your sole discretion, other than the Company's independent auditing firm, to the extent prohibited by applicable Public Company Accounting Oversight Board rules. You shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and you within 30 calendar days after the Termination Date. If the Accounting Firm determines that any Excise Tax is payable by you, the Company shall pay the required Gross-Up Payment to you within five (5) business days after receipt of the aforesaid determination and calculations. If the Accounting Firm determines that no Excise Tax is payable by you, it shall, at the same time as it makes such determination, furnish you with an opinion that you do not owe any Excise Tax on your Federal income tax return. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment to be paid by the Company within such 30 calendar day period shall be binding upon the Company and you. As a result of the uncertainty in the application of Section 4999 (or any successor thereto) of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments 10
Mr. P. Joseph Zimmer March 15, 2005 Page 11 of 18 which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(e) hereof and you thereafter are required to make a payment of any Excise Tax, you shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and you as promptly as possible. Any such Underpayment shall be promptly paid by the Company to or for your benefit within three calendar days after receipt of such determination and calculations. (c) The Company and you shall each cooperate with the Accounting Firm in connection with the preparation and issuance of the determination provided for in Section 6(b) hereof. Such cooperation shall include without limitation providing the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or you, as the case may be, that are reasonably requested by the Accounting Firm. (d) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations provided for in Section 6(b) hereof shall initially be paid by you. The Company shall reimburse you for your payment of such costs and expenses within five (5) business days after receipt from you of a statement therefor and evidence of your payment thereof. (e) You shall notify the Company in writing, of any claim by the Internal Revenue Service (the "IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after you receive notice of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. You shall not pay such claim prior to the earlier of (x) the expiration of the 30 calendar day period following the date on which you give such notice to the Company or (y) the date that any payment of taxes with respect to such claim is due. If the Company notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (i) give the Company any information reasonably requested by the Company relating, to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing, from time to time, including without limitation accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; 11
Mr. P. Joseph Zimmer March 15, 2005 Page 12 of 18 provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6(e), the Company shall, provided that such control does not have a material adverse affect on your individual income tax with respect to matters unrelated to the contest of the Excise Tax, control all proceedings taken in connection with such contest and, at its sole option, may, provided that such pursuit or foregoing does not have a material adverse affect on your individual income tax with respect to matters unrelated to the contest of the Excise Tax, pursue or forego any and all administrative appeals, proceedings, hearings and conference with the IRS in respect of such claim (but, you may participate therein at your own cost and expense) and may, at its sole option, provided that such payment, suit, contest or prosecution does not have a material adverse affect on your individual income tax with respect to matters unrelated to the contest of the Excise Tax, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs you to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to you on an interest-free basis and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for your taxable year with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of such contest shall be limited to issues with respect to which a Gross Up Payment would be payable hereunder, and you shall be entitled to settle or contest, as the case may be, any other issue raised by the IRS. (f) If, after the receipt by you of an amount advanced by the Company pursuant to Section 6(e) hereof, you receive any refund with respect to such claim, you shall (subject to the Company's complying with the requirements of Section 6(e) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by you of an amount advanced by the Company pursuant to Section 6(e) hereof, a determination is made that you shall not be entitled to any refund with respect to such claim and the Company does not notify you in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. TRAVEL. You shall be required to travel to the extent necessary for the performance of your responsibilities under this Agreement. 8. SUCCESSORS; BINDING AGREEMENT. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially 12
Mr. P. Joseph Zimmer March 15, 2005 Page 13 of 18 all 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, and will assign its rights and obligations hereunder to such successor. Failure of the Company to make such an assignment and to obtain such assumption and agreement prior to the effectiveness of any such succession, unless you agree otherwise in writing with the Company or the successor, shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason and the date on which any such succession becomes effective shall be deemed your Date of Termination. 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. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in this Section 8. Without limiting the generality of the foregoing, your right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by your will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 8, the Company shall have no liability to pay to the purported assignee or transferee any amount so attempted to be assigned or transferred. The Company and you recognize that each party will have no adequate remedy at law for any material breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and you hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 9. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing, and shall be deemed to have been duly given when delivered by hand, or mailed by United States certified mail, return receipt requested, postage prepaid, or sent by Federal Express or similar overnight courier service, addressed to the respective addresses set forth on the first page of this Agreement, or sent by facsimile with confirmation of receipt to the respective facsimile numbers set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company (or, if you are the Secretary at the time such notice is to be given, to the Chairman of the Company's Board of Directors), or to such other address or facsimile number as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address or facsimile number shall be effective only upon receipt. 10. NONCOMPETITION. (a) Until the Date of Termination, you agree not to engage in any Competitive Activity. For purposes of this Agreement, the term "Competitive Activity" shall mean your participation as an employee or consultant, without the written consent of the CEO or the Board or any authorized committee thereof, in the management of any business enterprise anywhere in the world if such 13
Mr. P. Joseph Zimmer March 15, 2005 Page 14 of 18 enterprise engages in competition with any product or service of the Company (including without limitation any enterprise that is a supplier to an original equipment automotive vehicle manufacturer) or is planning to engage in such competition. "Competitive Activity" shall not include the mere ownership of, and exercise of rights appurtenant to, securities of a publicly-traded company representing 5% or less of the total voting power and 5% or less of the total value of such an enterprise. You agree that the Company is a global business and that it is appropriate for this Section 10 to apply to Competitive Activity conducted anywhere in the world. (b) You agree not to engage directly or indirectly in any Competitive Activity (i) until one (1) year after the Date of Termination if you are terminated by the Company for Cause, as a result of a Notice of Non-Renewal from the Company, or you terminate your employment for other than Good Reason, or (ii) until two (2) years after the Date of Termination in all other circumstances. (c) You shall not directly or indirectly, either on your own account or with or for anyone else, solicit or attempt to solicit any of the Company's customers, solicit or attempt to solicit for any business endeavor or hire or attempt to hire any employee of the Company, or otherwise divert or attempt to divert from the Company any business whatsoever or interfere with any business relationship between the Company and any other person, (i) until one (1) year after the Date of Termination if you are terminated by the Company for Cause, as a result of a Notice of Non-Renewal from the Company, or you terminate your employment for other than Good Reason, or (ii) until two (2) years after the Date of Termination in all other circumstances. (d) You acknowledge and agree that damages in the event of a breach or threatened breach of the covenants in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore agree that the Company, in addition to seeking actual damages pursuant to Section 10 hereof, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. You and the Company agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. (e) As additional compensation for the covenants contained in Sections 10(b) and 10(c), and only if you execute a general release in form and substance reasonably acceptable to the Company acknowledging, among other things, your obligations under this Agreement, the Company shall increase the Severance Period for purposes of Section 5(d) from one (1) year to two (2) years. 14
Mr. P. Joseph Zimmer March 15, 2005 Page 15 of 18 11. CONFIDENTIALITY AND COOPERATION. (a) You shall not knowingly use, disclose or reveal to any unauthorized person, during or after the Term, any trade secret or other confidential information relating to the Company or any of its affiliates, or any of their respective businesses or principals, such as, without limitation, dealers' or distributor's lists, information regarding personnel and manufacturing processes, marketing and sales plans, pricing or cost information, and all other such information; and you confirm that such information is the exclusive property of the Company and its affiliates. Upon termination of your employment, you agree to return to the Company on demand by the Company all memoranda, books, papers, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, whether made by you or otherwise in your possession. (b) Any design, engineering methods, techniques, discoveries, inventions (whether patentable or not), formulae, formulations, technical and product specifications, bill of materials, equipment descriptions, plans, layouts, drawings, computer programs, assembly, quality control, installation and operating procedures, operating manuals, strategic, technical or marketing information, designs, data, secret knowledge, know-how and all other information of a confidential nature prepared or produced during the period of your employment and which ideas, processes, and other materials or information relate to any of the businesses of the Company, shall be owned by the Company and its affiliates whether or not you should in fact execute an assignment thereof or other instrument or document which may be reasonably necessary to protect and secure such rights to the Company. (c) Following the termination of your employment, you agree to make yourself reasonably available to the Company to respond to periodic requests for information relating to the Company or your employment which may be within your knowledge. You further agree to cooperate fully with the Company in connection with any and all existing or future depositions, litigation, or investigations brought by or against the Company, any entity related to the Company, or any of its (their) agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which and to the extent the Company deems your cooperation necessary. In the event that you are subpoenaed in connection with any litigation or investigation, you will immediately notify the Company. You shall not receive any additional compensation, other than reimbursement for reasonable costs and expenses incurred by you, in complying with the terms of this Section 11(c). 15
Mr. P. Joseph Zimmer March 15, 2005 Page 16 of 18 12. ARBITRATION. (a) Except as contemplated by Section 10(d) or Section 12(c) hereof, any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties to this Agreement and their respective advisors and representatives shall be settled exclusively by arbitration in Southfield, Michigan, before one arbitrator of exemplary qualifications and stature, who shall be selected jointly by an individual to be designated by the Company and an individual to be selected by you, or if such two individuals cannot agree on the selection of the arbitrator, who shall be selected pursuant to the procedures of the American Arbitration Association. (b) The parties agree to use their best efforts to cause (i) the two individuals set forth in the preceding Section 12(a), or, if applicable, the American Arbitration Association, to appoint the arbitrator within 30 days of the date that a party hereto notifies the other party that a dispute or controversy exists that necessitates the appointment of an arbitrator, and (ii) any arbitration hearing to be held within 30 days of the date of selection of the arbitrator, and, as a condition to his or her selection, such arbitrator must consent to be available for a hearing, at such time. (c) Judgment may be entered on the arbitrator's award in any court having jurisdiction, provided that you shall be entitled to seek specific performance of your right to be paid and to participate in benefit programs during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company and you hereby agree that the arbitrator shall be empowered to enter an equitable decree mandating specific performance of the terms of this Agreement. If any dispute under this Section 12 shall be pending, you shall continue to receive at a minimum the base salary which you were receiving immediately prior to the act or omission which forms the basis for the dispute. At the close of the arbitration, such continued base salary payments may be offset against any damages awarded to you or may be recovered from you if its determined that you were not entitled to the continued payment of base salary under the other provisions of this Agreement. 13. MODIFICATIONS. No provision of this Agreement may be modified, amended, waived or discharged unless such modification, amendment, waiver or discharge is agreed to in writing and signed by both you and such officer of the Company as may be specifically designated by the Board. 14. NO IMPLIED WAIVERS. Failure of either party at any time to require performance by the other party of any provision hereof shall in no way affect the full right to require such performance at any time thereafter. Waiver by either party of a breach of any obligation hereunder shall not constitute a waiver of any succeeding breach of the same obligation. Failure of either party to exercise any of its rights provided herein shall not constitute a waiver of such right. 16
Mr. P. Joseph Zimmer March 15, 2005 Page 17 of 18 15. GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Michigan without giving effect to any conflicts of laws rules. 16. PAYMENTS NET OF TAXES. Except as otherwise provided in Section 6 herein, any payments provided for herein which are subject to Federal, State local or other governmental tax or other withholding requirements or obligations, shall have such amounts withheld prior to payment, and the Company shall be considered to have fully satisfied its obligation hereunder by making such payments to you net of and after deduction for all applicable withholding obligations. 17. CAPACITY OF PARTIES. The parties hereto warrant that they have the capacity and authority to execute this Agreement. 18. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not, at the option of the party for whose benefit such provision was intended, affect the validity or enforceability of any other provision of the Agreement, which shall remain in full force and effect. 19. 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. 20. ENTIRE AGREEMENT. This Agreement and any attachments hereto, contain the entire agreement by the parties with respect to the matters covered herein and supersede any prior agreement (including, but not limited to the Prior Agreement and any other prior employment agreement(s)), condition, practice, custom, usage and obligation with respect to such matters insofar as any such prior agreement, condition, practice, custom, usage or obligation might have given rise to any enforceable right. No agreements, understandings 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. 21. LEGAL FEES AND EXPENSES. It is the intent of the Company that you not be required to incur the expenses associated with the enforcement of your rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to you hereunder. Accordingly, the Company shall pay or cause to be paid and be solely responsible for any and all reasonable attorneys' and related fees and expenses incurred by you (i) as a result of the Company's failure to perform this Agreement or any provision hereof or (ii) as a result of the Company unreasonably or maliciously contesting the validity or enforceability of this Agreement or any provision hereof as aforesaid. 22. CODE SECTION 409A. Notwithstanding any provision in this Agreement to the contrary, if your employment is terminated as described in Section 5(d) and Section 409A(a)(2)(B)(i) of the Code applies to all or any portion of your Severance Payment and you are a "specified employee" thereunder, then the Company shall pay the portion of your Severance Payment that is subject to such Section of the Code no earlier than six (6) months after your 17
Mr. P. Joseph Zimmer March 15, 2005 Page 18 of 18 Termination Date or such other date as would be permissible under the Code. If your employment is terminated as described in Section 5(d) and Section 409A(a)(2)(B)(i) of the Code does not apply to any portion of your Severance Payment or you are not a "specified employee" thereunder, then the Company shall pay your Severance Payment as described in Section 5(d). If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject, effective on March 15, 2005 ("Effective Date"). Sincerely, LEAR CORPORATION By: /s/ Roger A. Jackson ------------------------ Roger A. Jackson Agreed to this 15th day of March, 2005 /s/ Paul Joseph Zimmer - -------------------------- Paul Joseph Zimmer 18
EXHIBIT 10.6 [LEAR CORPORATION LOGO] March 15, 2005 Mr. Raymond E. Scott 5560 Clearview Troy, MI 48098 Dear Ray: Lear Corporation (the "Company") considers it essential to its best interest and the best interests of its stockholders to foster the continued employment of key management personnel. The Board of Directors of the Company (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 yourself, to their assigned duties. The Board recognizes that, as is the case with many publicly-held companies, the possibility of a Change in Control (as that term is hereafter defined) exists. The Company wishes to assure itself of both present and future continuity of management in the event of any Change in Control. In order to induce you to remain in the employ of the Company, and in consideration of your agreement to the termination of any existing employment contract you may have with the Company or any predecessor, the Company agrees that you shall receive, upon the terms and conditions set forth herein, the compensation and benefits set forth in this letter agreement ("Agreement") during the Term hereof. 1. TERM OF AGREEMENT. This Agreement shall commence as of March 15, 2005 ("Effective Date"). The initial term of this Agreement shall be two (2) years from the Effective Date. The term of this Agreement shall at all times be two (2) years, that is, the term of this Agreement shall be automatically extended each day for an additional day such that this Agreement shall continually have an unexpired term of two (2) years, until the date two (2) years after written notice is provided by either the Company or the Executive that this Agreement is not to be further extended (a "Notice of Non-Renewal"), the date set forth in a Notice of Termination provided pursuant to Section 4, the date of the Executive's death, or the date the Executive reaches his or her normal retirement date under the Lear Corporation Pension Plan or its successor, whichever shall first occur (the initial term as so extended is referred to herein as the "Term").
Mr. Raymond E. Scott March 15, 2005 Page 2 of 18 2. TERMS OF EMPLOYMENT. During the Term, you agree to be a full-time employee of the Company serving initially in the position of President, European Customer Focus Division of the Company. You agree to devote substantially all of your working time and attention to the business and affairs of the Company, to discharge the responsibilities associated with your position with the Company, and to use your best efforts to perform faithfully and efficiently such responsibilities. In addition, you agree to serve in such other or different capacities or offices to which you may be assigned, appointed or elected from time to time by the Company. Nothing herein shall prohibit you from devoting your time to civic and community activities, serving as a member of the Board of Directors of other corporations that do not compete with the Company, or managing personal investments, as long as the foregoing do not interfere with the performance of your duties hereunder or violate the terms of the Company's Code of Business Ethics and Conduct, the Company's Corporate Governance Guidelines, or other policies applicable to the Company's executives generally, as those policies may be amended from time to time by the Company. 3. COMPENSATION. (a) As compensation for your services, under this Agreement, you shall be entitled during the Term to receive an initial base salary the annualized amount of which shall be $435,000*, to be paid in accordance with existing payroll practices for executives of the Company. Increases in your base salary, if any, shall be as approved by the Compensation Committee of the Board. In addition, you shall be eligible to receive an annual incentive compensation bonus ("Bonus") to be approved from time to time by the Compensation Committee of the Board. (b) During the Term, you shall be eligible for participation in the welfare, retirement, perquisite and fringe benefit, and other benefit plans, practices, policies and programs, as may be in effect from time to time, for senior executives of the Company generally. (c) During the Term, you shall be eligible for prompt reimbursement for business expenses reasonably incurred by you in accordance with the Company's policies, as may be in effect from time to time, for its senior executives generally. 4. TERMINATION OF EMPLOYMENT. (a) NOTICE. You or the Company may terminate the employment relationship by giving a Notice of Non-Renewal, as described in Section 1. Alternatively, the employment relationship may be terminated by the Company with or without Cause, by the Company for Incapacity, or by you with or without Good Reason, all as defined below, by giving a Notice of Termination. 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, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. All notices under this Section 4(a) shall be given in accordance with the requirements of Section 9. - -------- * effective December 1, 2005. 2
Mr. Raymond E. Scott March 15, 2005 Page 3 of 18 (b) INCAPACITY. If the Company reasonably determines that you are unable at any time to perform the duties of your position because of a serious illness, injury, impairment, or physical or mental condition and you are not eligible for or have exhausted all leave to which you may be entitled under the Family and Medical Leave Act ("FMLA") or, if more generous, other applicable state or local law, the Company may terminate your employment for "Incapacity". In addition, at any time that you are on a leave of absence, the Company may temporarily reassign the duties of your position to one or more other executives without creating a basis for your Good Reason resignation, provided that the Company restores such duties to you upon your return to work. (c) CAUSE. Termination of your employment for "Cause" shall mean termination upon: (i) an act of fraud, embezzlement or theft by you in connection with your duties or in the course of your employment with the Company; (ii) your material breach of any provision of this Agreement, provided that in those instances in which your material breach is capable of being cured, you have failed to cure within a thirty (30) day period after notice from the Company; (iii) an act or omission, which is (x) willful or grossly negligent, (y) contrary to established policies or practices of the Company, and (z) materially harmful to the business or reputation of the Company, or to the business of the Company's customers or suppliers as such relate to the Company; or (iv) a plea of nolo contendere to, or conviction for, a felony. (d) GOOD REASON. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following circumstances or events: (i) any reduction by the Company in your base salary or adverse change in the manner of computing your Bonus, as in effect from time to time, except for across-the-board salary reductions or changes to the manner of computing bonuses similarly affecting all executive officers of the Company subject to Section 16(b) of the Securities Exchange Act of 1934, as determined by the Board ("executive officers"); (ii) the failure by the Company to pay or provide to you any amounts of base salary or Bonus or any benefits which are due, owing and payable to you pursuant to the terms hereof, except pursuant to an across-the-board compensation deferral similarly affecting all executive officers, or to pay to you any portion of an installment of deferred compensation due under any deferred compensation program of the Company; (iii) except in the case of across-the-board reductions, deferrals, eliminations, or plan modifications similarly affecting all executive officers, the failure by the Company to continue to provide you with benefits substantially similar in the aggregate 3
Mr. Raymond E. Scott March 15, 2005 Page 4 of 18 to the Company's life insurance, medical, dental, health, accident or disability plans in which you are participating at the date of this Agreement; (iv) without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company. However, the language in Sections 4(d)(i) through (iii) concerning reductions, changes, deferrals, eliminations, or plan modifications similarly affecting all executive officers of the Company shall not be applicable to circumstances or events occurring in anticipation of, or within one year after, a Change in Control, as defined in Section 4(e). In addition, upon a Change in Control, you shall have the right to resign for Good Reason if your principal place of employment is transferred to a location fifty (50) or more miles from its location immediately preceding the transfer. Notwithstanding anything else herein, Good Reason shall not exist if, with regard to the circumstances or events relied upon in your Notice of Termination: (x) you failed to provide a Notice of Termination to the Company within sixty (60) days of the date you knew or should have known of such circumstances or events, (y) the circumstances or events are fully corrected by the Company prior to the Date of Termination, or (z) you give your express written consent to the circumstances or events. (e) CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to have occurred as of the first day any one or more of the following paragraphs is satisfied: (i) any Person as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than the Company or a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the Beneficial Owner, as that term is defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act, directly or indirectly, of securities of the Company, representing more than twenty percent of the combined voting power of the Company's then outstanding securities. (ii) during any period of twenty-six consecutive months beginning on or after the Effective Date, individuals who at the beginning of the period constituted the Board cease for any reason (other than death, disability or voluntary retirement) to constitute a majority of the Board. For this purpose, any new Director whose election by the Board, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then still in office, and who either were Directors at the beginning of the period or whose election or nomination for election was so approved, will be deemed to have been a Director at the beginning of any twenty-six month period under consideration. 4
Mr. Raymond E. Scott March 15, 2005 Page 5 of 18 (iii) the shareholders of the Company approve: (A) a plan of complete liquidation or dissolution of the Company; or (B) an agreement for the sale or disposition of all or substantially all the Company's assets; or (C) a merger, consolidation or reorganization of the Company with or involving any other corporation, other than a merger, consolidation or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. (f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if your employment is terminated by reason of your death, the date of your death; (ii) if your employment is terminated by the Company for any reason other than because of your death, the date specified in the Notice of Termination (which shall not be prior to the date of the notice); (iii) if your employment is terminated by you for any reason, the Date of Termination shall be not less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given, or such earlier date after the date such Notice of Termination is given as may be identified by the Company. Unless the Company instructs you not to do so, you shall continue to perform services as provided in this Agreement through the Date of Termination. (g) EMPLOYEE BENEFITS. A termination by the Company pursuant to Section 4(c) hereof or by you pursuant to Section 4(d) hereof shall not affect any rights which you may have pursuant to any other agreement, policy, plan, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof and by Section 5; provided, however, that if you shall have received or shall be receiving benefits under Section 5(a), (c), or (d) hereof and, if applicable, Section 6 hereof, you shall not be entitled to receive benefits under any other policy, plan, program or arrangement of the Company providing severance compensation to which you would otherwise be entitled. 5. COMPENSATION UPON TERMINATION. Upon your termination of employment, you shall receive: (a) If your employment shall be terminated by the Company for Incapacity, (i) for the period from the Date of Termination until the end of the calendar year in which such termination occurs, you shall receive all compensation payable to you under the Company's disability and medical plans and programs, as in effect on the Date of Termination, plus an additional payment from the Company (if necessary) such that the aggregate amount received by you from all sources equals your base salary, at the rate in effect on the Date of Termination, plus any Bonus and all 5
Mr. Raymond E. Scott March 15, 2005 Page 6 of 18 other amounts to which you would have been entitled under any compensation or benefit plans of the Company had your employment continued until the end of the calendar year, (ii) for the period from the end of the calendar year in which such termination occurs until two (2) years from the Date of Termination (the "Payment End Date"), you shall receive all compensation payable to you under the Company's disability and medical plans and programs, as in effect on the Date of Termination, plus an additional payment from the Company (if necessary) such that the aggregate amount received by you from all sources equals your base salary at the rate in effect on the Date of Termination, and (iii) for purposes of outstanding awards and amounts owing or accrued as described in Section 5(d)(iii) of this Agreement, your employment shall be deemed to have been terminated due to your Disability (as that term is defined in the plans, programs, or arrangements described in Section 5(d)(iii) of this Agreement). After the Payment End Date, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. The additional payments by the Company described in this Section 5(a) shall be conditioned upon the execution by you or a representative with legal authority to act on your behalf of a general release relating to your employment in form and substance reasonably acceptable to the Company. (b) If your employment shall be terminated (i) by the Company for Cause or by a Notice of Non-Renewal, or (ii) by you other than for Good Reason, the Company shall pay you your base salary through the Date of Termination, at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are fully vested and irrevocably entitled under any compensation or benefit plans of the Company as of the Date of Termination, and the Company shall have no further obligations in any respect whatsoever for payment of compensation or benefits to you under this Agreement. Provided, however, that if your employment is terminated by you other than for Good Reason, you shall be compensated under this Section 5(b) only to the extent that you actively performed your assigned responsibilities through the Date of Termination. In addition, you acknowledge that a termination of employment described in this Section 5(b) shall not be considered an End of Service Date for any and all outstanding stock options to which you are a party, except to the extent it would otherwise qualify as a Retirement thereunder. (c) If your employment shall be terminated by reason of your death, the Company shall pay your estate or designated beneficiary (as designated by you by written notice to the Company, which designation shall remain in effect for the remainder of the Term and any extensions thereof until revoked or a new beneficiary is designated, in either case by written notice to the Company) your base salary through the Date of Termination, plus a Bonus prorated for the portion of the Bonus measurement period occurring prior to the date of your death, plus all other amounts to which you are entitled under any compensation or benefit plans of the Company at the date of your death, including, but not limited to, all life insurance proceeds payable on your death to which your estate or beneficiaries are otherwise entitled in accordance with the terms thereof, and the Company shall have no further obligation to you, your beneficiaries or your estate under this Agreement. 6
Mr. Raymond E. Scott March 15, 2005 Page 7 of 18 (d) If your employment shall be terminated (a) by the Company, except for a termination by the Company for Cause or Incapacity or by a Notice of Non-Renewal (or due to your death), or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given (or, if greater, at the rate in effect at any time within 90 days prior to the time Notice of Termination is given), plus all other amounts to which you are entitled under any compensation or benefit plans of the Company, including, without limitation, a Bonus prorated for the portion of the Bonus measurement period occurring prior to the Date of Termination, at the time such payments are due, except as otherwise provided below. (ii) Conditioned upon your execution of a general release relating to your employment in form and substance reasonably acceptable to the Company, the Company shall pay or cause to be paid to you, in lieu of any further payments to you for the portion of the Term subsequent to the Termination Date an amount (the "Severance Payment"), which shall be equal to the sum of: (A) the aggregate base salary (at the highest rate in effect at any time during the Term) which you would have received pursuant to this Agreement for the Severance Period had your employment with the Company continued for such period, and (B) the aggregate Bonus (based upon the highest annual Bonus that you received with respect to any calendar year during the two years immediately preceding the calendar year in which the Termination Date occurred, or, in the event that the Termination Date occurs prior to the first anniversary of the Effective Date, then based upon the highest annual Bonus that you received with respect to any calendar year during the three years immediately preceding the calendar year in which the Termination Date occurred) which you would have received pursuant to this Agreement for the Severance Period, had your employment with the Company continued for such period. The Severance Payment shall be paid over a period of one (1) year (the "Severance Period") in the following manner: an amount equal to fifty percent (50%) of the value of the Severance Payment, or, if the Severance Period is adjusted per Section 10(e), then an amount equal to twenty-five percent (25%) of the value of the Severance Payment, paid in a lump sum as soon as administratively practicable after your Termination Date; and an amount equal to the remaining fifty percent (50%) or seventy-five percent (75%), as applicable, paid in equal semi-monthly installments, without interest, beginning six (6) months after the Termination Date and continuing through the end of the Severance Period. Notwithstanding the foregoing, in the event that the Termination Date occurs prior to the first anniversary of the Effective Date, the Severance Period will be increased by one year. 7
Mr. Raymond E. Scott March 15, 2005 Page 8 of 18 (iii) All outstanding awards, and all amounts owing or accrued, on the Date of Termination under the Lear Corporation Long-Term Stock Incentive Plan ("LTSIP"), the Lear Corporation Management Stock Purchase Plan ("MSPP"), the Lear Corporation Executive Supplemental Savings Plan ("ESSP") and the Lear Corporation Pension Equalization Program ("PEP"), and any other compensation or equity-based plan, program or arrangement of the Company in which you participated (including, following a Change in Control, any additional accruals provided thereunder due to a Change in Control) will be paid to you under the terms and conditions of such plans, programs and arrangements (and the award agreements and other documents thereunder), as modified by this Section 5(d)(iii). Your awards and amounts owing or accrued that vest based on the passage of time and/or continued service (and not based primarily upon the satisfaction of performance measures, as described below) will vest as scheduled during the Severance Period as if you had remained employed; to the extent such awards and amounts owing or accrued, other than those stock options held by you on the Effective Date, have not vested by the end of your Severance Period, they will become vested and nonforfeitable on a pro rata basis determined by multiplying the unvested awards and amounts by a fraction, the numerator of which is the number of full months that elapsed from the grant date to the end of your Severance Period, as adjusted by Section 10(e), and the denominator of which is the number of full months in the total vesting period. Your vested stock options shall be exercisable (A) prior to a Change in Control, for thirteen months following your Date of Termination (but not later than the date on which the stock options would otherwise expire if you remained employed by the Company), and (B) following a Change in Control, throughout their entire term. In the case of those awards and amounts owing or accrued which would otherwise have become vested and nonforfeitable primarily upon the satisfaction of performance measures set forth in the relevant award agreement, plan, program or arrangement, you shall be paid in stock as soon as administratively feasible after the end of the relevant performance period (or such earlier period as the other participants in such award agreement, plan, program or arrangement are eligible to be paid out), a pro rata amount (if and to the extent all relevant performance objectives are actually achieved at target levels), based on a fraction, the numerator of which is the number of full months that elapsed from the grant date to your Date of Termination and the denominator of which is the number of full months in the relevant performance period. You and the Company acknowledge that references in this Section 5(d)(iii) to the PEP, the MSPP, the ESSP, and the LTSIP, shall be deemed to be references to such plans as amended or restated from time to time and to any similar plan of the Company that supplements or supersedes any such plans. In addition, you and the Company acknowledge that references in this Section 5 to any Section of the Code shall be deemed to be references to such Section as amended from time to time or to any successor thereto. (iv) The Company shall arrange to provide to you, your dependents, and beneficiaries, for the Severance Period, benefits provided under any "welfare benefit plan" of the Company (as the term "welfare benefit plan" is defined in Section 3(1) of the Employee 8
Mr. Raymond E. Scott March 15, 2005 Page 9 of 18 Retirement Income Security Act of 1974, as amended) ("Welfare Benefits"). If and to the extent that any such Welfare Benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company (A) solely due to the fact that you are no longer an officer or employee of the Company or did not continue as an officer or employee of the Company during the remainder of the Term or (B) as a result of the amendment or termination of any plan providing for Welfare Benefits, the Company shall then itself pay or provide for the payment of such Welfare Benefits to you, your dependents and beneficiaries. Without otherwise limiting the purposes or effect of the no mitigation obligation in Section 5(h) hereof, Welfare Benefits payable to you (including your dependents and beneficiaries) pursuant to this Section 5(d)(iv) shall be reduced to the extent comparable welfare benefits are actually received by you (including your dependents and beneficiaries) from another employer during such period, and any such benefits actually received by you shall be reported by you to the Company. (v) Your right to acquire any shares of the Company's capital stock under any and all outstanding stock options, or other rights previously granted to you under any equity-based plans of the Company shall be governed by the express terms of such plans and the applicable agreements thereunder, except as provided in Section 5(a), 5(b), or 5(d)(iii) of this Agreement. (e) Any Bonus that is payable to you with respect to a period that is less than a full calendar year (a "partial calendar year") shall be prorated by multiplying (i) the Bonus that would have been payable to you with respect to the entire calendar year had your employment with the Company continued until the end of such year by (ii) a fraction, the numerator of which equals the number of days in the partial calendar year and the denominator of which equals 365. (f) Unless your Date of Termination occurs within one year after a Change in Control, the Company, if permitted by law, may set-off or counterclaim losses, fines or damages in respect of any claim, debt or obligation against any payment to or benefit for you provided for in this Agreement. (g) Without limiting your rights at law or in equity, if the Company fails to make any payment or provide any benefit required to be made or provided hereunder within thirty (30) days of the date it is due, the Company will pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as quoted from time to time during the relevant period in The Wall Street Journal, plus three percent. Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change. (h) The Company acknowledges that its severance pay plans and policies applicable in general to its salaried employees do not provide for mitigation, offset or reduction of any severance payment received thereunder. Accordingly, the parties hereto expressly agree that the payment of the severance compensation by the Company to you in accordance with the terms of this Agreement shall be liquidated damages and that you shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, 9
Mr. Raymond E. Scott March 15, 2005 Page 10 of 18 nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of you hereunder or otherwise, except as expressly provided in this Section 5. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (or benefit provided) by the Company to or for your benefit, whether paid or payable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 (or any successor thereto) of the Code, and any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"), including without limitation any Gross-Up Payment made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO"), or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO. The Gross-Up Payment shall be in an amount such that, after payment by you of the Excise Tax, plus any additional taxes, penalties and interest, and any further Excise Taxes imposed upon the Gross-Up Payment, you retain, after payment of all such taxes and Excise Taxes, an amount of the Gross-Up Payment equal to the Payment that you would have received if no Excise Taxes had been imposed upon the Payment and no additional taxes, penalties, and interest or further Excise Taxes had been imposed upon the Gross-Up Payment. (b) Subject to the provisions of Section 6(e) hereof, all determinations required to be made under this Section 6, including whether an Excise Tax is payable by you and the amount of such Excise Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized firm of certified public accountants (the "Accounting Firm") selected by you in your sole discretion, other than the Company's independent auditing firm, to the extent prohibited by applicable Public Company Accounting Oversight Board rules. You shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and you within 30 calendar days after the Termination Date. If the Accounting Firm determines that any Excise Tax is payable by you, the Company shall pay the required Gross-Up Payment to you within five (5) business days after receipt of the aforesaid determination and calculations. If the Accounting Firm determines that no Excise Tax is payable by you, it shall, at the same time as it makes such determination, furnish you with an opinion that you do not owe any Excise Tax on your Federal income tax return. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment to be paid by the Company within such 30 calendar day period shall be binding upon the Company and you. As a result of the uncertainty in the application of Section 4999 (or any successor thereto) of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(e) hereof and you thereafter are required to make a payment of any Excise Tax, you shall direct the Accounting Firm to determine the amount of the 10
Mr. Raymond E. Scott March 15, 2005 Page 11 of 18 Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and you as promptly as possible. Any such Underpayment shall be promptly paid by the Company to or for your benefit within three calendar days after receipt of such determination and calculations. (c) The Company and you shall each cooperate with the Accounting Firm in connection with the preparation and issuance of the determination provided for in Section 6(b) hereof. Such cooperation shall include without limitation providing the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or you, as the case may be, that are reasonably requested by the Accounting Firm. (d) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations provided for in Section 6(b) hereof shall initially be paid by you. The Company shall reimburse you for your payment of such costs and expenses within five (5) business days after receipt from you of a statement therefor and evidence of your payment thereof. (e) You shall notify the Company in writing, of any claim by the Internal Revenue Service (the "IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after you receive notice of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. You shall not pay such claim prior to the earlier of (x) the expiration of the 30 calendar day period following the date on which you give such notice to the Company or (y) the date that any payment of taxes with respect to such claim is due. If the Company notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (i) give the Company any information reasonably requested by the Company relating, to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing, from time to time, including without limitation accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and 11
Mr. Raymond E. Scott March 15, 2005 Page 12 of 18 expenses. Without limitation on the foregoing provisions of this Section 6(e), the Company shall, provided that such control does not have a material adverse affect on your individual income tax with respect to matters unrelated to the contest of the Excise Tax, control all proceedings taken in connection with such contest and, at its sole option, may, provided that such pursuit or foregoing does not have a material adverse affect on your individual income tax with respect to matters unrelated to the contest of the Excise Tax, pursue or forego any and all administrative appeals, proceedings, hearings and conference with the IRS in respect of such claim (but, you may participate therein at your own cost and expense) and may, at its sole option, provided that such payment, suit, contest or prosecution does not have a material adverse affect on your individual income tax with respect to matters unrelated to the contest of the Excise Tax, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs you to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to you on an interest-free basis and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for your taxable year with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of such contest shall be limited to issues with respect to which a Gross Up Payment would be payable hereunder, and you shall be entitled to settle or contest, as the case may be, any other issue raised by the IRS. (f) If, after the receipt by you of an amount advanced by the Company pursuant to Section 6(e) hereof, you receive any refund with respect to such claim, you shall (subject to the Company's complying with the requirements of Section 6(e) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by you of an amount advanced by the Company pursuant to Section 6(e) hereof, a determination is made that you shall not be entitled to any refund with respect to such claim and the Company does not notify you in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. TRAVEL. You shall be required to travel to the extent necessary for the performance of your responsibilities under this Agreement. 8. SUCCESSORS; BINDING AGREEMENT. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all 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, and will assign its rights and obligations hereunder to such successor. Failure of the Company to make such an assignment and to obtain 12
Mr. Raymond E. Scott March 15, 2005 Page 13 of 18 such assumption and agreement prior to the effectiveness of any such succession, unless you agree otherwise in writing with the Company or the successor, shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason and the date on which any such succession becomes effective shall be deemed your Date of Termination. 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. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in this Section 8. Without limiting the generality of the foregoing, your right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by your will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 8, the Company shall have no liability to pay to the purported assignee or transferee any amount so attempted to be assigned or transferred. The Company and you recognize that each party will have no adequate remedy at law for any material breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and you hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 9. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing, and shall be deemed to have been duly given when delivered by hand, or mailed by United States certified mail, return receipt requested, postage prepaid, or sent by Federal Express or similar overnight courier service, addressed to the respective addresses set forth on the first page of this Agreement, or sent by facsimile with confirmation of receipt to the respective facsimile numbers set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company (or, if you are the Secretary at the time such notice is to be given, to the Chairman of the Company's Board of Directors), or to such other address or facsimile number as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address or facsimile number shall be effective only upon receipt. 10. NONCOMPETITION. (a) Until the Date of Termination, you agree not to engage in any Competitive Activity. For purposes of this Agreement, the term "Competitive Activity" shall mean your participation as an employee or consultant, without the written consent of the CEO or the Board or any authorized committee thereof, in the management of any business enterprise anywhere in the world if such enterprise engages in competition with any product or service of the Company (including without limitation any enterprise that is a supplier to an original equipment automotive vehicle manufacturer) or is planning to engage in such competition. "Competitive Activity" shall not include the mere ownership of, and exercise of rights appurtenant to, securities of a publicly-traded 13
Mr. Raymond E. Scott March 15, 2005 Page 14 of 18 company representing 5% or less of the total voting power and 5% or less of the total value of such an enterprise. You agree that the Company is a global business and that it is appropriate for this Section 10 to apply to Competitive Activity conducted anywhere in the world. (b) You agree not to engage directly or indirectly in any Competitive Activity (i) until one (1) year after the Date of Termination if you are terminated by the Company for Cause, as a result of a Notice of Non-Renewal from the Company, or you terminate your employment for other than Good Reason, or (ii) until two (2) years after the Date of Termination in all other circumstances. (c) You shall not directly or indirectly, either on your own account or with or for anyone else, solicit or attempt to solicit any of the Company's customers, solicit or attempt to solicit for any business endeavor or hire or attempt to hire any employee of the Company, or otherwise divert or attempt to divert from the Company any business whatsoever or interfere with any business relationship between the Company and any other person, (i) until one (1) year after the Date of Termination if you are terminated by the Company for Cause, as a result of a Notice of Non-Renewal from the Company, or you terminate your employment for other than Good Reason, or (ii) until two (2) years after the Date of Termination in all other circumstances. (d) You acknowledge and agree that damages in the event of a breach or threatened breach of the covenants in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore agree that the Company, in addition to seeking actual damages pursuant to Section 10 hereof, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. You and the Company agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. (e) As additional compensation for the covenants contained in Sections 10(b) and 10(c), and only if you execute a general release in form and substance reasonably acceptable to the Company acknowledging, among other things, your obligations under this Agreement, the Company shall increase the Severance Period for purposes of Section 5(d) from one (1) year to two (2) years. 11. CONFIDENTIALITY AND COOPERATION. (a) You shall not knowingly use, disclose or reveal to any unauthorized person, during or after the Term, any trade secret or other confidential information relating to the Company or any of its affiliates, or any of their respective businesses or principals, such as, without limitation, dealers' or distributor's lists, information regarding personnel and manufacturing processes, marketing and sales plans, pricing or cost information, and all other such information; and you confirm that such information is the exclusive property of the Company and its affiliates. Upon 14
Mr. Raymond E. Scott March 15, 2005 Page 15 of 18 termination of your employment, you agree to return to the Company on demand by the Company all memoranda, books, papers, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, whether made by you or otherwise in your possession. (b) Any design, engineering methods, techniques, discoveries, inventions (whether patentable or not), formulae, formulations, technical and product specifications, bill of materials, equipment descriptions, plans, layouts, drawings, computer programs, assembly, quality control, installation and operating procedures, operating manuals, strategic, technical or marketing information, designs, data, secret knowledge, know-how and all other information of a confidential nature prepared or produced during the period of your employment and which ideas, processes, and other materials or information relate to any of the businesses of the Company, shall be owned by the Company and its affiliates whether or not you should in fact execute an assignment thereof or other instrument or document which may be reasonably necessary to protect and secure such rights to the Company. (c) Following the termination of your employment, you agree to make yourself reasonably available to the Company to respond to periodic requests for information relating to the Company or your employment which may be within your knowledge. You further agree to cooperate fully with the Company in connection with any and all existing or future depositions, litigation, or investigations brought by or against the Company, any entity related to the Company, or any of its (their) agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which and to the extent the Company deems your cooperation necessary. In the event that you are subpoenaed in connection with any litigation or investigation, you will immediately notify the Company. You shall not receive any additional compensation, other than reimbursement for reasonable costs and expenses incurred by you, in complying with the terms of this Section 11(c). 12. ARBITRATION. (a) Except as contemplated by Section 10(d) or Section 12(c) hereof, any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties to this Agreement and their respective advisors and representatives shall be settled exclusively by arbitration in Southfield, Michigan, before one arbitrator of exemplary qualifications and stature, who shall be selected jointly by an individual to be designated by the Company and an individual to be selected by you, or if such two individuals cannot agree on the selection of the arbitrator, who shall be selected pursuant to the procedures of the American Arbitration Association. (b) The parties agree to use their best efforts to cause (i) the two individuals set forth in the preceding Section 12(a), or, if applicable, the American Arbitration Association, to appoint the arbitrator within 30 days of the date that a party hereto notifies the other party that a dispute or controversy exists that necessitates the appointment of an arbitrator, and (ii) any arbitration hearing 15
Mr. Raymond E. Scott March 15, 2005 Page 16 of 18 to be held within 30 days of the date of selection of the arbitrator, and, as a condition to his or her selection, such arbitrator must consent to be available for a hearing, at such time. (c) Judgment may be entered on the arbitrator's award in any court having jurisdiction, provided that you shall be entitled to seek specific performance of your right to be paid and to participate in benefit programs during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company and you hereby agree that the arbitrator shall be empowered to enter an equitable decree mandating specific performance of the terms of this Agreement. If any dispute under this Section 12 shall be pending, you shall continue to receive at a minimum the base salary which you were receiving immediately prior to the act or omission which forms the basis for the dispute. At the close of the arbitration, such continued base salary payments may be offset against any damages awarded to you or may be recovered from you if its determined that you were not entitled to the continued payment of base salary under the other provisions of this Agreement. 13. MODIFICATIONS. No provision of this Agreement may be modified, amended, waived or discharged unless such modification, amendment, waiver or discharge is agreed to in writing and signed by both you and such officer of the Company as may be specifically designated by the Board. 14. NO IMPLIED WAIVERS. Failure of either party at any time to require performance by the other party of any provision hereof shall in no way affect the full right to require such performance at any time thereafter. Waiver by either party of a breach of any obligation hereunder shall not constitute a waiver of any succeeding breach of the same obligation. Failure of either party to exercise any of its rights provided herein shall not constitute a waiver of such right. 15. GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Michigan without giving effect to any conflicts of laws rules. 16. PAYMENTS NET OF TAXES. Except as otherwise provided in Section 6 herein, any payments provided for herein which are subject to Federal, State local or other governmental tax or other withholding requirements or obligations, shall have such amounts withheld prior to payment, and the Company shall be considered to have fully satisfied its obligation hereunder by making such payments to you net of and after deduction for all applicable withholding obligations. 17. CAPACITY OF PARTIES. The parties hereto warrant that they have the capacity and authority to execute this Agreement. 18. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not, at the option of the party for whose benefit such provision was intended, affect the validity or enforceability of any other provision of the Agreement, which shall remain in full force and effect. 16
Mr. Raymond E. Scott March 15, 2005 Page 17 of 18 19. 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. 20. ENTIRE AGREEMENT. This Agreement and any attachments hereto, contain the entire agreement by the parties with respect to the matters covered herein and supersede any prior agreement (including, but not limited to, prior employment agreement(s)), condition, practice, custom, usage and obligation with respect to such matters insofar as any such prior agreement, condition, practice, custom, usage or obligation might have given rise to any enforceable right. No agreements, understandings 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. 21. LEGAL FEES AND EXPENSES. It is the intent of the Company that you not be required to incur the expenses associated with the enforcement of your rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to you hereunder. Accordingly, the Company shall pay or cause to be paid and be solely responsible for any and all reasonable attorneys' and related fees and expenses incurred by you (i) as a result of the Company's failure to perform this Agreement or any provision hereof or (ii) as a result of the Company unreasonably or maliciously contesting the validity or enforceability of this Agreement or any provision hereof as aforesaid. 22. CODE SECTION 409A. Notwithstanding any provision in this Agreement to the contrary, if your employment is terminated as described in Section 5(d) and Section 409A(a)(2)(B)(i) of the Code applies to all or any portion of your Severance Payment and you are a "specified employee" thereunder, then the Company shall pay the portion of your Severance Payment that is subject to such Section of the Code no earlier than six (6) months after your Termination Date or such other date as would be permissible under the Code. If your employment is terminated as described in Section 5(d) and Section 409A(a)(2)(B)(i) of the Code does not apply to any portion of your Severance Payment or you are not a "specified employee" thereunder, then the Company shall pay your Severance Payment as described in Section 5(d). [Signature Page Follows] 17
Mr. Raymond E. Scott March 15, 2005 Page 18 of 18 If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject, effective on March 15, 2005 ("Effective Date"). Sincerely, LEAR CORPORATION By: /s/ Roger A. Jackson -------------------------------- Roger A. Jackson Agreed to this 15th day of March, 2005 /s/ Raymond E. Scott - ------------------------------------ Raymond E. Scott 18
Exhibit 31.1 CERTIFICATION I, Robert E. Rossiter, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lear Corporation; 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(s) 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 13a-15(f) and 15d-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(s) 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: November 10, 2005 By: /s/ Robert E. Rossiter -------------------------------------- Robert E. Rossiter Chairman and Chief Executive Officer
Exhibit 31.2 CERTIFICATION I, David C. Wajsgras, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lear Corporation; 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(s) 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 13a-15(f) and 15d-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(s) 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: November 10, 2005 By: /s/ David C. Wajsgras -------------------------------------------- David C. Wajsgras Senior Vice President and Chief Financial Officer
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 Lear Corporation (the "Company") on Form 10-Q for the period ended October 1, 2005, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or Section 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. Date: November 10, 2005 Signed: /s/ Robert E. Rossiter ---------------------------- Robert E. Rossiter Chief Executive Officer This written statement accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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 Lear Corporation (the "Company") on Form 10-Q for the period ended October 1, 2005, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or Section 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. Date: November 10, 2005 Signed: /s/ David C. Wajsgras ------------------------ David C. Wajsgras Chief Financial Officer This written statement accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.