UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Cooper Industries, Inc
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(Name of Registrant as Specified In Its Charter)
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[COOPER LOGO]
March 5, 2002
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend the Annual
Meeting of Cooper Industries' shareholders. The meeting will be held on Friday,
April 5, 2002, at 11:00 a.m. in the J.P. Morgan Chase Center Auditorium, 601
Travis Street, Houston, Texas.
The notice of meeting and proxy statement following this letter describe the
business to be conducted at the meeting, including the election of four
directors.
To make it easier for you to vote your shares, we are pleased to offer Internet
and telephone voting for registered shareholders. Your proxy card and the Notice
of Annual Meeting on the inside cover of this proxy statement describe how to
use these services. PLEASE TAKE A MOMENT NOW TO VOTE YOUR PROXY VIA THE
INTERNET, BY TELEPHONE OR BY SIGNING AND RETURNING YOUR PROXY CARD IN THE
ENVELOPE PROVIDED, even if you plan to attend the meeting. YOUR VOTE IS
IMPORTANT.
The Board of Directors appreciates and encourages shareholder participation.
Thank you for your continued support.
Sincerely,
/s/ H. JOHN RILEY, JR.
H. JOHN RILEY, JR.
Chairman, President and
Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
COOPER INDUSTRIES, INC.
P.O. BOX 4446
HOUSTON, TEXAS 77210
---------------------
TIME........................ 11:00 a.m. on Friday, April 5, 2002.
PLACE....................... J.P. Morgan Chase Center Auditorium, 601 Travis
Street, Houston, Texas. Free parking is
available at the J.P. Morgan Chase Center.
ITEMS OF BUSINESS........... 1. Elect four directors for the term expiring at
the 2005 Annual Meeting of Shareholders.
2. If presented at the meeting, consider and
vote upon a shareholder proposal requesting
the Board of Directors to report to shareholders
on social and environmental issues related to
sustainability.
3. Consider any other matters to come properly
before the meeting or any adjournment thereof.
RECORD DATE................. Holders of Common Stock of record at the close of
business on March 1, 2002, may vote at the meeting.
FINANCIAL STATEMENTS........ Our audited financial statements for the year ended
December 31, 2001, and the related Management's
Discussion and Analysis of Financial Condition and
Results of Operations are included in our Form
10-K, which is contained in the Annual Report that
you received in this mailing.
IMPORTANT................... In order to avoid additional soliciting expense to
Cooper, please vote your proxy as soon as possible,
even if you plan to attend the meeting.
Shareholders of record can vote by one of the
following methods:
1. CALL 1-877-779-8683 from the U.S. and Canada
(this call is free) or 001-201-536-8073 from
all other countries to vote by telephone
anytime up to 12:00 midnight New York time on
April 4, 2002; OR
2. GO TO THE WEBSITE: http://www.eproxyvote.com/cbe
to vote over the Internet anytime up to 12:00
midnight New York time on April 4, 2002; OR
3. MARK, SIGN, DATE AND RETURN your proxy card in
the enclosed postage-paid envelope. If you are
voting by telephone or the Internet, please do
not mail your proxy card.
By order of the Board of Directors:
/s/ TERRANCE V. HELZ
TERRANCE V. HELZ
Associate General Counsel and Secretary
Houston, Texas
March 5, 2002
TABLE OF CONTENTS
Questions and Answers....................................... 2
Cooper Stock Ownership...................................... 4
Proposal 1: Election of Directors........................... 4
Information about Management and Organization of the Board
of Directors.............................................. 8
Executive Management Compensation........................... 11
Company Performance......................................... 14
Management Development and Compensation Committee Report on
Executive Compensation.................................... 16
Other Compensation Matters.................................. 19
Audit Committee Report...................................... 22
Relationship with Independent Auditors...................... 22
Proposal 2: Shareholder Proposal for a Sustainability
Report.................................................... 23
1
PROXY STATEMENT
We have sent you this booklet and proxy card because the Board of Directors
of Cooper Industries, Inc. ("Cooper") is soliciting your proxy to vote at our
2002 Annual Meeting of Shareholders on April 5, 2002. This booklet contains
information about the items being voted on at the Annual Meeting and information
about Cooper.
QUESTIONS AND ANSWERS
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WHAT MAY I VOTE ON?
- The election of four nominees to serve on our Board of Directors; and
- If presented, a shareholder proposal that the Board of Directors report
to shareholders on social and environmental issues related to
sustainability.
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HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
The Board recommends voting:
- FOR each of the nominees for the Board of Directors; and
- AGAINST the shareholder proposal.
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WHO IS ENTITLED TO VOTE?
Holders of Common Stock as of the close of business on March 1, 2002 may
vote at the Annual Meeting.
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HOW DO I VOTE?
You may vote your shares by means of a proxy using one of the following
three methods of voting:
- electronically using the Internet,
- by use of the telephone, or
- by signing and dating the enclosed proxy card and returning it in the
prepaid envelope.
The instructions for these three methods are contained on the Notice of
Annual Meeting which immediately follows the cover page of this proxy
statement and also on the enclosed proxy card. If you return your signed
proxy card but do not mark the boxes showing how you wish to vote, your
shares will be voted as recommended by the Board of Directors. The giving
of such proxy does not affect your right to vote in person if you attend
the meeting.
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CAN I REVOKE MY PROXY CARD?
Whichever voting method you use, you have the right to revoke your proxy at
any time before the meeting by:
- filing with Cooper's Corporate Secretary an instrument revoking your
proxy;
- attending the meeting and giving notice of revocation; or
- submitting a later-dated proxy by any of the three voting methods
described above.
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IS MY VOTE CONFIDENTIAL?
Proxy cards, proxies delivered by Internet or telephone, ballots and voting
tabulations that identify individual shareholders are mailed or returned
directly to an independent inspector of election, and handled in a manner
that protects your voting privacy. The independent inspector of election
will count the votes. We have adopted a confidential voting policy which
provides that your vote will not be disclosed except: (1) to respond to
written comments on the proxy card; (2) as required by law; or (3) in other
limited circumstances, such as a proxy contest in opposition to the Board.
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2
WHAT SHARES ARE INCLUDED ON THE PROXY CARDS?
The shares listed on your proxy cards represent ALL of your record shares,
including the following, as applicable:
- shares held in the Cooper Dividend Reinvestment and Stock Purchase Plan;
- shares held in custody for your account by J.P. Morgan Chase Bank, as
Trustee of the Cooper Industries, Inc. Retirement Savings and Stock
Ownership Plan ("CO-SAV"); and
- shares acquired through Cooper's Employee Stock Purchase Plan that are
being held in a book-entry account at EquiServe Trust Company N.A.,
Cooper's transfer agent.
If you do not properly submit your proxy by one of the three methods
described above, your shares (except for CO-SAV) will not be voted. See the
question below for an explanation of the voting procedure for CO-SAV
shares. If you hold shares in a broker account, you will receive a separate
proxy card and instructions from your broker.
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HOW IS COOPER COMMON STOCK IN CO-SAV VOTED?
If you hold shares of Cooper Common Stock through CO-SAV, you must instruct
the CO-SAV trustee, J.P. Morgan Chase Bank, how to vote your shares. If you
do not properly submit your proxy by one of the three methods described
above (or if you submit your proxy with an unclear voting designation, or
with no voting designation at all), then the Trustee will vote the shares
in your CO-SAV account in proportion to the way the other CO-SAV
participants voted their shares. The Trustee will also vote shares of
Common Stock not yet allocated to participants' accounts in proportion to
the way that CO-SAV participants voted their shares. CO-SAV votes receive
the same confidentiality as all other shares voted.
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HOW MANY SHARES CAN VOTE?
Each holder of Common Stock at the close of business on March 1, 2002, is
entitled to one vote for each share held. These are the only outstanding
securities entitled to vote. As of February 22, 2002, 93,587,118 shares of
Common Stock were issued and outstanding.
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WHAT VOTE IS REQUIRED FOR APPROVAL?
Provided a quorum is present, the election of a director and the approval
of the shareholder proposal each require the affirmative vote of a majority
of the shares represented in person or by proxy at the meeting and entitled
to vote on such matters. Abstentions have the same effect as a vote against
the proposal. Broker nonvotes are not counted for purposes of voting, but
are counted for purposes of a quorum.
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WHAT IS A "QUORUM"?
A "quorum" is a majority of the issued and outstanding shares. Shareholders
may represent their shares by being present at the meeting or their shares
may be represented at the meeting by proxy. There must be a quorum for the
meeting to be held. If you submit a valid proxy by any of the described
methods, even if you abstain from voting, then you will be considered part
of the quorum.
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WHO CAN ATTEND THE ANNUAL MEETING?
If you own Cooper shares on March 1, 2002, you may attend the Annual
Meeting. Please indicate on your proxy if you plan to attend. If your
shares are held through a broker and you would like to attend, please write
to Terrance V. Helz, Associate General Counsel and Secretary, Cooper
Industries, Inc., 600 Travis Street, Suite 5800, Houston, Texas 77002, or
bring proof of ownership to the meeting.
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3
HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
Although we do not know of any other business to be considered at the 2002
Annual Meeting, if any other business is presented at the Annual Meeting,
your proxy will be voted as determined by the persons voting the proxies.
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WHEN ARE THE SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING DUE?
All shareholder proposals must be submitted in writing to Terrance V. Helz,
Associate General Counsel and Secretary, Cooper Industries, Inc., 600
Travis Street, Suite 5800, Houston, Texas 77002. Any shareholder who
intends to present a proposal at the 2003 Annual Meeting of Shareholders
must deliver the proposal to us so that it is received no later than
November 5, 2002, to have the proposal included in our proxy materials for
that meeting. Shareholder proposals must also meet other requirements of
the Securities and Exchange Act of 1934 to be eligible for inclusion. If a
shareholder proposal is received after January 19, 2003, the persons voting
the proxies may vote in their discretion on such proposal as to all the
shares for which they have received proxies for the 2003 Annual Meeting of
Shareholders.
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WHAT ARE THE COSTS OF THIS PROXY SOLICITATION?
We have retained Georgeson Shareholder Communications, Inc. to assist in
the distribution of proxy materials and solicitation of votes for a fee of
$16,000, plus out-of-pocket expenses. In addition, we have retained
MacKenzie Partners, Inc. to assist in the solicitation of proxies for
customary fees, plus out-of-pocket expenses. We also reimburse brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses of forwarding proxy and solicitation materials to
shareholders. Our directors, officers and employees may also solicit
proxies without additional compensation by letter, telephone or otherwise.
We will bear all expenses of solicitation.
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COOPER STOCK OWNERSHIP
As of February 22, 2002, there were 27,215 registered holders of Common
Stock. We know of no person who was the beneficial owner of more than five
percent of the outstanding shares of any class of voting securities as of that
date.
PROPOSAL 1
ELECTION OF DIRECTORS
The authorized number of directors is 11, divided into three classes, one
having three members and two having four members each. Each class is elected for
a term of three years, so that the term of one class of directors expires at
every meeting.
The Board of Directors has nominated four persons for election as directors
in the class whose term will expire in April 2005, or when their successors are
elected and qualified. The nominees are: Warren L. Batts, Robert M. Devlin,
Linda A. Hill and H. John Riley, Jr. All of the nominees are directors and
members of the class whose term expires at the meeting.
If any nominee becomes unable to serve as a director, an event not now
anticipated, it is intended that the shares represented by proxies will be voted
for the election of a substitute nominated by the Board of Directors. Following
is certain information with respect to the persons nominated as directors and
the current directors who will continue as directors after the Annual Meeting.
4
NOMINEES FOR TERMS EXPIRING IN 2005
------------------------------
WARREN L. BATTS [PHOTO] Mr. Batts was the Chairman and Chief
Chairman -- Finance Committee Executive Officer of Tupperware Corporation
Member -- Management (diversified consumer products) since its
Development and spin-off from Premark International, Inc. in
Compensation Committee and 1996 until his retirement in 1997. He also
Committee on Nominations served as Chairman and Chief Executive
and Corporate Governance Officer of Premark International, Inc. (food
Director since 1986 containers, commercial food equipment,
Age 69 housewares and decorative laminates) from
1986 until 1996 and as Chairman of Premark
International, Inc. until 1997. He is also a
director of The Allstate Corporation,
Methode Electronics, Inc., Sears, Roebuck
and Co. and Sprint Corporation.
------------------------------
ROBERT M. DEVLIN [PHOTO] Mr. Devlin is Chairman of Curragh Capital
Chairman -- Management Partners (venture capital, merchant
Development and banking). He was Chairman, President and
Compensation Committee Chief Executive Officer of American General
Member -- Executive Corporation (financial services) from 1997
Committee, Finance until September 2001. He was elected Vice
Committee and Committee on Chairman in 1993, was named President in
Nominations and Corporate 1995 and Chief Executive Officer in 1996,
Governance and was elected Chairman in 1997. He is
Director since 1997 also a director of Phillips Petroleum
Age 61 Company.
------------------------------
LINDA A. HILL [PHOTO] Ms. Hill is a Professor at the Harvard
Member -- Audit Committee Business School. She joined the faculty of
and Finance Committee Harvard Business School in 1984 as an
Director since 1994 Assistant Professor in organizational
Age 45 behavior and human resource management. She
was named Associate Professor in 1991,
Professor in 1995 and the Wallace Brett
Donham Professor of Business Administration
in 1997. She is also a director of State
Street Corporation.
------------------------------
H. JOHN RILEY, JR. [PHOTO] Mr. Riley is Chairman, President and Chief
Chairman -- Executive Executive Officer of Cooper Industries,
Committee Inc. He was named President and Chief
Director since 1992 Operating Officer in 1992, Chief Executive
Age 61 Officer in 1995 and Chairman in 1996. He is
also a director of The Allstate
Corporation, Baker Hughes Incorporated and
Dynegy Inc.
5
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 2003
------------------------------
CLIFFORD J. GRUM [PHOTO] Mr. Grum served as Chairman of the Board
Chairman -- Committee on and Chief Executive Officer of
Nominations and Corporate Temple-Inland Inc. (container and
Governance containerboard, pulp and paperboard,
Member -- Executive building products and financial services)
Committee, Finance from 1991 until 2000, when he retired. He
Committee and Management is also a director of Trinity Industries
Development and Inc. and Tupperware Corporation.
Compensation Committee
Director since 1982
Age 67
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RALPH E. JACKSON, JR. [PHOTO] Mr. Jackson is Chief Operating Officer of
Director since 2001 Cooper Industries, Inc. He was named
Age 60 Executive Vice President, Operations in
1992 and Chief Operating Officer in 2001.
------------------------------
SIR RALPH H. ROBINS [PHOTO] Sir Ralph Robins has served as Chairman of
Member -- Audit Committee Rolls-Royce plc since 1992. He is also
and Management Development director and Chairman of Cable & Wireless
and Compensation Committee plc and a director of Schroders plc and
Director since 1991 Standard Chartered plc.
Age 69
------------------------------
JAMES R. WILSON [PHOTO] Mr. Wilson served as Chairman, President
Chairman -- Audit Committee and Chief Executive Officer of Cordant
Member -- Management Technologies Inc. from 1995 until 2000,
Development and when he retired. He became President and
Compensation Committee and Chief Executive Officer and a director in
Committee on Nominations 1993, and was elected Chairman in 1995. He
and Corporate Governance is also a director of The BFGoodrich
Director since 1997 Company.
Age 61
6
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 2004
------------------------------
H. LEE SCOTT [PHOTO] Mr. Scott has been President and Chief
Member -- Audit Committee Executive Officer of Wal-Mart Stores, Inc.
and Finance Committee (discount retailer) since January 2000. He
Director since 1999 has been with Wal-Mart since 1979. He served
Age 52 as Executive Vice President, Logistics from
1992 to 1995 and Executive Vice President,
Merchandising from 1995 to 1998. He was
named President and Chief Executive Officer
of the Wal-Mart Stores Division in 1998, and
Vice Chairman and Chief Operating Officer in
1999. He is also a director of Wal-Mart
Stores, Inc.
------------------------------
DAN F. SMITH [PHOTO] Mr. Smith is President and Chief Executive
Member -- Audit Committee, Officer of Lyondell Chemical Company
Executive Committee and (petrochemicals and refining operations). He
Management Development was named President in 1994 and Chief
and Compensation Committee Executive Officer in 1996. Since 1997, he
Director since 1998 has also served as Chief Executive Officer
Age 55 of Equistar Chemicals, LP, a joint venture
company owned 41% by Lyondell. He is also a
director of Lyondell Chemical Company and
ChemFirst Inc.
------------------------------
GERALD B. SMITH [PHOTO] Mr. Smith is Chairman and Chief Executive
Member -- Audit Committee Officer of Smith Graham & Company, an
and Finance Committee investment management firm that he founded
Director since 2000 in 1990. He is also a director of Rorento
Age: 51 Fund N.V. and Pennzoil-Quaker State Company,
and a Trustee of The Charles Schwab Family
of Funds.
7
INFORMATION ABOUT MANAGEMENT AND ORGANIZATION
OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICERS
The table below contains certain information as of March 1, 2002 with
respect to Cooper's present executive officers. All executive officers are
elected to terms that expire at the organizational meeting of the Board of
Directors, which follows the Annual Meeting of Shareholders.
YEARS OF OFFICER
NAME POSITION AGE SERVICE SINCE
---- -------- --- -------- -------
H. John Riley, Jr. ............ Chairman, President and Chief Executive Officer 61 39 1982
Ralph E. Jackson, Jr. ......... Chief Operating Officer 60 25 1992
Kirk S. Hachigian.............. Executive Vice President, Operations 42 1 2001
Terry A. Klebe................. Senior Vice President, Strategic Sourcing and Chief 47 7 1995
Information Technology Officer
D. Bradley McWilliams.......... Senior Vice President and Chief Financial Officer 60 30 1982
Diane K. Schumacher............ Senior Vice President and General Counsel 48 22 1988
David R. Sheil................. Senior Vice President, Human Resources 45 16 1996
David A. White, Jr. ........... Senior Vice President, Strategic Planning and New 60 30 1988
Venture Development Officer
Richard J. Bajenski............ Vice President, Investor Relations 49 20 1998
Victoria B. Guennewig.......... Vice President, Public Affairs 51 3 1999
Terrance V. Helz............... Associate General Counsel and Secretary 48 11 2001
Alan J. Hill................... Vice President and Treasurer 57 24 1979
E. Daniel Leightman............ Vice President, Taxes 61 14 1994
Jeffrey B. Levos............... Vice President and Controller 41 2 2000
Terrance M. Smith.............. Vice President, Information Systems 52 16 1996
Robert W. Teets................ Vice President, Environmental Affairs and Risk 51 24 1993
Management
All of the executive officers have been employed by Cooper in management
positions for more than five years, except Victoria B. Guennewig, Kirk S.
Hachigian, Terrance V. Helz and Jeffrey B. Levos. Victoria B. Guennewig joined
Cooper in February 1999 after serving as Vice President, Public Affairs, of The
Coastal Corporation since 1997. She previously held management positions in
public affairs with Pan Energy Corp and Union Pacific Resources Group Inc. Kirk
S. Hachigian joined Cooper in April 2001 after serving as President and Chief
Executive Officer of the Asia Pacific Operations unit of GE Lighting since 1997
and as Chairman of the Board and Chief Executive Officer of GE International
Mexico from 1996 to 1997. Terrance V. Helz became Secretary of Cooper in August
2001 after serving as Associate General Counsel and Assistant Secretary since
1998 and as Senior Counsel from 1994 to 1998. Jeffrey B. Levos joined Cooper in
March 2000 after serving as Vice President and Controller of The Coastal
Corporation since 1997 and as their Vice President and General Auditor from 1994
to 1997.
8
SECURITY OWNERSHIP OF MANAGEMENT
As of February 22, 2002, each director and each executive officer named in
the Summary Compensation Table beneficially owned the number of shares of Cooper
Common Stock listed in the following table. Each of the named individuals and
all directors and executive officers as a group beneficially owned 1.87% of
Cooper's outstanding Common Stock as of that date.
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)
------------------------ ---------------------
H. John Riley, Jr. ......................................... 639,404 (2)(3)
Warren L. Batts............................................. 24,623 (4)(5)
Robert M. Devlin............................................ 5,700
Clifford J. Grum............................................ 23,700
Linda A. Hill............................................... 5,700
Ralph E. Jackson, Jr. ...................................... 219,069 (2)(3)
Sir Ralph H. Robins......................................... 6,139 (5)
H. Lee Scott................................................ 4,470 (5)
Dan F. Smith................................................ 7,278 (5)
Gerald B. Smith............................................. 513
James R. Wilson............................................. 11,239 (5)
Terry A. Klebe.............................................. 66,506 (2)
D. Bradley McWilliams....................................... 131,976 (2)(3)
Diane K. Schumacher......................................... 93,197 (3)
All Directors and Executive Officers as a Group............. 1,748,191 (2)(3)
---------------
(1) Includes shares held by executive officers in the Cooper Industries, Inc.
Retirement Savings and Stock Ownership Plan. Also includes shares issuable
upon the exercise of options granted under either the Stock Incentive Plan
or the Directors' Stock Plan that are exercisable within a period of 60 days
from March 1, 2002, as follows: Mr. Riley -- 382,665 shares; Mr. Batts --
4,000 shares; Mr. Devlin -- 2,000 shares; Mr. Grum -- 3,000 shares;
Ms. Hill -- 4,000 shares; Sir Ralph Robins -- 4,000 shares; Mr. D. Smith --
1,000 shares; Mr. Wilson -- 3,000 shares; Mr. Jackson -- 145,165 shares;
Mr. Klebe -- 52,798 shares; Mr. McWilliams -- 80,133 shares;
Ms. Schumacher -- 62,499 shares; and all directors and executive officers as
a group -- 1,101,445 shares.
(2) Includes shares the receipt of which has been deferred pursuant to the Stock
Incentive Plan and the Executive Restricted Stock Incentive Plan, as
follows: Mr. Riley -- 134,713 shares; Mr. Jackson -- 57,788 shares;
Mr. Klebe -- 6,798 shares; Mr. McWilliams -- 26,833 shares; and all
executive officers as a group -- 258,193 shares.
(3) Includes shares the receipt of which has been deferred pursuant to the
Management Annual Incentive Plan, as follows: Mr. Riley -- 10,374 shares;
Mr. Jackson -- 2,345 shares; Mr. McWilliams -- 4,187 shares;
Ms. Schumacher -- 2,607 shares; and all executive officers as a
group -- 20,532 shares.
(4) Includes 17,200 shares held in a trust for which Mr. Batts is the settlor
and trustee and for which a member of his family is the beneficiary. Mr.
Batts has sole voting and investment power with respect to these shares.
(5) Includes shares the receipt of which has been deferred by the directors
under the Directors' Stock Plan and the Directors' Retainer Fee Stock Plan,
as follows: Mr. Batts -- 3,423 shares; Sir Ralph Robins -- 513 shares;
Mr. Scott -- 4,070 shares; Mr. D. Smith -- 5,478 shares; and
Mr. Wilson -- 6,539 shares.
9
MEETINGS OF THE COOPER BOARD AND ITS COMMITTEES
Our Board of Directors met on six occasions during 2001. All of the
directors attended 75% or more of the meetings of the Board and the Committees
of the Board on which they served, except Mr. Dan Smith, who attended 73% of the
meetings of the Board and the Committees on which he served.
Audit Committee
The Audit Committee, which consists of all independent directors, held five
meetings during 2001. The Committee's principal responsibilities are to:
- Confer with management and the independent auditors regarding financial
reporting issues and practices.
- Review filings made with the SEC, including the annual financial
statements and the annual report on Form 10-K.
- Recommend to the Board the appointment of independent auditors and review
the auditors' independence, scope of annual audit and audit fees.
- Review the internal audit program and the corporate compliance program
including compliance with Cooper's Code of Ethics and Business Conduct.
- Review the accounting principles and policies of Cooper.
Executive Committee
The Executive Committee, which is authorized to act on behalf of the full
Board between regular meetings of the Board, held no meetings in 2001.
Finance Committee
The Finance Committee, which consists of all independent directors, held
two meetings during 2001. The Committee's principal responsibilities are to:
- Review Cooper's financial objectives, capital structure, financing
arrangements and similar matters of a financial nature.
- Make recommendations to the Board regarding dividends.
- Review pension plan asset management.
Management Development and Compensation Committee
The Management Development and Compensation Committee, which consists of
all independent directors, held four meetings during 2001. The Committee's
principal responsibilities are to:
- Establish corporate compensation policies, including determining base
salary and annual and long-term incentive awards for executive officers
and other key employees.
- Establish specific performance goals and objectives to be used to
evaluate performance over a given period.
- Evaluate the performance of executive officers and other key employees to
determine whether performance goals and objectives have been attained and
awards have been earned.
- Determine stock option and long-term performance share grants to
employees.
- Review compliance with stock ownership guidelines for executive officers
and other key employees.
- Review succession planning and executive development.
Committee on Nominations and Corporate Governance
The Committee on Nominations and Corporate Governance, which consists of
all independent directors, held two meetings in 2001. The Committee's principal
responsibilities are to:
- Recommend nominees for election to the Board and Committee assignments.
- Review and recommend action on shareholder proposals.
- Review corporate governance principles.
- Consider shareholder recommendations for nominees for election to the
Board. (Shareholders must submit such recommendations in writing to
Terrance V. Helz, Associate General Counsel and Secretary, Cooper
Industries, Inc., 600 Travis Street, Suite 5800, Houston, Texas 77002.)
10
EXECUTIVE MANAGEMENT COMPENSATION
The following table presents information about compensation paid or accrued
for services by the Chief Executive Officer and our four most highly compensated
executive officers (the "Named Executives") for fiscal years 1999, 2000 and
2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION(3)
-----------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
-------------------------- ---------- ----------
(a) (b) (c) (d) (g) (h) (i)
SECURITIES ALL
UNDERLYING LTIP OTHER
NAME AND SALARY BONUS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) # ($)(4) ($)(5)
------------------ ---- -------- -------- ---------- ---------- ------------
Riley, Jr., H.J. -- Chairman, President 2001 $965,000 $ 0 162,500 $ 0 $85,388
and Chief Executive Officer 2000 910,000 932,500 150,000 1,258,351 72,671
1999 876,667 704,900 105,000 1,770,291 54,120
Jackson, Jr., R.E. -- Chief Operating 2001 525,000 0 80,000 0 37,573
Officer 2000 479,063 344,400 60,000 460,361 35,350
1999 451,875 306,500 33,000 630,796 26,724
Klebe, T.A. -- Senior Vice President, 2001 308,750 0 27,500 0 13,894
Strategic Sourcing and Chief 2000 282,208 182,900 20,000 163,643 17,199
Information Technology Officer 1999 268,625 220,000 20,000 195,484 12,088
McWilliams, D.B. -- Senior Vice 2001 385,917 0 33,300 0 17,366
President and Chief Financial Officer 2000 368,500 235,700 26,000 306,907 25,686
1999 352,500 202,300 21,000 435,312 20,993
Schumacher, D.K. -- Senior 2001 327,500 0 27,500 0 22,254
Vice President and General Counsel 2000 306,500 208,800 20,000 245,516 21,722
1999 293,208 176,200 16,000 325,576 18,212
---------------
(1) Column(e) "Other Annual Compensation" has been omitted since there are no
amounts to report. The aggregate amount of perquisites and other personal
benefits for any Named Executive does not exceed $50,000 or 10% of the total
of annual salary and bonus for any such Named Executive.
(2) Column (f) "Restricted Stock Awards" has been omitted because there are no
amounts to report.
(3) See the Long-Term Incentive Plan Table on page 13 disclosing long-term
incentive awards granted in 2001 to the Named Executives pursuant to the
Stock Incentive Plan.
(4) Represents performance-based shares that were earned by the Named Executives
under the Stock Incentive Plan in the last year of a four-year performance
period ending on December 31 of each of the years listed in the table.
(5) The figures in column (i) for 2001 include Cooper's contributions to the
Cooper Industries, Inc. Retirement Savings and Stock Ownership Plan and to
the Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan,
respectively, as follows: H. J. Riley, Jr. $5,119 and $80,269; R. E.
Jackson, Jr. $5,906 and $31,667; T. A. Klebe $4,519 and $9,375; D. B.
McWilliams $5,015; and $12,351; and D. K. Schumacher $7,875 and $14,379.
11
STOCK OPTIONS
The following table presents information about stock option grants to the
Named Executives in the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE(2) VALUE($)(3)
(a) (b) (c) (d) (e) (f)
---- ---------- ---------------- ----------- ---------- -----------
Riley, Jr., H. J. ....................... 162,500 9.34 $46.10 2/13/2011 $1,873,625
Jackson, Jr., R. E. ..................... 80,000 4.60 46.10 2/13/2011 922,400
Klebe, T. A. ............................ 27,500 1.58 46.10 2/13/2011 317,075
McWilliams, D. B. ....................... 33,300 1.91 46.10 2/13/2011 383,949
Schumacher, D. K. ....................... 27,500 1.58 46.10 2/13/2011 317,075
---------------
(1) The exercise price of each option is equal to the fair market value of
Cooper's Common Stock on the date of grant of the option.
(2) Options become one-third exercisable one year after the date of grant,
two-thirds exercisable two years after the date of grant, and fully
exercisable three years after the date of grant. An optionee may make
lifetime transfers of nonqualified stock options to certain family members
and trusts.
(3) The Black-Scholes option pricing model was used assuming a dividend yield of
3.5%, a risk-free interest rate of 5.14%, an expected stock price volatility
based on historical experience of 27.5% and an expected option life based on
historical experience of seven years. The attribution of values with the
Black-Scholes model to stock option grants requires adoption of certain
assumptions, as described above. While the assumptions are believed to be
reasonable, the reader is cautioned not to infer a forecast of earnings or
dividends either from the model's use or from the values adopted for the
model's assumptions. Any future values realized will ultimately depend upon
the excess of the stock price on the date the option is exercised over the
exercise price.
The following table presents information about options exercised during
2001 and the unexercised stock options held at December 31, 2001 by the Named
Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
SHARES EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
ACQUIRED VALUE (d) (e)
NAME ON EXERCISE(#) REALIZED($) --------------------------- ---------------------------
(a) (b) (c) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
Riley, Jr., H. J. .......... 0 $0 243,499 297,501 $0 $0
Jackson, Jr., R. E. ........ 0 0 87,499 131,001 0 0
Klebe, T. A. ............... 0 0 30,298 47,502 0 0
McWilliams, D. B. .......... 0 0 53,366 57,634 0 0
Schumacher, D. K. .......... 0 0 41,332 46,168 0 0
12
LONG-TERM AWARDS
The following table presents information about long-term incentive awards
granted in 2001 to the Named Executives under the Stock Incentive Plan. The
performance-based share awards may be earned based on achievement of performance
goals over a four-year period commencing January 1, 2001 and ending on December
31, 2004. The performance goals are based on compound growth in earnings per
share over the performance period, with a threshold of 6% compound growth before
any awards are earned. At least 15% compound growth in earnings per share must
be achieved for a payout at the maximum level shown in the table. The awards, to
the extent earned, will be distributed in shares of Cooper Common Stock, or at
the executive's election as approved by the Management Development and
Compensation Committee, all or a portion of the earned award may be paid in
cash.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
PRICE BASED PLANS
---------------------------------------------
(a) (b) (c) (d) (e) (f)
NUMBER OF PERFORMANCE OR
SHARES, UNITS, OTHER PERIOD
OR OTHER UNTIL MATURATION
NAME RIGHTS(#) OR PAYOUT THRESHOLD TARGET MAXIMUM
---- -------------- ---------------- ------------- ------------- -------------
Riley, Jr., H. J. ........... 13,500 12/31/2004 13,500 shares 54,200 shares 75,800 shares
Jackson, Jr., R. E. ......... 6,700 12/31/2004 6,700 shares 26,700 shares 37,300 shares
Klebe, T. A. ................ 2,300 12/31/2004 2,300 shares 9,200 shares 12,800 shares
McWilliams, D. B. ........... 2,700 12/31/2004 2,700 shares 10,800 shares 15,200 shares
Schumacher, D. K. ........... 2,300 12/31/2004 2,300 shares 9,200 shares 12,800 shares
13
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG COOPER
INDUSTRIES, INC., S&P 500 AND COOPER INDUSTRIES PEER GROUP
The following graph compares the total shareholder return on Cooper's
Common Stock for the five-year period December 31, 1996 through December 31,
2001 to the total returns for the same period of the Standard & Poor's 500 Stock
Index and a Cooper Peer Group Index. The cumulative total return is based upon
an initial investment of $100 on December 31, 1996 with dividends reinvested.
We currently operate in two primary business areas: electrical products and
tools and hardware. The Cooper Peer Group Index consists of corporations whose
businesses are representative of these business segments and include: (1)
Danaher Corporation, (2) Emerson Electric Co., (3) Hubbell Incorporated (Class
B), (4) The Stanley Works, (5) Thomas and Betts Corporation and (6) U.S.
Industries. The Cooper Peer Group has been weighted in accordance with each
corporation's market capitalization (closing stock price multiplied by the
number of shares outstanding) as of the beginning of each of the five years
covered by the performance graph. The weighted return for each year is the sum
of the products obtained by multiplying (a) the percentage that each
corporation's market capitalization represents of the total market
capitalization for all corporations in the Index for such year by (b) the total
shareholder return for that corporation for such year.
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100 ON DECEMBER 31, 1996
WITH DIVIDENDS REINVESTED
[PERFORMANCE GRAPH]
DEC-96 DEC-97 DEC-98 DEC-99 DEC-00 DEC-01
------ ------ ------ ------ ------ ------
Cooper Industries Inc. ............................. $100 $119 $119 $104 $123 $ 96
S&P 500(R).......................................... $100 $133 $171 $208 $189 $166
Custom Composite Index (6 Stocks)................... $100 $125 $130 $121 $158 $132
14
The following graph is offered as an additional measure of Cooper's stock
price performance in recent years. The graph compares Cooper's return with the
return from an equal investment in the Cooper Peer Group made at the beginning
of the five-year period ended December 31, 2001, adjusted for dividend
reinvestments, but with no adjustment for changes in market capitalization.
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100 ON DECEMBER 31, 1996
WITH DIVIDENDS REINVESTED
[PERFORMANCE GRAPH]
DEC-96 DEC-97 DEC-98 DEC-99 DEC-00 DEC-01
------ ------ ------ ------ ------ ------
Cooper Industries Inc. .............................. $100 $119 $119 $104 $123 $ 96
Custom Composite Index (6 Stocks).................... $100 $133 $125 $111 $109 $102
15
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
RESPONSIBILITIES OF THE COMMITTEE
The Management Development and Compensation Committee (the "Committee")
establishes compensation programs for our executive officers that are designed
to benefit the long-term interests of Cooper and its shareholders. The Committee
also reviews the performance of our executive officers and other key executives
every year. The Committee also conducts a complete review of succession planning
and executive development at least once every three years.
COMPENSATION PHILOSOPHY
The Committee's policy is to compensate and reward executive officers and
other key executives based on the combination of some or all of the following
factors, depending on the executive's responsibilities: corporate performance,
business unit performance and individual performance. The Committee evaluates
corporate performance and business unit performance by reviewing the extent to
which Cooper has accomplished strategic business objectives, such as sales
growth, improved profitability, cash flow and management of working capital. The
Committee evaluates individual performance by comparing actual accomplishments
to the objectives established under Cooper's Management Development and Planning
Program.
The Committee assesses individual performance as follows:
- At the beginning of each performance period, the Committee establishes
specific objectives to be used as the basis for evaluating the
executive's performance.
- During the performance period, the Committee holds periodic discussions
on the status of performance objectives.
- At the end of the performance period, the Committee reviews the
executive's progress on the performance objectives so that there is a
clear understanding of what the executive has accomplished.
- The Committee determines increases in base salary and annual cash
incentive awards based on actual accomplishments during the performance
period.
- The Committee determines long-term stock incentive awards based on our
sustained earnings per share performance over a four-year period.
The Committee also takes into account the compensation practices of
comparable manufacturing companies (as described below) to ensure that Cooper is
able to attract, retain and reward executive officers whose contributions are
critical to our long-term success.
In developing and administering Cooper's executive compensation program,
the Committee receives advice and counsel from Frederic W. Cook & Company, an
executive compensation consulting firm. Frederic W. Cook & Company has provided
such consulting services to Cooper and other corporations for many years. In
2001, the Committee also received executive compensation consulting services
from The Hay Group.
There are three major components of Cooper's executive compensation
program: a base salary, an annual cash bonus and long-term stock incentive
awards.
ANNUAL COMPENSATION
Base Salary
The Committee sets the base salary range for each executive officer using
the Hay Group Inc. Job Evaluation System, which provides a comparative
assessment of know-how, problem-solving and accountability factors in the job
rating process. The Committee also considers the competitiveness of the base
salary because the Committee believes it is critical to Cooper's success to
attract and retain the best qualified executives. The Committee uses the annual
Hay Survey of Compensation Practices to set the salary ranges for executive
officers. In 2001, the Hay Survey of Compensation Practices included 276
industrial companies with revenues in excess of $1 billion. The Committee
believes that using this broad group of companies to establish salary levels is
more appropriate than
16
using a smaller group, such as the peer group used in the share performance
graph, because it minimizes the effect of any one company on the average.
The Committee's policy is to: (1) establish a salary range for the Chief
Executive Officer and the other executives named in the Summary Compensation
Table (the "Named Executives"); (2) set the midpoint of the range near the
average of the Hay Survey; and (3) pay compensation within the established
range. The Committee takes into account the individual's duties,
responsibilities, work experience, impact on the business and individual
performance when setting each executive's actual base salary. The Committee
verifies the Hay data through use of a separate compensation study, known as the
Total Compensation Measurement, which includes information on 331 companies
compiled by Hewitt Associates. During 2001, the actual base salaries for the
Named Executives approximated the 50th percentile of the Hay Survey.
The Committee typically reviews salaries of senior executive officers at
12- to 15-month intervals, depending on individual performance and position in
the salary range. The Committee makes base salary adjustments primarily based on
individual performance with due consideration given to immediate past
performance and business decisions that impact our future growth and economic
stability.
Annual Incentive Compensation
The Management Annual Incentive Plan ("MAIP") is a bonus plan for senior
executives that is designed to link executive compensation to achievement of our
short-term business objectives. The maximum annual award that may be granted to
a participant under the MAIP is $2.5 million. The Committee may pay awards
earned in cash or in Cooper Common Stock or a combination of cash and stock.
Subject to the Committee's approval, a participant in the MAIP may request to
have all or a portion of his or her award paid in shares of Cooper stock.
In February 2001, the Committee established the performance goals and
maximum bonus opportunities under the MAIP for Named Executives and for other
executive officers. The performance goals were based upon increases in earnings
per share in 2001 over 2000. The bonus opportunity for the Named Executives
ranges from 0% to 150% of the salary range midpoint, depending on the
executive's position. Under the MAIP, the Committee has discretion to adjust the
amount of any award that would otherwise be payable upon achievement of the
performance goals based on its assessment of an individual's actual performance.
In February 2002, the Committee determined that performance in 2001 did not
meet the threshold level established in February 2001 for the award of bonuses
under the MAIP. Accordingly, no bonuses were awarded to any of the Named
Executives based upon the Company's performance in 2001.
LONG-TERM EQUITY BASED COMPENSATION
Stock Incentive Compensation
The Committee provides incentives to executive officers that are tied to
the long-term performance of Cooper in order to link the executive's interests
to those of the shareholders and to encourage stock ownership by executives.
In November 1995, the Committee adopted the Stock Incentive Plan ("Stock
Plan"), which was approved by Cooper's shareholders in April 1996. The Stock
Plan provides for the granting of stock options and performance-based share
awards to the Named Executives and other key executives. The Committee
determines the number of options and performance-based share awards granted
based on actual compensation, assumptions relating to stock price and earnings
growth, and recommendations from Frederic W. Cook & Co., a compensation
consulting firm that advises the Committee on competitive practices among
comparable manufacturing companies. The Committee believes that the stock
options and performance-based share awards granted under the Stock Plan provide
a significant link between the compensation of the Named Executives and other
key executives on the one hand and Cooper's long-term goals and shareholders'
interests on the other.
In February 1998, the Committee granted performance-based share awards
under the Stock Plan to the Named Executives for a four-year performance period
beginning on January 1, 1998 and ending on December 31, 2001. The Committee set
performance goals tied to cumulative compound growth in earnings per share
during the performance period. The Committee determined that compound earnings
per share growth over the period of at least 6% was required before any award
would be earned and at least 15% was required for a payout at the maximum level.
17
In February 2002, the Committee determined that the cumulative increase in
Cooper's operating earnings per share during the four-year performance period
ending December 31, 2001 was below the minimum level for any shares to be
awarded. As a result, based on the performance criteria established in 1998, the
Committee determined that no shares were earned by the Named Executives or other
executive officers under the four-year performance cycle ending on December 31,
2001.
In February 2001, the Committee granted stock options and performance-based
share awards to the Named Executives under the Stock Plan. The Committee also
granted stock options to other executive, and middle and upper level employees.
The stock options expire ten years after the date of grant and become
exercisable over a three-year period with one-third vesting in each successive
year so that the option is fully exercisable after three years. The options
granted in 2001 have an exercise price equal to the fair market value on the
date of grant, which was $46.10 per share. The performance-based share awards
were granted to the Named Executives for a four-year performance period
beginning on January 1, 2001 and ending on December 31, 2004. The Committee set
performance goals tied to the cumulative compound growth in earnings per share
during the performance period. Cooper must have cumulative compound growth in
earnings per share of at least 6% before any awards can be earned and growth of
at least 15% for a payout at the maximum award level.
The Stock Plan also provides for the granting of restricted stock awards to
the Named Executives and other key executives. Restricted stock may be awarded
in such numbers and at such times as the Committee determines. Restricted stock
is subject to such terms, conditions or restrictions, as the Committee deems
appropriate, including restrictions or transferability, requirements of
continued employment, individual performance or the financial performance of
Cooper. The Committee establishes the period of vesting and forfeiture
restrictions at the time of grant, provided that vesting must be at least one
year from the date of grant, except in the event of a Change in Control.
CHIEF EXECUTIVE OFFICER COMPENSATION
Effective February 1, 2001, the Committee approved an increase of $60,000
in Mr. Riley's annual base salary. The Committee based Mr. Riley's base salary
adjustment on a review of the compensation levels of chief executive officers of
companies of comparable size and in similar businesses, using the competitive
surveys previously discussed. The Committee also considered financial results,
revenue growth and market expansion as well as Mr. Riley's overall performance
as Chairman, President and Chief Executive Officer. Mr. Riley did not receive a
salary increase in 2000.
In February 2002, under the MAIP, the Committee determined that Cooper's
performance was below the threshold performance goal established in February
2001 for earning an annual incentive bonus. Accordingly, Mr. Riley received no
bonus award for 2001.
Also in February 2002, the Committee determined that Mr. Riley earned no
performance shares from the performance-based stock award granted in 1998 under
the Stock Plan.
In 2001, the Committee granted stock options and performance-based share
awards under the Stock Plan to Mr. Riley. The options are shown on the table
"Option Grants in Last Fiscal Year" on page 12 and the performance-based share
awards are shown in the table "Long-Term Incentive Plan -- Awards in Last Fiscal
Year" on page 13. The Committee determined the number of shares awarded to Mr.
Riley using the same criteria as for other executive officers. The individual
award was based on actual compensation, assumptions relating to stock price and
earnings growth and the recommendations and advice of Frederic W. Cook & Co., a
compensation consulting firm. The Committee believes that the stock options and
performance share awards granted to Mr. Riley are competitive with awards
provided to chief executive officers of other similar companies in related
businesses. Through the stock options and performance share awards, a
significant portion of Mr. Riley's compensation is tied directly to our
financial performance and overall return to shareholders.
STOCK OWNERSHIP GUIDELINES
Effective January 1, 1996, the Committee established stock ownership
guidelines for executive officers and certain other key executives as a way to
align more closely the interests of the key executives with those of the
shareholders. These key executives were required to make continuing progress
toward compliance with the guidelines during the five-year period beginning
January 1, 1996 and to fully comply with the guidelines by
18
December 31, 2000. Any officers appointed after January 1996 are subject to the
guidelines and have a period of five years from appointment to comply. The
guidelines are as follows:
- Chief Executive Officer -- 4.5 times base salary
- Other Senior Officers, including those other officers named in the
Summary Compensation Table -- 3 times base salary
- Other officers and division presidents -- 1.5 times base salary
At its February 2002 meeting, the Committee reviewed the progress of
covered executives relative to compliance with the stock ownership guidelines
and determined that all of the Named Executives are currently in compliance with
the guidelines.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS
The Committee has reviewed the provisions of the Omnibus Budget
Reconciliation Act of 1993 and the regulations issued under the Act that impose
a limit, with certain exceptions, on the amount that a publicly held corporation
may deduct in any year for the compensation paid to its five most highly
compensated officers. The Committee believes that the bonuses paid pursuant to
the MAIP and the awards and options granted pursuant to the Stock Plan will
qualify as "performance-based" compensation and will meet the requirements of
the current tax law and Internal Revenue Service regulations so as to preserve
the tax deductibility of all executive compensation.
Robert M. Devlin, Chairman Sir Ralph H. Robins
Warren L. Batts Dan F. Smith
Clifford J. Grum James R. Wilson
OTHER COMPENSATION MATTERS
PENSION BENEFITS
Upon retirement, the Named Executives may be entitled to retirement
benefits from the Salaried Employees' Retirement Plan of Cooper Industries, Inc.
("Cooper Retirement Plan"), the Cooper Industries, Inc. Supplemental Excess
Defined Benefit Plan ("Supplemental Plan") and the Crouse-Hinds Officers'
Disability and Supplemental Pension Plan ("Crouse-Hinds Officers' Plan").
Under the Cooper Retirement Plan, Cooper credits the individual's plan
account four percent of each year's total compensation up to the Social Security
wage base for the year, plus eight percent of each year's total compensation
that exceeds the Social Security wage base. For this purpose, total compensation
is cash remuneration paid by Cooper to or for the benefit of a member of the
Cooper Retirement Plan for services rendered while an employee. For the Named
Executives, the total compensation is shown in columns (c) and (d) of the
Summary Compensation Table. However, neither performance-based share awards
shown in column (h) of the Summary Compensation Table nor deferred compensation
is included in total compensation for purposes of the Cooper Retirement Plan.
This formula for determining benefit credits became effective on July 1, 1986.
Benefits for service through June 30, 1986 were determined based on the
retirement plan formula then in effect and converted to initial balances under
the Cooper Retirement Plan. The participant receives interest credits on both
initial balances and pay-based credits for benefits earned after July 1, 1986
until the participant begins to receive benefit payments. The Plan's interest
credit rate for 2001 was 6.25% and will be 2.25% for 2002. The participant may
elect to receive benefits at retirement payable in the form of an escalating
annuity, a level annuity with or without survivorship or a lump-sum payment.
The Supplemental Plan is an unfunded, nonqualified plan that provides to
certain employees, including the Named Executives, Cooper Retirement Plan
benefits that cannot be paid from a qualified, defined benefit plan because of
Internal Revenue Code restrictions. The Supplemental Plan also provides benefits
equal to what would have been paid under the Cooper Retirement Plan on amounts
of deferred compensation had those amounts not been deferred. The Crouse-Hinds
Officers' Plan is an unfunded, nonqualified plan that we assumed following the
19
acquisition of Crouse-Hinds Company. Mr. Riley may receive benefits under the
Crouse-Hinds Officers' Plan in addition to amounts payable under our other
retirement plans.
PENSION BENEFITS
CREDITED YEAR ANNUAL
SERVICE AS OF INDIVIDUAL ESTIMATED
JANUARY 1, REACHES BENEFIT AT
2002 AGE 65 AGE 65
------------- ---------- ----------
Riley, Jr., H.J. ........................................... 39.2 2005 $695,000
Jackson, Jr., R. E. ........................................ 26.0 2006 135,000
Klebe, T. A. ............................................... 6.7 2019 80,000
McWilliams, D. B. .......................................... 30.1 2006 130,000
Schumacher, D. K. .......................................... 21.9 2018 109,000
For each Named Executive, the table above shows current credited years of
service, the year each reaches age 65, and the projected annual pension benefit
at age 65 under the Cooper Retirement Plan, the Supplemental Plan and the
Crouse-Hinds Officers' Plan. The projected annual pension benefit is based on
the following assumptions: benefits paid on a straight-life annuity basis;
continued compensation at the 2001 levels; and an interest credit rate of 2.25%.
CHANGE IN CONTROL ARRANGEMENTS
Management Continuity Agreements
Cooper has Management Continuity Agreements with the Named Executives and
certain other key executives. The purpose of the agreements is to encourage the
executives to carry out their duties when there is a possibility of a change in
control of Cooper. The agreements are not ordinary employment agreements and do
not provide any assurance of continued employment.
If, during the two-year period following a change in control, Cooper or its
successor terminates the executive's employment other than for "cause" or the
executive voluntarily terminates employment for "good reason" (as such terms are
defined in the agreements), the executive shall receive a lump-sum cash payment
equal to a multiple (3x in the case of the Chief Executive Officer, Chief
Operating Officer and Senior and Executive Vice Presidents and 2x in the case of
the other key executives) of the sum of the executive's salary and bonus,
together with the continuation of employee benefits for the number of years
equal to the multiplier used to calculate the lump-sum severance payment. The
executive would also receive a pro rata payment of their target bonus for the
year of termination and a lump-sum payment equal to the incremental benefits and
contributions that the executive would have received under Cooper's various
retirement and savings plans for the number of years equal to their multiplier,
taking into account the severance benefits received by the executive. Finally,
the agreements provide for a tax gross-up of any excise tax due under the
Internal Revenue Code for these types of agreements.
Management Annual Incentive Plan
The Named Executives participate in the Management Annual Incentive Plan,
which provides an annual bonus opportunity and is designed to tie annual
incentive compensation to overall corporate and individual performance. Under
the Plan, which is administered by the Management Development and Compensation
Committee of the Board (the "Committee"), bonuses are based upon performance
goals set by the Committee in February of the bonus year. The Committee may make
the award in cash or stock or a combination of both. The Plan provides that upon
a change in control of Cooper, all outstanding awards will be deemed earned on a
pro rata basis at the target level and will be paid in cash to each eligible
executive.
Stock Incentive Plan
The Named Executives have been granted stock options and performance-based
share awards under the Stock Incentive Plan ("Stock Plan"). Options granted
under the Stock Plan vest over a period of three years and have a 10-year term.
Performance-based share awards granted under the Stock Plan may be earned based
on achievement over a specified period of performance goals established by the
Committee. At the end of the performance period,
20
performance shares earned, if any, are issued and cash equal to the dividends on
the performance shares is paid. The Stock Plan provides that upon a change in
control of Cooper, all options will be canceled and Cooper will make a cash
payment to the Named Executives equal to the difference in the fair market value
of Cooper Common Stock (or the highest price actually paid for the stock in
connection with the change in control, if higher) and the option price. In
addition, all outstanding performance shares will be deemed earned at the target
level and the Company shall issue stock certificates representing such
performance shares.
DIRECTOR COMPENSATION
Cooper pays nonemployee directors an annual retainer fee of $45,000. In
addition, nonemployee directors are paid meeting attendance fees of $1,000 for
regular committee meetings and $2,000 for special Board or committee meetings.
An additional annual retainer of $6,000 is paid to each nonemployee chairman of
a standing committee.
In lieu of receiving the annual retainer and meeting fees in cash, each
nonemployee director may elect, under the Directors Deferred Compensation Plan,
to defer receipt of such amounts until a date determined by the director or
until retirement from the Board. Alternatively, each nonemployee director may
elect to receive all or a portion of the annual retainer fee and meeting fees in
shares of Cooper Common Stock instead of cash, under the Directors' Retainer Fee
Stock Plan. The Directors' Retainer Fee Stock Plan also provides that each
nonemployee director may elect to defer the receipt of all or a portion of the
shares of Common Stock otherwise payable under the Plan.
Prior to February 1996, under the Cooper Industries, Inc. Directors
Retirement Plan, any director with at least 10 years of service as a director
(counting a fractional year as a full year), or any director who retired in
accordance with the Board's director tenure policy, was entitled to receive a
benefit amount equal to the annual basic retainer for nonemployee directors in
effect at the time of retirement, exclusive of any special compensation for
services as a committee chairman or attendance at meetings. The benefit amount
was payable annually in January for the preceding year, or quarterly if elected,
for the number of years in which the director served on the Board (counting a
fractional year as a full year), with payment to cease with the death of the
retired director. In February 1996, the Board terminated the Plan and no
additional benefits have accrued after April 30, 1996. However, any benefits
accrued under the Plan at that time were grandfathered.
Under the Directors' Stock Plan, which was approved by the shareholders in
April 1996, each nonemployee director receives an annual stock award of 500
shares of Cooper Common Stock on each annual meeting date. Each newly elected or
appointed nonemployee director receives, upon election or appointment, a pro
rata stock award according to the time remaining before the next annual meeting
date. Each nonemployee director may elect under the Directors' Stock Plan to
defer receipt of all or a portion of the shares of Common Stock payable under
the Plan until a date determined by the director or until retirement from the
Board. Each nonemployee director is also granted annually a stock option for
1,000 shares at fair market value under the Directors' Stock Plan. The option
vests on the third anniversary of the date of grant and has a 10-year term. As
of December 31, 2001, options for 50,000 shares were outstanding under the
Directors' Stock Plan.
21
AUDIT COMMITTEE REPORT
The Audit Committee is composed of six independent directors and acts under
a written charter adopted by the Board of Directors. Cooper's management is
responsible for the quality and integrity of the Company's financial reporting
process including the systems of internal controls, and the preparation of the
Company's financial statements. The independent auditors, Ernst & Young LLP, are
responsible for auditing those financial statements and for expressing an
opinion on the conformity of the financial statements with generally accepted
accounting principles. The Audit Committee's responsibility is to monitor and
review these processes on behalf of the Board of Directors.
It is not the Audit Committee's duty or responsibility to conduct auditing
or accounting reviews and procedures. Therefore, the Audit Committee has relied,
without independent verification, on management's representation that the
financial statements have been prepared in accordance with generally accepted
accounting principles and on the representations of the independent auditors
included in their report on Cooper's financial statements.
In fulfilling its oversight responsibilities, the Audit Committee has
reviewed and discussed the audited financial statements for the year ended
December 31, 2001, with Cooper's management and representatives of the
independent auditors. The Audit Committee discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees, as amended. In addition, the Audit
Committee discussed with the independent auditors their independence from Cooper
and its management, including the matters in the written disclosures required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees.
In reliance on its review of the audited financial statements and the
discussions referred to above, the Audit Committee has recommended to the Board
of Directors that the audited financial statements be included in Cooper's
Annual Report on Form 10-K for the year ended December 31, 2001, for filing with
the Securities and Exchange Commission.
James R. Wilson, Chairman H. Lee Scott
Linda A. Hill Dan F. Smith
Sir Ralph H. Robins Gerald B. Smith
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board selects our independent auditors for each year. During the year
ended December 31, 2001, Ernst & Young LLP was employed principally to perform
the annual audit and to render other services. Audit fees for the last fiscal
year were $880,000 and all other fees were $2,810,488, including audit related
services of $1,389,160 and nonaudit services of $1,421,328. Audit related
services generally include fees for pension and statutory audits, accounting
consultations, SEC registration statements and business acquisitions. Nonaudit
services consist primarily of fees for tax services. The Audit Committee has
considered the compatibility of nonaudit services with the auditors'
independence.
Representatives of Ernst & Young will be present at the meeting and will be
available to answer questions and discuss matters pertaining to the Report of
Independent Auditors contained in the financial statements included in Cooper's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
Representatives of Ernst & Young will have the opportunity to make a statement,
if they desire to do so.
FORM 10-K
A copy of the Annual Report on Form 10-K for the fiscal year ended December
31, 2001 as filed with the Securities and Exchange Commission is included in the
Annual Report sent to you with this proxy statement. It will also be available
on our home page at www.cooperindustries.com or may be obtained upon request and
without charge, by writing:
Public Affairs Department
Cooper Industries, Inc.
P.O. Box 4446
Houston, Texas 77210
22
PROPOSAL 2
SHAREHOLDER PROPOSAL
Seven shareholders have informed us that they intend to present jointly the
following proposal at the meeting. The shareholders are as follows: Benedictine
Sisters, 530 Bandera Road, San Antonio, Texas 78228, owner of 50 shares of
Cooper Common Stock; the Loretto Literary and Benevolent Institution (also known
as the Sisters of Loretto), 527 Larkhill Court, St. Louis, Missouri 63119-4943,
owner of 458 shares of Cooper Common Stock; Domini Social Investments LLC, 536
Broadway, 7th Floor, New York, New York 10012-3915, owner of 27,900 shares of
Cooper Common Stock; the Sisters of Charity Saint Elizabeth, P.O. Box 476,
Convent Station, New Jersey 07961-0476, owner of 45 shares of Cooper Common
Stock; the Congregation of Holy Cross, Southern Province, 2111 Brackenridge
Street, Austin, Texas 78704-4322, owner of 75 shares of Cooper Common Stock; St.
Joseph Health System, P.O. Box 14132, Orange, California 92868-1532, owner of
100 shares of Cooper Common Stock; and the Walden/BBT Domestic Social Index Fund
c/o Boston Trust Investment Management, Inc., 40 Court Street, Boston,
Massachusetts 02108, owner of 600 shares of Cooper Common Stock.
SUSTAINABILITY REPORT TO SHAREHOLDERS
Whereas, the global economy presents corporations with the challenge of
creating sustainable business relationships by participating in the sustainable
development of the communities in which they operate. The World Commission on
Environment and Development defined sustainable development as "development
which meets the needs of the present without compromising the ability of future
generations to meet their own needs." (Our Common Future, 1997)
We believe the ability of corporations to continue to provide goods/service
in our increasingly interdependent world depends on their acceptability to the
societies where they do business. Good corporate citizenship goes beyond the
traditional functions of creating jobs and paying taxes, to include corporate
practices designed to protect human rights, worker rights, land and the
environment.
A "Millennium Poll on Corporate Social Responsibility" interviewed 25,000
citizens in 23 countries and found that two out of every three people want
corporations to contribute to broader societal goals. (Environics International
Ltd., October 1999)
Concerned investors evaluate companies on their financial, environmental
and social performance -- the triple bottom line. Some companies have published
sustainability reports and are taking a long-term approach to creating
shareholder value through embracing opportunities and managing risks derived
from economic, environmental and social developments. We believe sustainability
reporting should be included in our company's annual report.
According to Dow Jones Sustainability Group, sustainability includes:
"Encouraging long lasting social well being in communities where they operate,
interacting with different stakeholders (e.g. clients, suppliers, employees,
government, local communities and non-governmental organizations) and responding
to their specific and evolving needs thereby securing a long term 'license to
operate,' superior customer and employee loyalty and ultimately superior
financial returns." (www.sustainability-index.com; March 2000)
We believe companies need to adopt policies that engage institutions in
sustainable economic development strategies to improve the social well being of
communities where they operate.
We believe corporate sustainability includes a commitment to pay a
sustainable living wage to employees. Our company needs to make sure workers
have the purchasing power to meet their basic needs. A recent purchasing power
index study conducted in 15 cities in Mexico found that it takes four to five
Mexican minimum wages to support a family of four (Making the Invisible Visible,
Center for Reflection Education and Action, June 2001). We believe paying
sustainable wages contributes to community development and employee loyalty to
the company.
The sustainability of corporations, we believe, is connected to the
economic sustainability of their workers and the communities where corporations
operate and sell their products. Effective corporate policies can benefit both
communities and corporations.
RESOLVED: shareholders request the Board of Directors to prepare at
reasonable expense a report dealing with the social and environmental issues
related to sustainability. A summary of the report should be provided to
shareholders by October 2002.
23
SUPPORTING STATEMENT
We believe the report should include:
1. The company's operating definition of sustainability.
2. A review of current company policies and practices related to
social, environmental and economic sustainability.
3. A summary of long-term plans to integrate sustainability objectives
throughout the company's operations.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 2.
We believe that our current policies and practices address the concerns of
the shareholder proposal concerning social and environmental issues related to
sustainability. Simply put, we believe sustainability is good corporate
citizenship. Our Code of Ethics and Business Conduct underlies our core values
and specifically notes that "Cooper values its good name and its role as a
leading citizen in all communities in which it does business."
We are committed to enhancing the quality of life in the communities in
which we operate by providing financial support to local non-profit
organizations, fostering our employees' volunteer efforts and operating safe and
environmentally responsible facilities. Cooper and the Cooper Industries
Foundation contribute approximately $3.5 million each year to charitable
organizations operating in communities where we do business. There are no
geographic limitations.
Cooper has extensive policies and an active program to ensure that Cooper
conducts its operations in a manner that provides a safe and healthy workplace
and safeguards the environment. Our compensation policy and practice are to pay
wages and benefits that are competitive in the respective communities in which
we operate in order to attract and retain quality employees. Wages and benefits
must also be competitive within our industry in order to operate our businesses
profitably. In Mexico and various other countries in which we operate, wages
paid to our employees are well above the minimum wage standards.
Cooper's track record demonstrates that, wherever we operate, we work hard
to be a good corporate citizen including promoting social and environmental
issues related to sustainability. Furthermore, Cooper already publishes various
reports on its website (www.cooperindustries.com) in the "About Cooper" section
specifically addressing these matters for shareholders and any other interested
parties. Therefore, the Board of Directors believes that conducting a special
review and preparing a special report to shareholders on social and
environmental issues related to sustainability are unnecessary and would not be
an effective use of corporate resources. We remain committed to treating all
employees with dignity, fairness and respect, protecting the health and safety
of our employees, protecting the environment, and enhancing the quality of life
in the communities in which we operate.
For these reasons, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
PROPOSAL 2.
24
PROXY
[COOPER LOGO]
COOPER INDUSTRIES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 5, 2002
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Cooper Industries, Inc. ("Cooper") appoints
Diane K. Schumacher and Terrance V. Helz, or either of them, proxies, with full
power of substitution, to vote all shares of stock that the shareholder would be
entitled to vote if present at the Annual Meeting of Shareholders of Cooper on
Friday, April 5, 2002, at 11:00 a.m. (Central Time) in the J.P. Morgan Chase
Center Auditorium, 601 Travis Street, Houston, Texas, and at any adjournments or
postponements thereof, with all powers the shareholder would possess if present.
The shareholder hereby revokes any proxies previously given with respect to such
meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE, BUT IF NO
SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR (W.L.
BATTS, R.M. DEVLIN, L.A. HILL, H.J. RILEY, JR.) AND AGAINST PROPOSAL 2, AND IN
THE DISCRETION OF THE PROXIES ON OTHER MATTERS AS MAY COME BEFORE THE MEETING OR
ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
This card also constitutes voting instructions for any shares held for the
shareholder in Cooper's Dividend Reinvestment and Stock Purchase Plan and the
Cooper Industries, Inc. Retirement Savings and Stock Ownership Plan, as well as
any shares acquired through Cooper's Employee Stock Purchase Plan that are being
held in a book-entry account at EquiServe Trust Company N.A., as described in
the Notice of Meeting and Proxy Statement.
(Please date and sign on the reverse side)
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o FOLD AND DETACH HERE o
HOW TO RECEIVE YOUR ANNUAL REPORT AND
PROXY STATEMENT ON-LINE
You may receive future Cooper Industries, Inc. annual reports and proxy
statements on-line on the Internet by submitting your consent to Cooper. This
will save Cooper postage and printing expenses and have information available to
you faster. If you have already consented to receive future annual reports and
proxy statements on-line, no action is necessary because your consent remains
effective until you change or revoke your consent.
Most shareholders can elect to view future proxy statements and annual
reports over the Internet instead of receiving paper copies in the mail. If you
are a registered shareholder and you wish to consent to Internet delivery of
future annual reports and proxy statements, follow the instructions set forth
below.
o Log onto the Internet and go to the web site:
http://www.econsent.com/cbe/ (If you are voting your shares
this year using the Internet, you can link to this web site
directly from the web site where you vote your shares.)
o You will be asked to consent to Internet delivery of annual
meeting materials and provide your TAXPAYER I.D. NUMBER (U.S.
SOCIAL SECURITY NUMBER), E-MAIL ADDRESS AND ACCOUNT NUMBER.
Your account number is located above your name on the proxy
card. You will not need to provide an account number if you
hold shares through the Cooper Industries' Retirement Savings
and Stock Ownership Plan.
If you are not a registered shareholder and you wish to consent to
Internet delivery of future annual reports and proxy statements, please contact
the bank, broker or other holder of record through which you hold your shares
and inquire about the availability of such option for you.
If you consent, your account will be so noted and, when Cooper's 2002
Annual Report and the Proxy Statement for the 2003 Annual Meeting of
Shareholders become available, you will be notified by e-mail on how to access
them on the Internet.
If you do elect to receive your Cooper materials via the Internet, you
can still request paper copies by contacting Cooper Industries, Inc. at 600
Travis, Suite 5800, Houston, Texas 77002-1001, Attn: Public Affairs Department.
Also, you may change or revoke your consent at any time by going to the above
web site and following the applicable instructions.
PLEASE MARK YOUR 9327
[X] VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR ALL NOMINEES. A VOTE AGAINST PROPOSAL 2.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] Nominees: 2. Shareholder proposal [ ] [ ] [ ]
Directors. 01 W.L. Batts relating to social and
02 R.M. Devlin environmental issues
03 L.A. Hill related to sustainability.
04 H.J. Riley, Jr.
To withhold your vote for any nominee(s), write
the name(s) here:
---------------------------------------
I Plan to attend the meeting. [ ]
Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
-----------------------------------------
-----------------------------------------
SIGNATURE(S) DATE
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o FOLD AND DETACH HERE o
THIS IS YOUR PROXY, [COOPER LOGO]
YOUR VOTE IS IMPORTANT
VOTE BY TELEPHONE OR INTERNET
QUICK o EASY o IMMEDIATE
You may vote your proxy 24 hours a day, 7 days a week, using either a touch-tone
telephone or electronically through the Internet. Voting by touch-tone telephone
or through the Internet are cost-effective and convenient ways to vote your
shares. YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 12:00 MIDNIGHT NEW
YORK TIME ON APRIL 4, 2002.
Telephone and Internet proxy voting is permitted under the laws of the state in
which Cooper is incorporated. Your telephone or Internet vote authorizes the
proxies named on the above proxy card to vote your shares in the same manner as
if you marked, signed, and returned your proxy card.
VOTE BY PHONE: ON A TOUCH-TONE TELEPHONE DIAL 1-877-PRX-VOTE
(1-877-779-8683) FROM THE U.S. AND CANADA OR DIAL
001-201-536-8073 FROM OTHER COUNTRIES.
You will be asked to enter the VOTER CONTROL NUMBER
that appears on the proxy card. Then follow the
instructions.
OR
VOTE BY INTERNET: LOG ON TO THE INTERNET AND GO TO THE WEB SITE:
http://www.eproxyvote.com/cbe
Click on the "PROCEED" icon - You will be asked to
enter the VOTER CONTROL NUMBER that appears on the
proxy card. Then follow the instructions.
OR
VOTE BY MAIL: Mark, sign and date your proxy card and return it in
the postage-paid envelope. IF YOU ARE VOTING BY
TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL YOUR
PROXY CARD.
YOU CAN ALSO ELECT TO RECEIVE FUTURE ANNUAL REPORTS AND PROXY STATEMENTS OVER
THE INTERNET INSTEAD OF RECEIVING PAPER COPIES IN THE MAIL. SEE THE REVERSE SIDE
OF THE PROXY CARD FOR ADDITIONAL DETAILS.