Cooper Tire & Rubber Company DEF 14A 2008
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Exchange Act of 1934 (Amendment No. )
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Cooper Tire & Rubber Company
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(1) Title of each class of securities to which transaction applies:
COOPER TIRE & RUBBER COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 2008 Annual Meeting of Stockholders of Cooper Tire & Rubber Company (the Company) will be held at The Westin Detroit Metropolitan Airport, Lindbergh Ballroom, McNamara Terminal, 2501 Worldgateway Place, Detroit, Michigan 48242 on Tuesday, May 6, 2008, at 10:00 a.m., Eastern Daylight Time, for the following purposes:
Only holders of Common Stock of record at the close of business on March 14, 2008 are entitled to notice of and to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
James E. Kline,
General Counsel and Secretary
March 31, 2008
Please mark, date and sign the enclosed proxy and return it promptly in the enclosed addressed envelope, which requires no postage. In the alternative, you may vote by Internet or telephone. See page 2 of the proxy statement for additional information on voting by Internet or telephone. If you are present and vote in person at the Annual Meeting, the enclosed proxy card will not be used.
COOPER TIRE & RUBBER COMPANY
701 Lima Avenue, Findlay, Ohio 45840
March 31, 2008
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Cooper Tire & Rubber Company (the Company, Cooper Tire, we or us) to be used at the Annual Meeting of Stockholders of the Company to be held on Tuesday, May 6, 2008, at 10:00 a.m., Eastern Daylight Time, at The Westin Detroit Metropolitan Airport, Lindbergh Ballroom, McNamara Terminal, 2501 Worldgateway Place, Detroit, Michigan 48242. This proxy statement and the related form of proxy were first mailed to stockholders on or about March 31, 2008.
The purpose of the Annual Meeting is for stockholders to act on the matters outlined in the notice of Annual Meeting on the cover page of this proxy statement. These matters consist of (1) the election of three Directors, (2) the ratification of the selection of the Companys independent auditors for the year ending December 31, 2008, and (3) the transaction of such other business as may properly come before the Annual Meeting or any postponement(s) or adjournment(s) thereof.
Only stockholders who owned shares of Common Stock at the close of business on March 14, 2008 (the record date) will be eligible to vote at the Annual Meeting. As of the record date, there were 59,010,451 shares of Common Stock outstanding. Each stockholder will be entitled to one vote for each share owned.
The holders of a majority of the shares of Common Stock issued and outstanding, and present in person or represented by proxy, constitute a quorum. Abstentions and broker non-votes with respect to a proposal will be counted to determine whether a quorum is present at the Annual Meeting. Broker non-votes occur when certain nominees holding shares for beneficial owners do not vote those shares on a particular proposal because the nominees do not have discretionary authority to do so, and have not received voting instructions with respect to the proposal from the beneficial owners.
Agenda Item 1. Except in the case of a contested election, each nominee for election as a Director who receives a majority of the votes cast with respect to such Directors election by stockholders will be elected as a Director. In the case of a contested election, the nominees for election as Directors who receive the greatest number of votes will be elected as Directors. Abstentions and broker non-votes are not counted for purposes of the election of Directors.
Agenda Item 2. Although the Companys independent auditors may be selected by the Audit Committee of the Board of Directors without stockholder approval, the Audit Committee will consider the affirmative vote of a majority of the shares of Common Stock having voting power present in person or represented by proxy at the Annual Meeting to be a ratification by the stockholders of the selection of Ernst & Young LLP as the Companys independent auditors for the year ending December 31, 2008. As a result, abstentions will
have the same effect as a vote cast against the proposal, but broker non-votes will have no effect on the outcome of this proposal.
Stockholders may vote either by completing, properly signing, and returning the accompanying proxy card, or by attending and voting at the Annual Meeting. If you properly complete and return your proxy card in time to vote, your proxy (one of the individuals named in the proxy card) will vote your shares as you have directed. If you sign and return the proxy card but do not indicate specific choices as to your vote, your proxy will vote your shares to elect the nominees listed under Nominees for Director and to ratify the selection of the Companys independent auditors.
Stockholders of record and participants in certain defined contribution plans sponsored by the Company (see below) may also vote by using a touch-tone telephone to call 1-800-690-6903, or by the Internet by accessing the following website: http://www.proxyvote.com.
Voting instructions, including your stockholder account number and personal proxy control number, are contained on the accompanying proxy card. You will also use this accompanying proxy card if you are a participant in the following defined contribution plans sponsored by the Company:
Those stockholders of record who choose to vote by telephone or Internet must do so by not later than 11:59 p.m., Eastern Daylight Time, on May 5, 2008. All voting instructions from participants in the defined contribution plans sponsored by the Company and listed above must be received by not later than 5:00 p.m., Eastern Daylight Time, on May 2, 2008.
A stockholder may revoke a proxy by filing a notice of revocation with the Secretary of the Company, or by submitting a properly executed proxy bearing a later date. A stockholder may also revoke a previously executed proxy (including one submitted by Internet or telephone) by attending and voting at the Annual Meeting, after requesting that the earlier proxy be revoked. Attendance at the Annual Meeting, without further action on the part of the stockholder, will not operate to revoke a previously granted proxy. If the shares are held in the name of a bank, broker or other holder of record, the stockholder must obtain a proxy executed in his or her favor from the holder of record to be able to vote at the Annual Meeting.
AGENDA ITEM 1
The Bylaws of the Company provide for the Board of Directors to be divided into three classes. Three Directors are to be elected to the class having a term expiring in 2011. If elected, each Director will serve for a three-year term expiring in 2011 and until his or her successor is elected and qualified. Each of the nominees is a Director standing for re-election and has consented to stand for election to a term as described above. In the event that any of the nominees becomes unavailable to serve as a Director before the Annual Meeting, the Board of Directors will designate a new nominee, and the persons named as proxies will vote for that substitute nominee.
The Board of Directors recommends that stockholders vote FOR the three nominees for Director.
Messrs. Aronson and Pond, members of the class of Directors having a term expiring in 2010, are expected to retire from the Board of Directors immediately before the Annual Meeting and will no longer stand for re-election. As a result of these retirements, there would be two vacancies in the 2010 class of Directors, and the three classes of Directors would no longer be as equal as possible, as required by the Companys Bylaws. In order to best re-balance the three classes of Directors, we expect that at the next Board of Directors meeting, the Board of Directors will elect Mr. Capo to fill one of the vacancies in the 2010 class of Directors and eliminate the remaining vacancy. As a result of filling this vacancy, Mr. Capos term will be extended for one additional year, and his initial term as Director will run until the Companys 2010 Annual Meeting of Stockholders.
Note: The beneficial ownership of the Directors and nominees in the Common Stock of the Company is shown in the table at page 52 of this proxy statement.
AGENDA ITEM 2
Ernst & Young LLP served as independent auditors of the Company in 2007 and has been retained by the Audit Committee to do so in 2008. In connection with the audit of the 2007 financial statements, the Company entered into an engagement letter with Ernst & Young LLP that sets forth the terms by which Ernst & Young LLP will perform audit services for the Company. That agreement is subject to alternative dispute resolution procedures. The Board of Directors has directed that management submit the selection of the independent auditors for ratification by the stockholders at the Annual Meeting.
Stockholder ratification of the selection of Ernst & Young LLP as the Companys independent auditors is not required by the Companys Bylaws or otherwise. However, the Board of Directors is submitting the selection of Ernst & Young LLP to the stockholders for ratification. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain the firm. In such event, the Audit Committee may retain Ernst & Young LLP, notwithstanding the fact that the stockholders did not ratify the selection, or select another nationally recognized accounting firm without resubmitting the matter to the stockholders. Even if the selection is ratified, the Audit Committee reserves the right in its discretion to select a different nationally recognized accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
The Board of Directors recommends that stockholders vote FOR the ratification of the selection of the Companys independent auditors.
This section discusses and analyzes our executive compensation policies and decisions for 2007 covering the executive officers included in the 2007 Summary Compensation Table below, who we refer to as our named executive officers. For 2007, our named executive officers consist of: Mr. Roy V. Armes, our Chief Executive Officer; Mr. Philip G. Weaver, our Chief Financial Officer; Messrs. Harold C. Miller, James E. Kline and Mark W. Krivoruchka, who were our three other most-highly compensated executive officers at the end of 2007; and Mr. James H. Geers, who would have been one of our other most-highly compensated executive officers but for the fact that he was no longer an executive officer as of December 31, 2007.
2007 Business Highlights
The Compensation Committee believes the 2007 pay levels were appropriately in line with performance results, and achieved our executive compensation programs objectives.
Executive Compensation Philosophy and Approach
Our Philosophy is to Provide Market Competitive Pay for Achieving Targeted Results
We target the compensation opportunities that we offer, both for each element of compensation and in the aggregate, at the middle of the range offered by comparably-sized industrial companies. The market data reflects current pay levels for executives in comparable positions primarily in similar-sized general industry companies. We have historically not used a specific peer group but focused instead on general industry companies due to the wide variety of specific jobs that cross many functions in the marketplace. Our named executive officers can earn more or less than their targeted pay levels based on actual results relative to the performance goals.
Our Pay Levels Are Set Considering Business Needs, Market Data and Other Factors
We use a consistent approach for setting the compensation for Messrs. Armes and Weaver and the other officers. In recruiting executives, however, we may need to provide different types and amounts of compensation to induce an individual to join the company.
We take a holistic approach when establishing salary, annual and long-term incentive award opportunities. As a result, in addition to reviewing market benchmark data as provided by our independent compensation consultant for comparable positions, we aim for company positions with comparable responsibilities to have similar target incentive award opportunities as a percentage of base salary. Actual total compensation can vary widely from target compensation based on company and business unit performance because pay is ultimately a function of opportunity and performance, and it is difficult to calibrate compensation at a specific point in time.
Our Pay Program is Designed to Attract, Motivate and Retain Outstanding Executive Talent
In order to maximize stockholder value, we have designed our executive compensation program to attract, motivate and retain outstanding executives through the following principles:
Our Executive Compensation Program Emphasizes Performance-Based Pay
In order to motivate and reward executives for maximizing stockholder value, the majority of each executives annual target compensation will be variable, at-risk compensation. The at-risk portion increases as an executive assumes greater levels of responsibility and has a greater impact on the company. The percentage of our named executive officers 2007 target total direct compensation (including salary, target annual and long-term incentive award opportunities) that was at-risk as of the time it was initially approved is presented in the table below:
Our Executive Officer Compensation Program is Administered by the Compensation Committee
Our Compensation Committee is responsible for performing the duties of the Board of Directors relating to the compensation of our executive officers and other senior management. The Compensation Committee reviews and approves all elements of our executive compensation program. Management is responsible for making recommendations to the Compensation Committee regarding executive officer compensation (except with respect to Mr. Armes compensation) and effectively implementing our executive compensation program, as approved by the Compensation Committee.
The Compensation Committee has retained Towers Perrin, an outside compensation consultant, to provide pay benchmarking and other assistance, as directed by the Compensation Committee. The Compensation Committee annually analyzes market benchmark data provided by Towers Perrin regarding base salary and annual and long-term incentive opportunities, and evaluates periodically market benchmark data regarding other compensation elements.
Additional information about the role and processes of the Compensation Committee is presented under the heading Meetings of the Board of Directors and its Committees Compensation Committee below.
The Compensation Committee sets annual performance targets at the beginning of each year based upon its determination of what would constitute an appropriate level of performance for the company or individual business units. Our Chief Executive Officer, Chief Financial Officer and Senior Vice President for Global Human Resources present specific recommendations to our Compensation Committee regarding the annual performance targets. Management and the Compensation Committee analyze and discuss these recommendations. Modifications, as necessary, may be made by the Compensation
Committee generally before it approves the annual performance targets. In setting the performance targets, the following primary factors are considered:
Executive Compensation Program Design
Our Compensation Program Consists of Salary, Incentive Opportunities and Benefits
We believe our executive compensation program, by element and in total, best achieves our objectives. The primary elements of our executive compensation program, which are key to the attraction, retention and motivation of our named executive officers, are described below:
Presented below are the key mechanics of each pay element as applied to our named executive officers for 2007.
Competitive Base Salaries are the Foundation of Our Executive Compensation Program
We provide market competitive base salaries to attract and retain outstanding executive talent, as well as provide a basic degree of financial security and reward for executive performance. We review base salaries annually, and make increases, if any, based on business needs and market conditions.
Our Annual Incentive Plan Rewards Executives for Profitability, Cost and Cash Flow Results
We provide our named executive officers and other executives with an annual incentive award opportunity to motivate and reward them for achieving company and business unit financial goals. The annual cash incentive opportunities are expressed as a percentage of base salary. If earned, awards are paid in the executives first paycheck following our February Board of Directors meeting.
For 2007, the Compensation Committee established, based on input from Messrs. Armes and Weaver, the following financial performance metrics for the annual incentive program:
Executives with business unit responsibilities have their incentive award opportunity based on both company and business unit financial goals.
Award payments are based on actual results relative to the established performance targets, as determined by our Compensation Committee. Actual incentive award payments for operating profit and working capital performance can range from 0% to 200% of the target incentive award opportunity. For the other performance measures, actual incentive award payments to our named executive officers are generally either 0% or 100% of the target incentive award opportunity. In February 2008, however, our Compensation Committee approved an adjustment to the performance target for the Global Profit Management System performance metric, which adjustment impacted Mr. Miller. This adjustment allowed Mr. Miller to receive 70% of his target incentive award opportunity for the Global Profit Management System performance metric for achievement of less than 100% of the pre-established target for this performance metric. Our Compensation Committee made this adjustment at the end of the performance period in recognition of the high level of challenges in the international markets in which we operate and compete.
Our Long-Term Incentives Reward Executives for Financial and Stock Price Performance
We grant long-term incentive awards to help align the interests of our named executive officers and other executives with the investment interests of our stockholders. The Compensation Committee approves long-term incentive award opportunities for each senior executive (including the named executive officers) and the aggregate awards for other participants. Long-term incentive awards are granted under our 2006 Incentive Compensation Plan.
For 2007, long-term incentives were provided solely through performance shares, which can be earned over the 2007-2009 period and are payable in early 2010. The Compensation Committee established company net income (70% weighting) and operating cash flow (30% weighting) performance targets to determine the achievement of performance shares (the change in cash excluding capital expenditures, dividends and debt financing). The Compensation Committee decided to utilize these performance metrics because improvement in our net income and prudent management of cash is imperative over the three-year time horizon of the performance period. Payouts can range from 0% to 200% of the long-term incentive plan target award opportunities. The ultimate value of awards earned will be based on our stock price at the end of the performance/vesting period, and by doing so, the award is aligned with stockholder value creation.
The net income and operating cash flow targets for each year in the 2007-2009 performance period are based on the respective years operating plan. The performance shares can be notionally earned annually (one-third of the total per year) based on the net income and operating cash flow results for 2007, 2008 and 2009, respectively. The notionally earned performance shares will earn dividend equivalents. Notionally earned awards will vest and be payable in common stock in early 2010, except in instances of death, disability or retirement.
In January 2007, Mr. Armes received a grant of restricted stock units, which vests after three years, in order to induce him to join the company and to provide immediate alignment with our stockholders interests. For additional details, see discussion below, Compensation for Mr. Roy V. Armes, Our Chairman, Chief Executive Officer and President.
Accounting and Tax Implications
The Compensation Committee considers the accounting and tax implications in selecting award types. In the 2007 Summary Compensation Table below, the accounting cost attributed during 2007 to outstanding performance share grants is presented under the Stock Awards column. The full grant date accounting fair value (under Statement of Financial Accounting Standards No. 123 (Revised 2004), or FAS 123(R)) of the 2007 performance share awards is presented in the 2007 Grants of Plan-Based Awards Table below.
The ultimate value, if any, which may be realized by our named executive officers based on performance share awards is not determinable at the date of grant. When the executive receives a distribution of the shares, they are taxed in accordance with the income tax law and regulations applicable at the time at ordinary income rates (subject to withholding), and we receive a corresponding tax deduction when appropriate.
Award Grant Timing and Pricing
Regarding grants of equity-based awards, our policy is to set the grant/exercise price of awards at the average of the high and low trading price of our common stock, as quoted
on the New York Stock Exchange, on the date of grant. For current executives, the grant date is the date of our February Board of Directors meeting. For new executives, the grant date is at or shortly after the hiring date for each new eligible executive.
Discretionary Grant Pool
On February 8, 2000, our Board of Directors granted authority to our Management Executive Committee to make discretionary grants of up to an aggregate of 500,000 shares of our common stock to our executives and employees based on their performance and contributions to Cooper Tire. A total of 130,301 shares of our common stock have been granted to employees under this authority since February 8, 2000. Other than for this discretion, only our Compensation Committee and Board of Directors are involved in grants of equity-based awards.
Awards Prior to 2007
Prior to 2007, we granted performance cash, performance share units, stock options and restricted stock units. Performance cash and performance share unit awards can be earned based on return on invested capital results over a three-year period (the 2006 grants covered the period January 1, 2006 to December 31, 2008). Stock options vest in installments of 25% per year beginning one year after the date of grant. The option term is 10 years, after which, if not exercised, the option expires. Restricted stock units fully vest three years after the date of grant and are paid in shares of our common stock.
Analysis of 2007 Executive Compensation Levels
For 2007, the base salaries for our named executive officers were within a market median range, considering an individual executives responsibilities, performance, experience and time in position. Due to cost considerations and consistent with our profitability improvement plan, the named executive officers did not receive merit salary increases for 2007. This was consistent with the focus on reduced spending and on cost saving initiatives in 2007.
Presented below are the 2007 performance results for targets set at the beginning of the year. The officers 2007 annual incentive awards were based on company performance, except for Mr. Miller, whose award was based on a mix of company and International Tire Division financial goals. Our 2007 financial performance results were generally at or above targeted levels, reflecting our success in implementing our business strategy. As such, annual incentive awards earned for 2007 performance were generally above targeted levels.
Payout based on Target Achievement
Presented below are the named executive officers 2007 target and actual incentive awards, expressed as a percentage of base salary. As result of 2007 financial performance results, the named executive officers 2007 incentive awards were generally above target levels.
The actual incentive award payouts for our named executive officers are presented in the 2007 Summary Compensation Table below as part of the Non-Equity Incentive Plan Compensation column. Mr. Millers incentive was tied to operating units that did not achieve target performance in 2007. Our Compensation Committee also made a performance target adjustment impacting Mr. Miller as described above. Mr. Geers, after retiring effective as of June 29, 2007, entered into a consulting agreement with us and, in lieu of annual and long-term incentive plan awards, was paid a lump sum amount.
Long-Term Incentive Payouts for Periods Ending in 2007 Reflect Our Strong Financial Performance
We reviewed and notionally paid shares in February 2008 based on our achievement of financial performance goals as discussed below. Employees must remain employed through the vesting period (2010) to earn the shares that have been notionally paid, except in instances of death, disability or retirement.
2007 to 2009 Performance Share Grants: Shares Notionally Earned for 2007 Performance
Presented below are the 2007 performance targets, set at the beginning of the year, and 2007 financial results. Financial performance results were above targeted levels, reflecting our success in implementing our business strategy. As such, the performance shares notionally earned for 2007 performance were at maximum levels.
Presented below are the named executive officers target share opportunities (each equal to one-third of the aggregate target for the 2007 to 2009 performance cycle) and the number of shares contingently earned for 2007 financial performance. The maximum (200%) of the performance share grants that could be notionally earned for 2007 net income and operating cash flow performance were earned. These shares will vest and be payable in early 2010.
The potential award range for the 2007 performance share grants, by named executive officer, are presented in the 2007 Grants of Plan-Based Awards Table below. Long-term incentive plan awards have been reviewed and granted on a year-to-year basis similar to the annual incentives.
Compensation for Mr. Roy V. Armes, Our Chairman, Chief Executive Officer and President
On January 1, 2007, Mr. Armes joined us as President and Chief Executive Officer. In December 2007, Mr. Armes was appointed Chairman of the Board. In January 2007, we entered into an employment agreement with Mr. Armes specifying certain pay levels and providing severance benefits in certain circumstances. The terms of the employment agreement were set in order to induce Mr. Armes to join us and were developed based on consideration of market benchmark data for similar companies provided by Towers Perrin and potential cost implications. Key terms of the agreement are summarized below:
Effective January 1, 2008, the Compensation Committee made pay adjustments to recognize Mr. Armes appointment as Chairman and his performance (as reflected in the financial performance discussed above), as well as consideration of competitive market
pay levels for comparable positions. Specifically, the following pay adjustments were made:
Our Officers are Required to Maintain a Minimum Level of Stock Ownership
We believe that our named executive officers whose business decisions impact our operations and results should obtain and maintain a reasonable equity stake in Cooper Tire. As such, the Compensation Committee has established minimum stock ownership guidelines for our named executive officers, excluding Mr. Kline, who was over age 60 when he joined us, and Mr. Geers, who has retired. Effective January 2008, our other Vice Presidents became subject to minimum stock ownership guidelines of one-times salary, which must be achieved within three years.
Under the guidelines, stock ownership includes the following:
Unexercised stock options and unearned performance shares do not count towards the stock ownership guidelines.
Presented below is the achievement status of the four named executive officers subject to stock ownership guidelines as of the end of 2007.
If any of our named executive officers does not timely satisfy the stock ownership guidelines, then our Compensation Committee may penalize the executive officer by:
As part of a complete and competitive executive compensation package, executives (including our named executive officers) receive additional benefits as summarized below.
Additional details are provided in the tabular disclosures below. These benefits, several of which are not related to performance, are designed to provide a market competitive package to attract and retain outstanding executive talent needed to achieve our business objectives.
In order to facilitate and reward long service by highly-qualified executives, we provide retirement benefits designed to be competitive with market practices. We provide a combination of automatic contributions and potential matching contributions, if employees contribute and company performance is at minimum levels.
The actuarial change from 2006 in our named executive officers pension benefits and the value of 401(k) company contributions are presented in the 2007 Summary Compensation Table below. Detailed information about these plans is presented in the 2007 Pension Benefits Table and related disclosures below.
In order to provide executives an opportunity to defer earned salary or cash incentive awards, we have a non-qualified deferred compensation plan. This is consistent with benchmarks for similar companies resulting in our program being appropriately competitive. The plan allows selected senior management employees (including our named executive officers) to elect to defer receipt of up to 80% of their base salary and up to 100% of their annual and long-term incentive cash compensation each year (subject to an aggregate $10,000 minimum per year), until a date or dates chosen by the participant. We do not make matching or other employer contributions to the executive deferred compensation plan. Detailed information about this plan is presented in the 2007 Non-Qualified Deferred Compensation Table and related disclosures below.
As part of a market competitive executive compensation package, we provide a limited amount of perquisites to senior executives (including the named executive officers). We provide these perquisites, which we believe are consistent with those offered by similar companies, to attract and retain executives. In 2007, we provided corporate automobiles, group term life insurance and relocation costs. Additionally, payments for executives physical examinations were available, but we incurred no expenses for this perquisite in 2007. The value of these
perquisites is presented in the 2007 Summary Compensation Table below as part of the All Other Compensation column.
We have employment agreements with Messrs. Armes and Weaver and change in control arrangements with our senior executives to assist with attraction and retention. These arrangements only result in value if an actual change in control or termination (for Messrs. Armes and Weaver) occurs, and thus are not considered part of annual compensation. We believe the change in control arrangements with senior executives maintain productivity, facilitate a long-term commitment and encourage retention when confronted with the potential disruptive impact of a change in control of the company.
The employment agreements with Messrs. Armes and Weaver specify minimum pay levels and provide severance benefits in certain circumstances (both with and without a change in control). The terms of Mr. Armes employment agreement were negotiated in the light of market benchmark data for similar companies provided by Towers Perrin, cost and other considerations, and were set to attract him to join the company. Mr. Armes current minimum base salary under his employment agreement is $700,000 and Mr. Weavers current minimum base salary under his employment agreement is $400,015.
See Potential Payments Upon Termination or Change of Control for more information regarding these arrangements.
Mr. Geers retired from his position of Vice President, Global Human Resources with us as of June 29, 2007. On November 1, 2007, Mr. Geers entered into a consulting agreement with us under which Mr. Geers will serve as a consultant to our management through December 31, 2008 (unless the agreement is earlier terminated, or extended by mutual agreement, as provided for in the agreement). We entered into this agreement with Mr. Geers because we believe Mr. Geers will be able to provide us with assistance and guidance regarding many of the company projects and issues on which he worked while an employee, which projects and issues have continued since Mr. Geers retirement. During this period, Mr. Geers will report to our Senior Vice President, Global Human Resources, and we anticipate that Mr. Geers will provide management assistance to us regarding various company issues.
For his services, Mr. Geers was paid a lump sum of $350,000, and is being provided a vehicle under the terms of our vehicle program until either Mr. Geers dies or December 31, 2008. Mr. Geers will have the option to purchase this vehicle, at a price equal to our cost, on or before December 31, 2008. We will also reimburse Mr. Geers for his reasonable and ordinary expenses incurred in connection with his duties, and through December 31, 2007 we provided Mr. Geers with a cell phone, a Blackberry, office space with a computer and security access to our business premises. Mr. Geers is not entitled to any other benefits that we provide to our full-time employees.
The financial reporting and income tax consequences of the compensation elements are considered by the Compensation Committee when it analyzes the design and level of compensation. The Compensation Committee balances its objective of ensuring effective and competitive executive compensation packages with the desire to maximize the tax deductibility of compensation.
Regulations issued under Section 162(m) of the Internal Revenue Code provide that compensation in excess of $1 million paid to the Chief Executive Officer and other named executive officers will not be deductible unless it meets specified criteria for being performance based. Our Compensation Committee generally designs and manages our incentive programs to qualify for the performance based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives. In 2007, the following Chief Executive Officer compensation arrangements did not meet the specific criteria of Section 162(m): guaranteed annual incentive award and a grant of restricted stock units that are not based upon performance. The Compensation Committee provided this compensation to the Chief Executive Officer as part of the inducement package for Mr. Armes to join the company.
The following report has been submitted by the Compensation Committee of the Board of Directors:
The Compensation Committee of the Board of Directors has reviewed and discussed the Companys Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Companys definitive proxy statement on Schedule 14A for its 2008 Annual Meeting, which is incorporated by reference in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2007, each as filed with the Securities and Exchange Commission.
The foregoing report was submitted by the Compensation Committee of the Board and shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission or subject to Regulation 14A promulgated by the Securities Exchange Commission or Section 18 of the Securities Exchange Act of 1934.
Byron O. Pond, Chairman
John J. Holland
John F. Meier
Richard L. Wambold
Robert D. Welding
The following tables and narratives provide, for the fiscal year ended December 31, 2007, descriptions of the cash compensation paid by us, as well as certain other compensation paid or accrued, for that year to our named executive officers, who are:
2007 SUMMARY COMPENSATION TABLE
The following table shows compensation information for 2006 and 2007 for our named executive officers.
2007 GRANTS OF PLAN-BASED AWARDS TABLE
The following table shows all plan-based awards granted to our named executive officers during 2007. The stock option awards and the unvested portion of the stock awards identified in this table are also reported in the Outstanding Equity Awards at 2007 Fiscal Year-End Table below. All awards are granted under our 2006 Incentive Compensation Plan.
Non-preferential dividend equivalents accrue on these restricted stock units at the same quarterly rate as that paid to our stockholders, which for 2007 was $0.105 per share. For all named executive officers, the non-equity incentive awards reflected in columns (c) through (e) of the above table were granted under our annual incentive plan, and the equity incentive awards reflected in columns (f) through (h) and (l) of the above table were granted by our Compensation Committee on February 27, 2007 as part of our long-term incentive compensation program. For more information about these awards, see Compensation Discussion and Analysis above.
The awards to Mr. Armes and Mr. Krivoruchka reflected in columns (i) and (l) of the 2007 Grants of Plan-Based Awards Table above represent restricted stock units granted by our Compensation Committee on January 2, 2007 to Mr. Armes and on August 6, 2007 to Mr. Krivoruchka. These restricted stock units are subject to a three-year vesting period. Non-preferential dividends also accrue on these stock awards.
Certain of our named executive officers are or were parties to employment agreements with us. For more information about these agreements, see Compensation Discussion and Analysis Employment Agreements, Change in Control Arrangements and Consulting Agreement above. For more information about the compensation arrangements in which our named executive officers participate and the proportion of our named executive officers total compensation represented by base salary and bonus, see Compensation Discussion and Analysis above.
OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END TABLE
The following table shows all outstanding equity awards (stock options, performance shares that have not been earned and restricted stock units) held by our named executive officers at the end of 2007.
The following table shows our named executive officers exercise of stock options, plus the value realized at exercise by each named executive officer, in addition to stock awards that vested, plus the value realized by each named executive officer as the result of such vesting, during 2007.
This table shows the actuarial present value of accumulated benefits payable to, and the number of years of service credited to, each of our named executive officers under our pension plan and our supplemental pension plan.
For purposes of the amounts reflected above under column (d), we have used the same assumptions that we use for financial reporting purposes under generally accepted accounting principles, except that we have assumed that the retirement age for our named executive officers is each of their current ages. See Note 13 to our consolidated financial statements for the twelve months ended December 31, 2007 for details as to our valuation method and the material assumptions applied in quantifying the present value of the current accrued benefit. See also our discussion of pension and postretirement benefits under Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies.
We have a cash balance plan, which is a type of noncontributory defined benefit pension plan in which a participants benefit is determined as if an individual account had been established for him or her, for our non-union employees in the United States, other than those participants in our existing defined benefit plans who had reached age 40 and had at least 15 years of service with us as of January 1, 2002.
The cash balance plan provides for a participant to have credited to a hypothetical account established for him or her under the cash balance plan a percentage of his or her compensation (as defined in the cash balance plan) each year, and to have earnings credited each year to the participants hypothetical account balance at an interest rate equal to the 30-year Treasury bond rate. The percentage of the participants compensation that is credited to his or her hypothetical account each year is based upon the participants age and years of service, and increases in increments as the participants total age and years of service increase. A participant in the cash balance plan who was a participant in one of our prior defined benefit pension plans had credited to his or her hypothetical account in the cash balance plan on January 1, 2002 the actuarial equivalent lump sum of the participants frozen retirement benefit in the former plan, calculated as of January 1, 2002.
Upon retirement, a participants benefit under the cash balance plan will be paid in the form of an annuity, or in a lump sum, upon the election of the participant. A participant may receive the amount of his or her benefit in a lump sum payment upon termination of employment at any time. Payment of the benefit in an annuity form may not generally commence until the participant has reached age 55. The amount payable is not reduced by any Social Security benefits payable to the participant.
Non-union employees who were participants in a defined benefit pension plan sponsored by us or one of our subsidiaries prior to January 1, 2002, and who had reached age 40 and had 15 or more years of service as of that date, continue to be covered by the terms of such prior plan. None of our named executive officers are covered by a prior plan.
This table shows certain information for 2007 for each of our named executive officers under our nonqualified deferred compensation plans and programs.
For more information about our nonqualified deferred compensation program, see Compensation Discussion and Analysis above.
We maintain a tax-qualified 401(k) plan, the Spectrum Investment Savings Plan, which provides for broad-based employee participation. Under the 401(k) plan, all of our employees are eligible to receive matching contributions from us that are subject to vesting over time. There are two parts to our matching contribution.
First, we will contribute up to $0.50 to each participants account under the 401(k) plan for every $1.00 contributed by the participant, up to 6% of the participants salary, if we meet certain return on stockholders equity goals for a given year. We will not make a contribution for a particular year unless our return on stockholders equity for the year is in excess of 10% of the stockholders equity at the beginning of that year. Second, we will contribute an additional amount if our return on invested capital reaches certain specified levels. In 2007, the matching contribution for our 401(k) plan was $5,121,625.
We offer the 401(k) plan because it provides our employees with a way to save for retirement without significantly affecting the amount of their take-home pay. We intend to evaluate the 401(k) plan for competitiveness in the marketplace from time to time, but we do not anticipate taking the level of benefits provided into account in determining our executives overall compensation packages in the coming years.
The plan allows selected senior management employees (including the named executive officers) to elect to defer receipt of up to 80% of their base salary and up to 100% of their annual and long-term incentive cash compensation each year (subject to an aggregate $10,000 minimum per year), until a date or dates chosen by the participant.
Each year, participants must make an irrevocable election to participate in the executive deferred compensation plan and choose (1) the amounts that they will defer for the subsequent year, (2) the form of distribution for the deferred amounts and (3) their investment preferences for the deferred amounts.
The executive deferred compensation plan allows participants to defer income taxation (but not Social Security or Medicare taxation) on the deferred amounts. Deferred amounts will be taxed at ordinary income tax rates when distributed to participants. We offer the executive deferred compensation plan to a select group of senior level management (about 25 executives) in order to allow them to defer more compensation than they would otherwise be permitted to defer under tax-qualified retirement plans, such as our 401(k) plan and pension plans, in order to help them build sufficient retirement savings. We also offer the executive deferred compensation plan as part of our competitive compensation package that enables us to attract and retain top executive talent.
We credit deferred amounts in bookkeeping accounts established for each participant, and hold the deferred amounts in a trust that we have established for the executive deferred compensation plan. This trust, unlike the trust for our 401(k) plan, is not protected against the claims of third parties. Based on the participants elections, deferred amounts are credited with earnings as if the deferred amounts were invested in accordance with those funds available under our 401(k) plan that were chosen by the participants. We do not make matching or other employer contributions to the executive deferred compensation plan. Distributions of deferred amounts will be made in accordance with the participants elections, and generally after the participants employment terminates, in a lump sum, in up to 10 annual installments, or in a combination of these two forms. Participants may in some cases delay distribution of deferred amounts. Participants may also change their distribution elections subject to distribution delays.
We are generally obligated to provide our named executive officers with certain payments or other forms of compensation when their employment with us is terminated. The forms of such termination can involve voluntary termination, retirement, involuntary termination without cause, for cause termination, termination following a change of control and the disability or death of the executive. The disclosure below describes the circumstances under which we may be obligated to provide our named executive officers with post-termination payments or compensation. Additionally, the tables below reflect the estimated amounts of payments or compensation each of our named executive officers may receive under particular circumstances in the event of termination of such named executive officers employment.
During 2007, we were a party to employment agreements with Messrs. Armes and Weaver. The tables below reflect the specific terms of these employment agreements.
The initial term of the employment agreement with Mr. Armes is for three years, which is automatically extended for successive one-year terms after the initial term until the year in which Mr. Armes 64th birthday occurs, unless either Mr. Armes or we give prior notice by September 30th that the term will not be extended. The employment agreement contains non-competition and non-solicitation provisions that extend for two years after any termination of employment.
Mr. Weaver is covered by an employment agreement. As of January 1, 2009, Mr. Weaver will be covered by an amended employment agreement which will supersede in its entirety his prior employment agreement with us. Under the amended employment agreement, Mr. Weaver will serve as our Vice President and Chief Financial Officer for a term of one year. The term of the amended agreement will be automatically extended each year for additional one-year terms until the year in which Mr. Weavers 64th birthday occurs, unless either Mr. Weaver or we provide notice by September 30th that the term will not be extended. Under the current and amended agreements, Mr. Weaver is also entitled to certain severance and other post-termination benefits and payments.
Under the terms of the employment agreements of Messrs. Armes and Weaver, if the named executive officer retires during the term of his employment agreement, he will be entitled to a single lump sum cash payment within 30 days following his termination date equal to his then-current base salary, to the extent unpaid, through his termination date, plus the pro-rata portion of benefits payable to him under both our annual incentive compensation program and our long-term incentive compensation program. The pro-rata portion of the annual incentive will be calculated using the actual performance of the applicable metrics as of the end of the year compared to established targets. Additionally, all outstanding and vested stock options (or similar equity awards) will remain outstanding and exercisable in accordance with their terms.
Upon retirement, our named executive officers who are eligible to retire receive the following payments:
Mr. Armes is entitled to certain separation benefits and payments upon an involuntary termination without cause or a voluntary termination due to good reason (as defined in the employment agreement) other than within two years following a change of control. These payments and benefits include the following:
Mr. Weavers current employment agreement provides for us to make payments to Mr. Weaver upon a termination without cause or for good reason (as defined in the employment agreement). Mr. Weavers agreement provides for the following:
Payments to our other named executive officers include the following:
Upon a termination for cause or without good reason, the named executive officers are entitled to the following payments:
Mr. Armes is entitled to certain separation benefits and payments upon an involuntary termination without cause or a voluntary termination due to good reason other than within two years following a change of control. These payments and benefits include the following:
Based on his current employment agreement, Mr. Weaver is entitled to the following payments following a termination subsequent to a change of control:
The other named executive officers are entitled to receive a payment for the following upon a termination subsequent to a change of control:
Upon death or disability, the named executive officers generally receive the identical payments as those described for retirement:
In the event of Mr. Armes death or termination of employment due to disability, he or his beneficiaries or estate will be entitled to payment of 30 days base salary, a full target-level bonus, a prorated long-term incentive compensation payout and 24 months continuation of life and accident benefits (if terminated due to Mr. Armes disability) and health benefits followed by COBRA, as well as full vesting of Mr. Armes initial restricted stock unit award.
Except as otherwise indicated, the amounts shown in the tables below assume that a named executive officer was terminated as of December 31, 2007, and that the price per share of our common stock equals $16.58, which was the closing price of our common stock on December 31, 2007, as reported on the New York Stock Exchange. Actual amounts that we may pay to any named executive officer upon termination of employment, however, can only be determined at the time of such named executive officers actual separation from Cooper Tire.
Roy V. Armes
The following table shows the potential payments upon termination under various circumstances for Roy V. Armes, Chairman, Chief Executive Officer and President.
Philip G. Weaver
The following table shows the potential payments upon termination under various circumstances for Philip G. Weaver, Vice President and Chief Financial Officer.
James E. Kline
The following table shows the potential payments upon termination under various circumstances for James E. Kline, Vice President and General Counsel.
Mark W. Krivoruchka
The following table shows the potential payments upon termination under various circumstances for Mark W. Krivoruchka, Senior Vice President, Global Human Resources.
Harold C. Miller
The following table shows the potential payments upon termination under various circumstances for Harold C. Miller, President International Tire Division.
Payments Made Upon Termination of Mr. Geers Employment
Additionally, see Compensation Discussion and Analysis Employment Agreements, Change in Control Arrangements and Consulting Agreement for more information regarding our consulting arrangement with Mr. Geers.
2007 DIRECTOR COMPENSATION TABLE
Our Nominating and Governance Committee makes compensation decisions for our Directors. Except as noted in the footnotes above, our non-employee Directors received the following compensation for 2007:
These compensation amounts are unchanged from the amounts we paid our non-employee Directors for 2006. Additionally, our Board of Directors determined in early 2007 that Directors Aronson, Pond and Shuey, who were the Directors serving in the position of Office of the Chairman prior to Mr. Armes appointment as our Chairman of the Board, would receive $1,500 fee for participation in each meeting of the Office of the Chairman. The Office of the Chairman was dissolved when Mr. Armes was appointed Chairman of the Board at the end of 2007.
Our non-employee Directors participate in our 2002 Stock Option Plan for Non-Employee Directors, which we refer to as the Directors stock option plan. The purpose of the Directors stock option plan is to provide a stock-based component to the non-employee Directors compensation package to more closely align their compensation with the interests of our stockholders. Under the Directors stock option plan, our non-employee Directors receive an annual grant of options to purchase shares of our common stock in an amount equal to (1) $20,000 divided by (2) the last sale price of our common stock, as reported on the New York Stock Exchange Composite Tape, on the last trading day prior to the grant date for that particular year, which price we refer to as the stock option closing price. For purposes of the respective grants of stock options to our non-employee Directors in 2007, the stock option closing price was $19.33. The exercise price for each option is equal to the fair market value of a share of our common stock on the grant date. Options granted under the Directors stock option plan vest 50% per year over a period of two years and remain exercisable until ten years after the grant date. Information regarding unexercised options for each of our non-employee Directors is indicated above.
In 2002, the Board of Directors instituted a minimum stock ownership requirement for all Directors. All Directors are required to own at least 8,000 shares of our common stock, excluding options, and have until the end of their second full term as a Director to meet this requirement. As of the date of this proxy statement, each of our directors other than Messrs. Capo and Welding (who have each not yet served two full terms as Director) have met this requirement.
Our non-employee Directors also participate in our Amended and Restated 1998 Non-Employee Directors Compensation Deferral Plan, which we refer to as the Directors deferral plan. The Directors deferral plan permits our non-employee Directors to defer some or all of the fees payable to them for service on the Board of Directors. The amounts
that our non-employee Directors defer, and dividend equivalents on those amounts, are converted into phantom stock units and credited to a bookkeeping account established for this purpose, or are invested in various alternative investment funds available from time to time under our 401(k) plan or as chosen by the Compensation Committee. Deferred amounts may be transferred from phantom stock units into the alternative investment funds, but not back into phantom stock units. Our non-employee Directors receive an annual grant of phantom stock units in an amount equal to (1) $30,000 divided by (2) the average of the highest and the lowest quoted selling price of a share of our common stock, as reported on the New York Stock Exchange Composite Tape, on the grant date for that particular year (or, if there were no sales on the grant date, the next preceding date during which a sale of our common stock occurred), which price we refer to as the phantom stock unit closing price. This annual grant is automatically invested in phantom stock units, but may also be transferred to, but not back from, the alternative investment funds.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
Our Board of Directors is committed to establishing and maintaining a strong governance structure. The Board has adopted Guidelines as to the Role, Organization and Governance of the Board of Directors, which we refer to as our governance guidelines. Our governance guidelines address important governance topics such as Director independence, the conduct of meetings, the structure and composition of the Board, the establishment of committees, Board and Chief Executive Officer evaluations, Director education, and succession planning. In addition, the Board holds an executive session comprised solely of independent Directors at each of its meetings. In December 2007, the Board appointed Mr. Meier to serve as Lead Director for the Board. The Boards policy is to conduct an annual review of its governance practices, generally at its May meeting, to make certain that those practices remain effective.
Our Board has adopted a written Code of Business Conduct and Ethics for our Directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees. We have and intend to continue to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding certain amendments to or waivers from our Code of Business Conduct and Ethics by filing Current Reports on Form 8-K with the Securities and Exchange Commission, and will make any amended Code of Business Conduct and Ethics available at the Investor Relations/Corporate Governance link on our website at http://www.coopertire.com.
During 2007, our Board of Directors held seven Board meetings, six meetings of our Audit Committee, five meetings of our Compensation Committee and ten meetings of our Nominating and Governance Committee. Additionally, during 2007, the now-dissolved Office of the Chairman, which consisted of Directors Pond, Aronson and Shuey providing oversight for governance of the company during the 16-month period before Mr. Armes was appointed Chairman of the Board, held eight meetings. Each Director attended more than 75% of the aggregate number of meetings of the Board of Directors and meetings of Committees on which such Director served during the past fiscal year.
The New York Stock Exchanges Corporate Governance Listing Standards require that all listed companies have a majority of independent directors. For a director to be independent under the NYSE listing standards, the board of directors of a listed company must affirmatively determine that the director has no material relationship with the company, or its subsidiaries or affiliates, either directly or as a partner, stockholder or officer of an organization that has a relationship with the company or its subsidiaries or affiliates. The Board has adopted the NYSE listing standards as its categorical standards for making director independence determinations.
In making independence determinations, the Board has broadly considered all relevant facts and circumstances from the standpoint of both the Director and others. The Board has considered that we, our employees or our affiliates may have engaged in transactions or relationships with companies with which our Directors are associated. Although we know of no particular transaction, relationship or arrangement, these potential transactions might include renting vehicles from Dollar Thrifty Automotive Group, Inc., the company for which Mr. Capo is Chairman of the Board, or purchasing products from the companies for which our Directors are employees. After these considerations, and in accordance with the NYSE listing standards, the Board has affirmatively determined that each Director other than Mr. Armes has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us).
Additionally, the Board has determined that each Director other than Mr. Armes is independent under the NYSE listing standards, which provide that a Director is not independent if:
We have a separately designated standing Audit Committee that consists of Directors Shuey (Chairman), Aronson, Breininger, Capo and Chapman and was established in accordance with Section 3 (a) (58) (A) of the Securities Exchange Act of 1934. All members have been determined to be independent under the New York Stock Exchanges Corporate Governance Listing Standards. The Board has determined that Director Shuey qualifies as our audit committee financial expert due to his business experience and educational background described on page 6 of this proxy statement. The Audit Committee:
The functions of the Audit Committee are set forth in an Audit Committee Charter, which was adopted by the Board on February 4, 2004. We do not have any related person transactions, but our Audit Committee will review and discuss any proposed related person, insider or affiliated party transactions pursuant to the Audit Committee Charter.
We have a standing Compensation Committee, which is comprised of Directors Pond (Chairman), Holland, Meier, Wambold and Welding. The Compensation Committee:
Compensation decisions for our senior executive officers are made by our Compensation Committee. Decisions regarding non-equity compensation of our other executive officers are made by our Compensation Committee based on input from our management. Generally, in November of each year, our Compensation Committee provides our management with a guideline to be used for establishing non-equity compensation increases for the following year. Our Chief Executive Officer and Senior Vice President of Global Human Resources review and implement that guideline, and in December present to the Compensation Committee a recommendation regarding non-equity compensation increases for the following year. The Compensation Committee then reviews, discusses and approves the recommendation, or a modified recommendation if applicable. The Compensation Committee has engaged Towers Perrin, an outside global
human resources consulting firm, to conduct an annual review of our total compensation program for named executive officers.
The agenda for meetings of the Compensation Committee is determined by its Chairman with the assistance of our Senior Vice President of Global Human Resources. Compensation Committee meetings are regularly attended by our Chief Executive Officer and our Senior Vice President of Global Human Resources. At each meeting, the Compensation Committee meets in executive session. The Compensation Committees Chairman reports the Compensation Committees recommendations on executive compensation to the Board of Directors. Independent advisors and our human resources department support the Compensation Committee in its duties and, along with our Chief Executive Officer and Senior Vice President of Global Human Resources, may be delegated authority to fulfill certain administrative duties regarding the compensation programs. The Compensation Committee has authority under its charter to retain, approve fees for and terminate advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities. The Compensation Committee reviews the total fees paid to outside consultants by us to ensure that the consultant maintains its objectivity and independence when rendering advice to the Compensation Committee.
We have a standing Nominating & Governance Committee, which is comprised of Directors Meier (Chairman), Aronson, Breininger, Chapman, Holland and Shuey, each of whom is independent under the New York Stock Exchanges Corporate Governance Listing Standards. The Nominating and Governance Committees two principal responsibilities are:
The Nominating and Governance Committee also makes compensation decisions for our Directors.
The Nominating and Governance Committee will consider candidates for Board membership proposed by our stockholders or other parties. Any recommendation must be in writing, accompanied by a description of the proposed nominees qualifications and other relevant biographical information and an indication of the consent of the proposed nominee to serve. The recommendation should be addressed to the Nominating and Governance Committee of the Board of Directors, Attention: Secretary, Cooper Tire & Rubber Company, 701 Lima Avenue, Findlay, Ohio 45840. As of the date of this proxy statement, we have not received any director nominee recommendations from any stockholders.
The Nominating and Governance Committee uses a variety of sources to identify candidates for Board membership, including current members of the Board, our executive officers, individuals personally known to members of the Board and our executive officers and, as described above, our stockholders, as well as, from time to time, third party search firms. The Nominating and Governance Committee may consider candidates for Board membership at its regular or special meetings held throughout the year.
The Nominating and Governance Committee uses the same manner and process for evaluating every candidate for Board membership regardless of the original source of the candidates nomination. Once the Nominating and Governance Committee has identified
a prospective candidate, the Nominating and Governance Committee makes an initial determination whether to conduct an initial evaluation of the candidate, which consists of an interview by the Chair of the Nominating and Governance Committee. The Nominating and Governance Committee currently has not set specific, minimum qualifications or criteria for nominees that it proposes for Board membership, but evaluates the entirety of each candidates credentials. The Nominating and Governance Committee believes, however, that we will be best served if our Directors bring to the Board a variety of experience and backgrounds and, among other things, demonstrated integrity, executive leadership and financial, marketing or business knowledge and experience. The Chair communicates the results of this initial evaluation to the other Nominating and Governance Committee members, the Chairman of the Board, the Chief Executive Officer and the General Counsel. If the Nominating and Governance Committee determines, in consultation with the Chairman of the Board and the Chief Executive Officer, that further consideration of the candidate is warranted, members of our senior management gather additional information regarding the candidate. The Nominating and Governance Committee or members of our senior management then conduct background and reference checks regarding, and any final interviews, as necessary, of, the candidate. At that point, the candidate is invited to meet and interact with the members of the Board who are not on the Nominating and Governance Committee at one or more Board meetings. The Nominating and Governance Committee then makes a final determination whether to recommend the candidate to the Board for Board membership.
Our governance guidelines, Code of Business Conduct and Ethics and the charters for the Audit Committee, Compensation Committee and Nominating and Governance Committee are available at the Investor Relations/Corporate Governance link on our website at http://www.coopertire.com.
In addition, stockholders may request a free printed copy of any of these materials by contacting:
Cooper Tire & Rubber Company
Attention: Director of Investor Relations
701 Lima Avenue
Findlay, Ohio 45840
Our Board has adopted a process by which stockholders or interested parties may send communications to the Board, the non-employee Directors as a group, or any of the Directors. Any stockholder or interested party who wishes to communicate with the Board, the non-employee Directors as a group, or any Director may send a written communication addressed to:
Board of Directors Stockholder and Interested Party Communication
Cooper Tire & Rubber Company
701 Lima Avenue
Findlay, Ohio 45840
The Secretary will review and forward each written communication (except, in his sole determination, those communications clearly of a marketing nature, those communications better addressed by a specific company department or those communications containing complaints regarding accounting, internal auditing controls or auditing matters) to the full Board, the non-employee Directors as a group, or the individual Director(s) specifically addressed in the written communication. The Secretary will discard written communications clearly of a marketing nature. Written communications better addressed by a specific company department will be forwarded to such department, and written communications containing complaints regarding accounting, internal auditing controls or auditing matters will be forwarded to the Chairman of the Audit Committee.
Our Board does not have a specific policy regarding Director attendance at our Annual Meetings. All of our Directors attended our 2007 Annual Meeting, except for Mr. Wambold, who was out of the country on that date.
Directors Pond, Holland, Meier, Wambold and Welding served as members of the Compensation Committee during 2007. During 2007, none of the members of the Compensation Committee was one of our or our subsidiaries officers or employees, or had any relationship requiring disclosure pursuant to Item 407 of Regulation S-K. Additionally, during 2007, none of our executive officers or Directors was a member of the board of directors, or any committee thereof, of any other entity such that the relationship would be construed to constitute a committee interlock within the meaning of the rules of the Securities and Exchange Commission.
Ernst & Young LLP served as the Companys independent auditors for 2007, and has been appointed by the Audit Committee to continue in that capacity during 2008. The Audit Committees decision to appoint Ernst & Young LLP has been ratified by the Board and will be recommended to the stockholders for ratification at the Annual Meeting. Ernst & Young LLP has advised the Company that neither the firm nor any of its members or associates has any direct or indirect financial interest in the Company. During 2007, Ernst & Young LLP rendered both audit services, including an audit of the Companys annual financial statements, and certain non-audit services. There is no understanding or agreement between the Company and Ernst & Young LLP that places a limit on audit fees since the Company pays only for services actually rendered and at what it believes are customary rates. Professional services rendered by Ernst & Young LLP are approved by the Audit Committee both as to the advisability and scope of the service, and the Audit Committee also considers whether such service would affect Ernst & Young LLPs continuing independence.
Ernst & Young LLPs aggregate fees billed for 2006 and 2007 for professional services rendered by them for the audit of the Companys annual financial statements, the audit of the effectiveness of the Companys internal control over financial reporting required by the Sarbanes-Oxley Act of 2002, the review of financial statements included in the Companys
Quarterly Reports on Form 10-Q, and services that are normally provided in connection with statutory and regulatory filings or engagements for those years are listed below.
Ernst & Young LLPs aggregate fees billed for 2006 and 2007 for assurance and related services that are reasonably related to the performance of the audit or review of the Companys financial statements, and not reported under Audit Fees above, were:
Audit-related fees included fees for employee benefit plan audits and accounting consultation. All audit-related services were pre-approved.
Ernst & Young LLPs aggregate fees billed for 2006 and 2007 for professional services rendered by them for tax compliance, tax advice and tax planning were:
Tax fees in 2006 and 2007 represented fees primarily for international tax planning and domestic and foreign tax compliance. All tax services were preapproved.
Ernst & Young LLPs aggregate fees billed in 2006 and 2007 for products and services provided by them, other than those reported above under Audit Fees, Audit Related Fees and Tax Fees, were as follows:
All other fees in 2006 and 2007 represented fees for a research tool subscription. All other services were preapproved.
The Audit Committee has established a policy regarding pre-approval of all audit and non-audit services expected to be performed by the Companys independent auditors, including the scope of and fees for such services. Requests for audit services, as defined in the policy, must be approved prior to the performance of such services, and requests for audit-related services, tax services and permitted non-audit services, each as defined in the policy, must be presented for approval prior to the year in which such services are to be performed to the extent known at that time. The policy prohibits the Companys independent auditors from providing certain services described in the policy as prohibited services.
Generally, requests for independent auditor services are submitted to the Audit Committee by the Companys Director of External Reporting (or other member of the Companys senior financial management) and the Companys independent auditors for consideration at the Audit Committees regularly scheduled meetings. Requests for additional services in the categories mentioned above may be approved at subsequent Audit Committee meetings to the extent that none of such services are performed prior to their approval. The Chairman of the Audit Committee is also delegated the authority to approve independent auditor services requests provided that the pre-approval is reported at the next meeting of the Audit Committee. All requests for independent auditor services must include a description of the services to be provided and the fees for such services.
Representatives of Ernst & Young LLP will be present at the Annual Meeting of Stockholders and will be available to respond to appropriate questions and to make a statement if they desire to do so.
This report is submitted by all members of the Audit Committee, for inclusion in this proxy statement, with respect to the matters described in this report.
The Audit Committee oversees the Companys financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the audited financial statements contained in the Companys Annual Report on Form 10-K, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Companys accounting principles and such other matters as are required to be discussed with the Committee under generally accepted auditing standards, including the requirements of Statement on Auditing Standards No. 61 (Communication with Audit Committees). In addition, the Committee has discussed with the independent auditors the auditors independence from management and the Company, including the matters in the written disclosures and letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and considered the compatibility of non-audit services with the auditors independence. The Committee has concluded that the independent auditors are in fact independent of the Company.
The Committee discussed with the Companys internal and independent auditors the overall scope and plans for their respective audits. The Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Companys internal controls, and the overall quality of the Companys financial reporting. The Committee held six meetings during fiscal year 2007.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2007, for filing with the Securities and Exchange Commission. Submitted by the Audit Committee of the Companys Board of Directors:
John H. Shuey,
Arthur H. Aronson
Laurie J. Breininger
Thomas P. Capo
Steven M. Chapman
The information in the table below sets forth those persons (including any group as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known by the Company to be the beneficial owners of more than 5% of the Companys Common Stock as of February 29, 2008.
The table does not include information regarding shares held of record, but not beneficially, by Principal Trust Company, the trustee of the Cooper Spectrum Investment Savings Plan and other defined contribution plans sponsored by the Company or a subsidiary of the Company. As of December 31, 2007, those plans held 4,022,426 shares, or 6.74%, of the Companys outstanding Common Stock. The trustee, in its fiduciary capacity, has no investment powers and will vote the shares held in the plans in accordance with the instructions provided by the plan participants. If no such instructions are received, the provisions of the plans direct the trustee to vote such participant shares in the same manner in which the trustee was directed to vote the majority of the shares of the other participants who gave directions as to voting.
SECURITY OWNERSHIP OF MANAGEMENT
The information that follows is furnished as of February 29, 2008, to indicate beneficial ownership by our executive officers and Directors as a group and each named executive officer and Director, individually, of our Common Stock in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as well as ownership of certain other company securities and ownership of our Common Stock plus certain other company securities:
Section 16(a) of the Securities Exchange Act of 1934 requires the Companys Directors and executive officers, and persons who own more than ten percent of a registered class of the Companys equity securities, to file with the SEC and the New York Stock Exchange initial reports of ownership and reports of changes in beneficial ownership of Common Stock of the Company. Based solely upon a review of such reports and the representation of such Directors and executive officers, the Company believes that all reports due for Directors and executive officers during or for the year 2007 were timely filed.
Any stockholder who intends to present a proposal at the Annual Meeting in 2009 and who wishes to have the proposal included in the Companys proxy statement and form of proxy for that Annual Meeting must deliver the proposal to the Secretary of the Company, at the Companys principal executive offices, so that it is received not later than December 1, 2008. In addition, if a stockholder intends to present a proposal at the Companys 2009 Annual Meeting without the inclusion of that proposal in the Companys proxy materials and written notice of the proposal is not received by the Company on or between December 31, 2008 and January 30, 2009, in accordance with the Bylaws, proxies solicited by the Board for the 2009 Annual Meeting will confer discretionary authority to vote on the proposal if presented at the Annual Meeting.
The Compensation Committee Report that begins on page 21 of this proxy statement, disclosure regarding the Companys Audit Committee and audit committee financial expert set forth on page 45 of this proxy statement, and the Audit Committee Report that begins on page 50 of this proxy statement shall not be deemed to be incorporated by reference by any general statement incorporating this proxy statement by reference into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
Only one 2007 Annual Report and proxy statement is being delivered to multiple stockholders sharing an address unless the Company received contrary instructions from one or more of the stockholders. If a stockholder at a shared address to which a single copy of the 2007 Annual Report and proxy statement were delivered wishes to receive a separate
copy of the 2007 Annual Report or proxy statement, he or she should contact the Companys Director of Investor Relations at 701 Lima Avenue, Findlay, Ohio 45840 or (419) 423-1321. The stockholder will be delivered, without charge, a separate copy of the 2007 Annual Report or proxy statement promptly upon request. If stockholders at a shared address currently receiving multiple copies of the 2007 Annual Report and proxy statement wish to receive only a single copy of these documents, they should contact the Companys Director of Investor Relations in the manner provided above.
The Board of Directors is not aware of any other matters that may come before the Annual Meeting. However, if any other matters properly come before the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote the proxy in accordance with their judgment on such matters.
The solicitation of proxies is being made by the Company, and the Company will bear the cost of the solicitation. The Company has retained Georgeson Shareholder Communications Inc., 17 State Street, New York, New York, to aid in the solicitation of proxies, at an anticipated cost to the Company of approximately $8,000, plus expenses. The Company also will reimburse brokers and other persons for their reasonable expenses in forwarding proxy material to the beneficial owners of the Companys stock. In addition to the solicitation by use of the mails, solicitations may be made by telephone, facsimile or by personal calls, and it is anticipated that such solicitation will consist primarily of requests to brokerage houses, custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of shares held of record by such persons. If necessary, officers and other employees of the Company may by telephone, facsimile or personally, request the return of proxies.
Please mark, execute and return the accompanying proxy, or vote by telephone or Internet, in accordance with the instructions set forth on the proxy form, so that your shares may be voted at the Annual Meeting. For information on how to obtain directions to be able to attend the Annual Meeting and vote in person, please contact the Companys Director of Investor Relations at 701 Lima Avenue, Findlay, Ohio 45840 or (419) 423-1321.
This proxy statement, along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and our 2007 Annual Report, are available free of charge at http://www.proxyvote.com.
BY ORDER OF THE BOARD OF
James E. Kline
General Counsel and Secretary
March 31, 2008
OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
May 6, 2008
All stockholders are requested to mark, date, sign
and mail promptly the enclosed proxy for which an
envelope is provided, or cast their ballots by Internet
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Form 10K are available at www.proxyvote.com.