SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. ____)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 240.14a-11(c) or 240.14a-12
BANDAG, INCORPORATED
(Name of Registrant as Specified in its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
BANDAG, INCORPORATED [BANDAG LOGO
Bandag Headquarters
2905 North Highway 61
Muscatine, Iowa 52761-5886
April 8, 2003
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 13, 2003
To The Shareholders:
The Annual Meeting of the Shareholders of Bandag, Incorporated, an Iowa
corporation, will be held at the Bandag, Incorporated Learning Center, 2000
Bandag Drive, Muscatine, Iowa, on May 13, 2003, commencing at ten o'clock a.m.,
Central Daylight Time, for the following purposes:
(1) To elect three directors for terms of three years.
(2) To ratify the selection of Ernst & Young LLP as independent auditors
of the Corporation for the fiscal year ending December 31, 2003.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed March 21, 2003 as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting.
You are invited to attend the meeting; however, if you do not expect to
attend in person, you are urged to sign, date and return immediately the
enclosed Proxy, which is solicited by the Board of Directors. You may revoke
your Proxy and vote in person should you attend the meeting.
By Order of the Board of Directors
/s/ Warren W. Heidbreder
WARREN W. HEIDBREDER, Secretary
BANDAG, INCORPORATED [BANDAG LOGO
Bandag Headquarters
2905 North Highway 61
Muscatine, Iowa 52761-5886
April 8, 2003
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Bandag, Incorporated (the "Corporation") to
be voted at the Annual Meeting of the Shareholders of the Corporation to be held
on Tuesday, May 13, 2003, or at any adjournment thereof, for the purposes set
forth in the foregoing Notice of Annual Meeting of Shareholders. Any shareholder
giving a proxy may revoke it at any time prior to its exercise.
Shareholders of record at the close of business on March 21, 2003, will be
entitled to vote at the meeting or any adjournment thereof. At the close of
business on March 21, 2003, there were 9,101,212 outstanding $1.00 par value
shares of Common Stock and 919,935 outstanding $1.00 par value shares of Class B
Common Stock. Each share of Common Stock is entitled to one vote and each share
of Class B Common Stock is entitled to ten votes at the meeting.
The Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, this Proxy Statement and the enclosed form of proxy are being
mailed to shareholders on or about April 8, 2003.
The following table sets forth information as to the Common, Class A Common
and Class B Common shares of the Corporation beneficially owned by each director
and director-nominee, each of the executive officers named in the Summary
Compensation Table and by all directors and executive officers as a group as of
February 28, 2003:
======================== ============== =============== ==================
Percentage of Percentage of
Outstanding Aggregate Voting
Amount Stock Power of Common
Directors, Nominees Beneficially of Respective Stock and Class
and Executive Officers Owned[1][2] Class[1] B Common Stock**
- ------------------------ -------------- --------------- ------------------
Martin G. Carver[3][4]
Common Stock 2,643,872[5] 29%[5] 42%[5]
Class A Common Stock 3,926,759[5] 42%[5]
Class B Common Stock 502,097 54%
- ------------------------ -------------- --------------- ------------------
Roy J. Carver, Jr.[6]
Common Stock 2,615,685[7] 29%[7] 36%[7]
Class A Common Stock 3,513,385[7] 38%[7]
Class B Common Stock 400,732 44%
- ------------------------ -------------- --------------- ------------------
Robert T. Blanchard
Common Stock 200 *
Class A Common Stock 5,325 * *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
Gary E. Dewel
Common Stock 0 0
Class A Common Stock 6,525 * *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
James R. Everline
Common Stock 100 *
Class A Common Stock 6,575 * *
Class B Common Stock 100 *
- ------------------------ -------------- --------------- ------------------
2
======================== ============== =============== ==================
Percentage of Percentage of
Outstanding Aggregate Voting
Amount Stock Power of Common
Directors, Nominees Beneficially of Respective Stock and Class
and Executive Officers Owned[1][2] Class[1] B Common Stock**
- ------------------------ -------------- --------------- ------------------
Phillip J. Hanrahan
Common Stock 0 0 *
Class A Common Stock 5,825 *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
Edgar D. Jannotta
Common Stock 7,000 *
Class A Common Stock 12,325 * *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
R. Stephen Newman
Common Stock 2,500[8] *
Class A Common Stock 16,320[9] * *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
Nathaniel L. Derby II
Common Stock 5,624 *
Class A Common Stock 38,532 * *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
Warren W. Heidbreder 5,080[10] * *
Common Stock
Class A Common Stock 49,989[11] *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
John C. McErlane
Common Stock 1,204[12] * *
Class A Common Stock 36,957[13] *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
Charles W. Vesey
Common Stock 5,856[14] *
Class A Common Stock 15,679[15] * *
Class B Common Stock 0 0
- ------------------------ -------------- --------------- ------------------
All Directors, Nominees
and Executive Officers
as aGroup (18 Persons)
Common Stock 2,676,108[16] 29% 64%
Class A Common Stock 4,353,274[16] 46%
Class B Common Stock 902,929 98%
- ------------------------ -------------- --------------- ------------------
* Shares owned constitute less than 1% of shares outstanding and less than 1%
of votes entitled to be cast.
** Shares of Class A Common Stock are non-voting.
[1] Beneficial owners exercise both sole voting and sole investment power
unless otherwise stated. The Class B Common Stock is convertible on a
share-for-share basis into Common Stock at the option of the shareholder.
As a result, pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of
1934, a shareholder is deemed to have beneficial ownership of the shares of
Common Stock which such shareholder may acquire upon conversion of the
Class B Common Stock. In order to avoid overstatement, the amount of Common
Stock beneficially owned does not take into account such shares of Common
Stock which may be acquired upon conversion (an amount which is equal to
the number of shares of Class B Common Stock held by a shareholder). The
percentage of outstanding Common Stock does not take into account shares of
Common Stock which may be issued upon conversion of the Class B Common
Stock.
[2] Includes the specified number of shares of Class A Common Stock which the
following individuals may acquire pursuant to the exercise of stock options
within 60 days after February 28, 2003: Martin G. Carver - 78,455; Roy J.
Carver, Jr. - 5,325; Robert T. Blanchard - 5,325; Gary E. Dewel - 5,325;
James R.
3
Everline - 5,325; Phillip J. Hanrahan - 5,325; Edgar D. Jannotta - 5,325;
R. Stephen Newman - 5,325; Nathaniel L. Derby II - 20,705; Warren W.
Heidbreder - 29,355; John C. McErlane - 27,980; Charles W. Vesey - 10,490.
[3] Does not include 52,554 shares of Common Stock, 12,376 shares of Class A
Common Stock and 525 shares of Class B Common Stock held by members of his
family, beneficial ownership of which is disclaimed.
[4] Includes 6,991 shares of Common Stock and 8,944 shares of Class A Common
Stock indirectly owned by Carver Management LLC and 1,734,468 shares of
Common Stock and 2,218,781 shares of Class A Common Stock held by Carver
Partners LP, beneficial ownership of which is disclaimed.
[5] Martin G. Carver has sole voting and investment power over 28,187 shares of
Common Stock, or .3% of the outstanding shares of Common Stock, and shares
voting and investment power with Roy J. Carver, Jr. over 2,615,685 shares
of Common Stock, or 29% of the outstanding shares of Common Stock. He has
sole investment power over 580,699 shares of Class A Common Stock, or 6% of
the outstanding shares of Class A Common Stock, and shares investment power
with Roy J. Carver, Jr. over 3,346,060 shares of Class A Common Stock, or
36% of the outstanding shares of Class A Common Stock. He has sole voting
power of 28% of the combined voting power of Common Stock and Class B
Common Stock and shares with Roy J. Carver, Jr. 14% of such combined voting
power.
[6] Roy J. Carver, Jr. disclaims beneficial ownership of 6,991 shares of Common
Stock and 8,944 shares of Class A Common Stock indirectly owned by Carver
Management LLC and 1,734,468 shares of Common Stock and 2,218,781 shares of
Class A Common Stock held by Carver Partners LP.
[7] Roy J. Carver, Jr. shares with Martin G. Carver the voting and investment
power over all of the 2,615,685 shares of Common Stock shown as
beneficially owned by him. He has sole investment power over 167,325 shares
of Class A Common Stock, or 1.8% of the outstanding shares of Class A
Common Stock, and shares investment power with Martin G. Carver over
3,346,060 shares of Class A Common Stock, or 36% of the outstanding shares
of such class. He has sole voting power of 22% of the combined voting power
of Common Stock and Class B Common Stock and shares with Martin G. Carver
14% of such combined voting power.
[8] Mr. Newman shares voting and investment power over 946 shares with his
wife.
[9] Mr. Newman shares investment power over 3,766 shares with his wife.
[10] Mr. Heidbreder shares voting and investment power over 130 shares with his
wife.
[11] Mr. Heidbreder shares investment power over 5,154 shares with his wife.
[12] Mr. McErlane shares voting and investment power over 379 shares with his
wife.
[13] Mr. McErlane shares investment power over 508 shares with his wife.
[14] Mr. Vesey shares voting and investment power over 1,800 shares with his
wife.
[15] Mr. Vesey shares investment power over 1,400 shares with his wife.
[16] In order to avoid overstatement, the number of shares of Common Stock and
Class A Common Stock which is the subject of shared voting or investment
power is only counted once.
Shareholders Owning More Than Five Percent. The following table provides
information concerning persons known by the Corporation to beneficially own more
than five percent of any class of the Corporation's voting
4
securities as of February 28, 2003, other than the ownership of Martin G. Carver
and Roy J. Carver, Jr., which is contained in the previous table:
===================================== ============ ============ =============
Amount of Percentage
Common Stock of Percentage of
Beneficially Outstanding Aggregate
Name and Address Owned Common Stock Voting Power
- ------------------------------------- ------------ ------------ -------------
Capital Group International, Inc.(1)
11100 Santa Monica Blvd.
Los Angeles, CA 90025-3384 639,220(2) 7.0% 3.5%
- ------------------------------------- ------------ ------------ -------------
Barclays Global Investors, N.A.(2)
45 Fremont Street
5th Floor
San Francisco, CA 94105 483,933(2) 5.3% 2.6%
- ------------------------------------- ------------ ------------ -------------
(1) Shares shown as beneficially owned is based on a jointly filed Schedule 13G
filed with the Securities and Exchange Commission for the period ended
December 31, 2002 by Capital Group International, Inc. and Capital Guardian
Trust Company, affiliated entities. Of the shares shown, such parties have
sole voting and dispositive power over 604,220 and 639,220 of such shares,
respectively, and shared voting and dispositive power over none of such
shares.
(2) Information shown is based on a jointly filed Schedule 13G filed with the
Securities and Exchange Commission by Barclays Global Investors, N.A.,
Barclays Global Fund Advisors, Barclays Global Investors, Ltd., Barclays
Trust and Banking Company (Japan) Limited, Barclays Life Assurance Company
Limited, Barclays Bank PLC, Barclays Capital Securities Limited, Barclays
Capital Investments, Barclays Private Bank & Trust (Isle of Man) Limited,
Barclays Private Bank and Trust (Jersey) Limited, Barclays Bank Trust
Company Limited and Barclays Private Bank and Trust Limited (Sussie). Such
parties have sole voting and dispositive power over all of such shares.
Proposal No. 1 - ELECTION OF DIRECTORS
The Articles of Incorporation require election of directors to staggered
terms of three years. Three nominees this year are to be elected for three-year
terms. There is currently a vacancy on the Board of Directors. The Board of
Directors has discretion to either amend the Corporation's By-laws to reduce the
number of directors, thereby eliminating the vacancy, or to appoint an interim
director to serve until the next annual meeting of shareholders. The Board of
Directors is currently conducting a search for a new director who will be
independent and will qualify as an "audit committee financial expert."
Proxies will be voted for the election of each of the nominees listed
below, unless the shareholder giving the proxy abstains from voting for any
nominee. If, as a result of unforeseen circumstances, any such nominee shall be
unable to serve as director, proxies will be voted for the election of such
person or persons as the Board of Directors may select. Information about the
nominees is set forth below:
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
ROBERT T. BLANCHARD, age 58, since November 1999 has been President of
Strategic & Marketing Services, a consulting firm. On November 1, 1999, Mr.
Blanchard retired from The Procter & Gamble Company where he had been employed
since 1967 and had held numerous positions, including President-Global Skin Care
and Cosmetics (January 1, 1999 to November 1, 1999), President, North American
Beauty Care Sector (1992 to 1998), Vice President/General Manager - Northern
European Division, Vice President/General Manager - Beverages Division, and
Group Vice President, Global Strategic Planning - Health and Beauty Care. Mr.
Blanchard holds directorships in Best Buy Co., Inc., a retailer of consumer
electronics, computers and software and Signet Group, plc., retail jewelry. He
is a member of the Audit Committee, Management Continuity and Compensation
Committee and Strategic Planning Committee. Mr. Blanchard has been a Director
since May 1996.
5
GARY E. DEWEL, age 60, retired. Mr. Dewel was Executive Vice President,
Supply Chain, for Clarion Technologies, Inc., Schaumburg, Illinois, an injection
molding business supplier to the automotive industry, until his retirement in
April 2000. Previously, he was Vice President, Supply Chain, for Solutia Inc., a
spinoff of the chemical businesses of Monsanto Company (1997-April 1999); Vice
President, Supply Chain, of Monsanto Company (1994-August 1997) and held several
Vice President positions with Navistar International Corporation (1979-1993).
Mr. Dewel was elected Vice Chairman of the Board in May 2000. He is a member of
the Audit Committee, Executive Committee, Management Continuity and Compensation
Committee and Strategic Planning Committee. Mr. Dewel has been a Director since
August 1997.
R. STEPHEN NEWMAN, age 59, since November 2001, has served as President of
Observer North America, an operating unit of Observer AB, listed on the
Stockholm Stock Exchange. Prior to November 2001, Mr. Newman was President and
Chief Executive Officer of Primedia Information, Inc., an operating unit of
Primedia Inc. Mr. Newman continues as Chief Executive Officer of Bacon's
Information, Inc., where he served as Chief Executive Officer and President from
1994 to November 2001, and President and Chief Operating Officer from 1990 to
1994. Mr. Newman is a member of the Audit Committee, Management Continuity and
Compensation Committee and Strategic Planning Committee. Mr. Newman has been a
Director since 1983.
DIRECTORS CONTINUING IN OFFICE
ROY J. CARVER, JR., age 58, since June 1982 has been Chairman of the Board
of Directors of Carver Pump Company, Muscatine, Iowa, a builder of centrifugal
pumps. Mr. Carver is President of Carver Aero, Inc., which operates fixed base
operations at airports in Muscatine and Davenport, Iowa and President of Carver
Hardware, Inc., which operates a chain of retail hardware stores. Mr. Carver
holds directorships in Catalyst, Inc. and Iowa First Bancshares Corp. He is a
member of the Nominating Committee and the Strategic Planning Committee. Mr.
Carver has been a Director since 1982. Mr. Carver's term expires in 2004.
JAMES R. EVERLINE, age 61, is President of Everline & Co., a mergers and
acquisitions/management consulting company. Previously, Mr. Everline was
President, Investment Banking Division, of Henry & Company (1990-December 1991).
Henry & Company is engaged in the venture capital and investment banking
business. Prior to Mr. Everline's employment by Henry & Company, he was a
Partner of Founders Court Investors Inc. (1988-1989) and served as Vice
President, Capital Markets Group, Bank of America (1981-1988). He is a member of
the Audit Committee, Executive Committee, Management Continuity and Compensation
Committee and Nominating Committee. Mr. Everline has been a Director since 1982.
Mr. Everline's term expires in 2004.
PHILLIP J. HANRAHAN, age 63, has been for more than five years a partner in
the Milwaukee law firm of Foley & Lardner. In 2002, the Corporation paid fees
for legal services to Foley & Lardner, and the Corporation anticipates that
similar services may be provided by Foley & Lardner in the current fiscal year.
Mr. Hanrahan's cash fees as a Director are paid to Foley & Lardner, which
credits the sums to the Corporation's legal services account. Mr. Hanrahan is a
member of the Executive Committee. Mr. Hanrahan has been a Director since August
1997. Mr. Hanrahan's term expires in 2004.
MARTIN G. CARVER, age 54, was elected Chairman of the Board effective June
23, 1981, Chief Executive Officer effective May 18, 1982, and President
effective May 25, 1983. Mr. Carver was also Vice Chairman of the Board from
January 5, 1981 to June 23, 1981. He is a member of the Executive Committee,
Nominating Committee and Strategic Planning Committee. Mr. Carver has been a
Director since 1978. Mr. Carver's term expires in 2005.
EDGAR D. JANNOTTA, age 71. In March 2001, Mr. Jannotta became Chairman of
William Blair & Company, L.L.C. and also Chairman of the firm's Executive
Committee. Previously, Mr. Jannotta served as Senior Director of William Blair &
Company, L.L.C. (January 1996 to March 2001); Senior Director of William Blair &
Company, a partnership (January 1995 to January 1996) and also served as
Managing Partner for more than five years. He holds directorships in Aon
Corporation, Exelon Corporation and Molex Incorporated. William Blair & Company,
L.L.C. provided investment banking services to the Corporation in 2002 and the
Corporation anticipates that services may be provided to the Corporation in the
current fiscal year. He is a member of the Nominating Committee. Mr. Jannotta
has been a Director since 1973. Mr. Jannotta's term expires in 2005.
6
Directors are elected by a plurality of votes cast in the election of
directors (assuming a quorum is present). Consequently, any shares not voted at
the Annual Meeting, whether due to abstentions, broker non-votes or otherwise,
will have no impact on the election of directors.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met seven times in 2002.
The Audit Committee met nine times in 2002. The members of the Audit
Committee, whose names appear at the end of the Audit Committee Report herein,
are independent (as independence is defined in the listing standards of the New
York Stock Exchange). The major functions of the Audit Committee are to assist
the Board of Directors in its oversight of: (i) the integrity of the
Corporation's financial statements; (ii) the independent auditors'
qualifications and independence; (iii) the Corporation's compliance with legal
and regulatory requirements; (iv) the performance of the Corporation's internal
audit function and of the independent auditors; and (v) carrying out other
functions which may, from time to time, be assigned to the Audit Committee by
the Board of Directors. See "Audit Committee Report" herein. The Board of
Directors has adopted a written charter for the Audit Committee, which is
attached hereto as Exhibit A.
The Management Continuity and Compensation Committee met five times in
2002; its functions are to review, evaluate and determine executive level
compensation, to recommend to the Board of Directors the election of corporate
officers, to administer the Stock Award Plan and the Restricted Stock Grant
Plan, including the awarding of options and restricted stock grants under the
Stock Award Plan, all pursuant to the terms and conditions of such plans.
The Nominating Committee met three times in 2002; its duties relate to the
evaluation and recommendation to the Board of Directors of prospective
candidates for election as directors of the Corporation. The Nominating
Committee will consider recommended nominations for the position of director
which are submitted in writing by the shareholders and addressed to the
Nominating Committee in care of the Corporation at Muscatine, Iowa.
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Information
The following table sets forth certain information concerning compensation
paid for the last three fiscal years to the Corporation's Chief Executive
Officer and each of its four other most highly compensated executive officers as
of December 31, 2002, whose total cash compensation exceeded $100,000 for fiscal
2002. The persons named in the table are sometimes referred to herein as the
"named executive officers."
Summary Compensation Table
=========================================================================================================
Long Term Compensation
============================ ====== ========== ======= ============= ============ =================
Restricted Options
Name and Stock (Number of All Other
Principal Position Year Salary Bonus Award(s)[1] Shares) Compensation[2]
============================ ====== ========== ======= ============= ============ =================
Martin G. Carver 2002 $452,906 $ -0- $308,000 41,100 $33,697
Chairman of the Board, 2001 428,500 -0- -0- 50,400 14,868
Chief Executive Officer 2000 400,000 -0- 391,875 47,900 23,044
and President
- ---------------------------- ------ ---------- ------- ------------- ------------ -----------------
7
=========================================================================================================
Long Term Compensation
============================ ====== ========== ======= ============= ============ =================
Restricted Options
Name and Stock (Number of All Other
Principal Position Year Salary Bonus Award(s)[1] Shares) Compensation[2]
============================ ====== ========== ======= ============= ============ =================
Warren W. Heidbreder 2002 $317,555 $ -0- $116,160 15,500 $29,925
Vice President, Chief 2001 306,000 -0- -0- 19,300 14,868
Financial Officer and 2000 292,500 -0- 144,375 17,600 23,044
Secretary
- ---------------------------- ------ ---------- ------- ------------- ------------ -----------------
John C. McErlane 2002 $322,300 $ -0- $ 30,800 16,400 $12,892
Vice President; President 2001 292,750 -0- -0- 19,300 13,915
of Tire Distribution 2000 274,500 -0- 144,375 17,600 23,044
Systems, Inc.
- ---------------------------- ------ ---------- ------- ------------- ------------ -----------------
Nathaniel L. Derby II 2002 $297,465 $ -0- $ 90,640 12,100 $22,350
Vice President, 2001 288,500 -0- -0- 13,300 14,868
Manufacturing Design 2000 279,000 -0- 103,125 12,600 23,044
- ---------------------------- ------ ---------- ------- ------------- ------------ -----------------
Charles W. Vesey 2002 $261,271 $ -0- $ -0- 5,800 $29,758
Vice President and 2001 253,713 -0- -0- 7,000 18,427
Corporate Controller 2000 244,813 -0- -0- 10,400 23,044
============================ ====== ========== ======= ============= ============ =================
[1] At December 31, 2002, the number of shares held and the aggregate market
value of restricted stock held by the named executive officers are as
follows: Martin G. Carver, 4,460 shares Common Stock, value $172,513, and
20,553 shares Class A Common Stock, value $710,928; Warren W. Heidbreder,
1,270 shares Common Stock, value $49,124, and 7,199 shares Class A Common
Stock, value $249,013; John C. McErlane, 585 shares Common Stock, value
$22,628, and 6,514 shares Class A Common Stock, value $225,319; Nathaniel
L. Derby II, 1,200 shares Common Stock, value $46,416, and 5,435 shares
Class A Common Stock, value $187,997; and Charles W. Vesey, 595 shares
Common Stock, value $23,015, and 595 shares Class A Common Stock, value
$20,581. Dividends are paid on the shares of restricted stock prior to
vesting.
[2] Of the amounts shown in this column for 2002, the Corporation's
contribution under its Salaried Profit Sharing, Retirement and Savings Plan
for the named executive officers is as follows: Martin G. Carver, $33,062;
Warren W. Heidbreder, $23,182; John C. McErlane, $12,892; Nathaniel L.
Derby II, $21,715 and Charles W. Vesey, $19,073 (of which, because of
limitations under the Internal Revenue Code of 1986, as amended, $14,600
was paid into such Plan for Martin G. Carver, Warren W. Heidbreder,
Nathaniel L. Derby II, Charles W. Vesey; $8,000 for John C. McErlane and
the balance to be paid by the Corporation outside such Plan); and $635 is
the Corporation's contribution to its Bandag Security Program, a
combination defined benefit and defined contribution plan, for Martin G.
Carver, Warren W. Heidbreder, Nathaniel L. Derby II and Charles W. Vesey.
The remainder of the amount shown for Mr. Heidbreder and Mr. Vesey in 2002
are $6,108 and $10,050, respectively, representing cash paid in lieu of
vacation to Mr. Heidbreder and Mr. Vesey.
Stock Options
The following table contains information concerning the grant of stock
options under the Corporation's Stock Award Plan for the year ended December 31,
2002, all of which are reflected above in the Corporation's Summary Compensation
Table.
8
Option Grants in Last Fiscal Year
Percentage of
Shares Total Options
Underlying Granted to all Exercise Grant Date
Options Employees in Price per Expiration Present
Name Granted (1) Fiscal Year Share (2) Date (3) Value (4)
---- ----------- -------------- --------- ---------- ----------
Martin G. Carver 41,100 13.8% $32.53 3/12/12 $350,172
Warren W. Heidbreder 15,500 5.2% $32.53 3/12/12 $132,060
John C. McErlane 16,400 5.5% $32.53 3/12/12 $139,728
Nathaniel L. Derby II 12,100 4.1% $32.53 3/12/12 $103,092
Charles W. Vesey 5,800 1.9% $32.53 3/12/12 $ 49,416
(1) These options are options to purchase Class A Common Stock and are
nonqualified stock options under the Internal Revenue Code.
(2) An option holder can pay the exercise price of options in cash, by
delivering previously issued shares of the Corporation's Common Stock
and/or Class A Common Stock, or a combination of both.
(3) Options granted to all participants are exercisable at the rate of 25% per
year, beginning March 12, 2003.
(4) The option values presented are based on the Black-Scholes option pricing
model adapted for use in valuing stock options. The actual value, if any,
that an optionee may realize upon exercise will depend on the excess of the
market price of the Class A Common Stock over the option exercise price on
the date the option is exercised. There is no assurance that the actual
value realized by an optionee upon the exercise of an option will be at or
near the value estimated under the Black-Scholes model. The estimated
values under the Black-Scholes model are based on arbitrary assumptions as
to variables such as interest rates, the stock price volatility and future
dividend yield, including the following: (a) an assumed United States
Treasury security rate of 5.1%; (b) stock price volatility of 33.2% (based
on the three-year weekly stock price history ending January 31, 2002); and
(c) a dividend yield of 4.6% (based on the weighted average dividend yield
of the Class A Common Stock for the one-year period ended January 31,
2002).
The following table sets forth information regarding the exercise of stock
options and the fiscal year-end value of unexercised options held by the named
executive officers:
Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 2002 December 31, 2002[1]
Acquired on Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Martin G. Carver --- --- 43,700 119,800 $ 372,146 $892,318
Warren W. Heidbreder --- --- 16,300 45,100 138,401 335,130
John C. McErlane --- --- 15,100 45,200 137,543 336,412
Nathaniel L. Derby II --- --- 11,300 32,700 97,834 237,627
Charles W. Vesey --- --- 5,560 17,640 70,480 153,509
[1] The dollar values are calculated by determining the difference between the
fair market value of the underlying Class A Common Stock at December 31,
2002 and the exercise price of the options.
9
The following table provides information as of December 31, 2002 about
shares of Class A Common Stock that are authorized for issuance (no Common Stock
is so authorized) under all of the Corporation's existing equity compensation
plans, consisting solely of the Corporation's Stock Award Plan.
Equity Compensation Plan Information
Number of Securities
Number of Remaining Available
Securities to for Future Issuance
be Issued Weighted- Average under Equity
upon Exercise Exercise Price of Compensation Plans
of Outstanding Outstanding [excluding Securities
Options, Warrants Options, Warrants reflected in
Plan Category and Rights(a) and Rights(b) Column (a)] (c)
- ----------------------------- ----------------- ----------------- ---------------------
Equity compensation plans
approved by shareowners 1,111,260(1) $25.82 1,206,947(2)
Equity compensation plans
not approved by shareowners --- --- ---
----------------- ----------------- ---------------------
Total 1,111,260(1) $25.82 1,206,947(2)
(1) Represents outstanding options under the Stock Award Plan
(2) Consists of 1,206,947 shares of Class A Common Stock available for future
issuance under the Stock Award Plan, of which no more than 366,032 shares
may be in the form of restricted stock awards. Any remaining shares of
Class A Common Stock may be issued pursuant to the exercise of stock
options under the Stock Award Plan.
Pension Plan Benefits. The following table sets forth annual normal retirement
age pension benefits under the Bandag Salaried Pension Plan at the specified
remuneration and years-of-service classifications. The table assumes retirement
in 2002. To the extent benefits are not paid under the Salaried Pension Plan due
to limitations under the Internal Revenue Code of 1986, as amended, they are
paid by the Corporation.
PENSION PLAN TABLE
Annual Pension Per Years of Service
Highest 5-Year
Average Annual
Compensation 5-Years 10-Years 15-Years 20-Years 25-Years 30-Years 35-Years
- -------------- ------- -------- -------- -------- -------- -------- --------
$ 50,000 $2,656 $5,313 $7,969 $10,500 $13,000 $15,500 $17,500
$100,000 $6,719 $13,438 $20,156 $25,500 $30,500 $35,500 $39,500
$150,000 $10,781 $21,563 $32,344 $40,500 $48,000 $55,500 $61,500
$200,000 $14,844 $29,688 $44,531 $55,500 $65,500 $75,500 $83,500
$250,000 $18,906 $37,813 $56,719 $70,500 $83,000 $95,500 $105,500
$300,000 $22,969 $45,938 $68,906 $85,500 $100,500 $115,500 $127,500
$350,000 $27,031 $54,063 $81,094 $100,500 $118,000 $135,500 $149,500
10
Highest 5-Year
Average Annual
Compensation 5-Years 10-Years 15-Years 20-Years 25-Years 30-Years 35-Years
- -------------- ------- -------- -------- -------- -------- -------- --------
$400,000 $31,094 $62,188 $93,281 $115,500 $135,500 $155,500 $171,500
$450,000 $35,156 $70,313 $105,469 $130,500 $153,000 $175,500 $193,500
$500,000 $39,219 $78,438 $117,656 $145,500 $170,500 $195,500 $215,500
Pension amounts are based upon an employee's base salary and credited years
of service. The base salaries for each of the last three fiscal years to the
named executive officers are set forth in the Summary Compensation Table under
"Salary." As of March 21, 2003, Messrs. Carver, Heidbreder, McErlane, Derby, and
Vesey had completed approximately 24, 21, 18, 32, and 32 years of credited
service under the Corporation's pension plan, respectively. Benefits shown in
the table are computed as a straight line single life annuity assuming
retirement at age 65 and are not subject to offset for Social Security Benefits.
In addition, certain of the named executive officers also have a "Bandag
Security Program" benefit under the Bandag Salaried Pension Plan. The annual
defined benefit payable at age 62 for each of the following named executive
officers is fixed and is as follows: Martin G. Carver, $700; Warren W.
Heidbreder, $542; John C. McErlane, $404; Nathaniel L. Derby II, $1,108; and
Charles W. Vesey, $1,121.
Executive Officer Agreements
Each of the executive officers named in the Summary Compensation Table,
except Mr. Vesey, is a party to a Severance Agreement with the Corporation. The
Severance Agreements provide for severance benefits equal to the greater of
$1,000,000, $650,000, $620,000 and $610,000 for Messrs. Carver, Heidbreder,
Derby and McErlane, respectively, or an amount equal to twenty-four (24) months
base salary, in the event of the executive's involuntary termination of
employment or voluntary termination for good cause, except for death, disability
or retirement. For purposes of the Severance Agreements, "good cause" means (i)
a 15% or greater reduction in the executive's base pay, (ii) a materially
adverse change, without the executive's prior written consent, in the nature or
scope of the executive's title or responsibilities, or (iii) the relocation of
the executive's principal place of employment by more than fifty (50) miles. The
Severance Agreements restrict the named executive officers from competing with
the Corporation for twenty-four months following termination of employment and
also contain extensive restrictions on disclosure of the Corporation's
confidential information.
Report of Management Continuity and Compensation Committee on Executive
Compensation
The Management Continuity and Compensation Committee of the Board of
Directors (the "Compensation Committee") makes all decisions regarding
compensation of the Corporation's executive officers, including the awarding of
stock options and restricted stock. The Compensation Committee is comprised of
four non-employee independent Directors. Set forth below is a report submitted
by the Compensation Committee addressing the Corporation's compensation policies
applicable to the Corporation's executive officers, including the named
executive officers in the Summary Compensation Table.
The Corporation's executive compensation strategy is designed to:
o Increase the alignment of executive compensation and rewards with the
interests of the Corporation's shareholders;
o Provide a closer linkage between executive compensation earned and the
short-term and long-term performance of the Corporation;
o Provide the opportunity to better position executive compensation with
competitive market levels as the Corporation's performance dictates;
and
11
o Recognize the role of executives in making the Corporation successful
and allow them to share in that success.
Bandag's Executive Compensation Plan
Under the Corporation's executive compensation plan, the total compensation
opportunity for each executive officer, including the Chief Executive Officer,
is based on a target level of total direct compensation for each individual
position. The total direct compensation target for each position approximates
the 60th percentile of competitive compensation (cash and stock) from executive
compensation surveys, which encompasses manufacturing companies with revenues at
or approximating $1 billion.
The actual level of total compensation an executive will achieve depends
upon a variety of factors, including the responsibilities of the position,
experience of the executive, current level of total compensation relative to the
target level, the financial performance of the Corporation, national trends, and
the Corporation's competitive need to retain and recruit the very best and most
capable individuals. In reviewing the Corporation's financial performance, the
Compensation Committee considers the Corporation's revenues, net income and net
income per share in light of the competitive and economic conditions during the
fiscal year. In addition, the Compensation Committee considers the Corporation's
financial performance resulting from investment in marketing programs, research
and development, plant, machinery and equipment, and in personnel and related
programs.
The Corporation's executive compensation plan consists of the following
components:
Base Salary
Base salaries were established based on the pay-at-risk level appropriate
for each executive's job, including the Chief Executive Officer. For the Chief
Executive Officer, base salary represented 39% of the targeted total direct
compensation opportunity. For the other named executive officers, base salaries
averaged 60% of their targeted total direct compensation opportunity.
During 2002, executive officers, including the Chief Executive Officer,
received a 3.5% increase based on the midpoint established for their role. The
midpoint is the base salary target under which an executive officer's salary is
administered. Under the midpoint compensation system, midpoints were used to
calculate the annual increase for each executive officer by multiplying the
midpoint (not the current base salary) by a percentage established by the
Compensation Committee. The resulting amount was then added to the current base
salary.
In determining the percentage increase for base salary, the Compensation
Committee considered a variety of factors, including inflation rate, the
Corporation's financial performance, and trends in salaried employee
compensation increases, as disclosed by published salary budget forecasts.
Future base pay increases will be based on factors similar to those just
discussed.
Annual Award Plan
Four executive officers, including the Chief Executive Officer, were
eligible for an annual award consisting of restricted stock, based on
achievement of the Corporation's diluted "earnings-per-share" (EPS) in 2002
against a diluted EPS "target" pre-established by the Compensation Committee.
Executive officers eligible to participate in this plan were Martin G.
Carver, Chairman of the Board, President and Chief Executive Officer; Warren W.
Heidbreder, Vice President, Chief Financial Officer; Nathaniel L. Derby II, Vice
President, Manufacturing Design; and John C. McErlane, Vice President of the
Corporation and President, Tire Distribution Systems, Inc., a wholly-owned
subsidiary.
Based on the performance of the Corporation in 2002 against the EPS target
established by the Compensation Committee, each participant was awarded shares
of restricted stock on February 25, 2003 under the Bandag, Incorporated Stock
Award Plan, the value of which is indicated in the Summary Compensation Table.
12
Restricted shares under this plan vest three years from the date of
grant if the recipient is still employed by the Corporation, and vest
immediately in the event of death, disability, retirement at age 60 with ten or
more years of service, or change in corporate control.
Long-term Award Plan
Executive officers, including the Chief Executive Officer, participate in a
long-term award plan designed to achieve the following objectives:
o Create a better link between the interests of the participants and the
Corporation's shareholders;
o Promote teamwork and provide participants with rewards for excellence
in the Corporation's performance;
o Provide flexibility to the Corporation in its ability to compensate,
attract, and retain the services of individuals who make significant
contributions to the Corporation's success; and
o Allow participants to further share in the success of the Corporation.
Under this plan, executive officers, including the Chief Executive Officer,
were granted a stock option under the Bandag, Incorporated Stock Award Plan, to
purchase shares of Class A Common Stock at fair market value as of the award
date of March 13, 2002. These options are non-qualified stock options under the
Internal Revenue Code.
Under this grant, stock options for the executive officers, including the
Chief Executive Officer, are exercisable at a rate of 25% per year, beginning
March 13, 2003, and have an exercise period of 10 years. The size of the grant
was based on the estimated value of the options using the Black-Scholes option
pricing model, and was made considering the executive's overall total direct
compensation target.
Each option becomes immediately exercisable at the end of the vesting
period, unless the participant's employment has been previously terminated, or
in the event of the participant's death, disability, retirement at age 60 with
ten or more years of service, or change in corporate control.
Bandag, Incorporated Management
Continuity and Compensation Committee
Robert T. Blanchard James R. Everline
Gary E. Dewel R. Stephen Newman, Chairman
Remuneration of Directors. Directors who are also full-time employees of the
Corporation do not receive remuneration for acting as directors. Non-employee
directors are currently compensated in accordance with the following schedule:
Annual Fees - Chairman of Committee - $34,500.
Other Directors - $32,000.
Board Meeting Attendance - $1,250 per meeting.
Committee Meeting Attendance - Chairman - $1,500 per meeting.
Other Directors - $1,250 per meeting.
Stock Option Award - Each non-employee Director was awarded a stock option
for 3,400 shares of Class A Common Stock on March 11, 2003. The value of this
award is $6.184 per share, computed under the Black-Scholes method. The exercise
price of the stock option is $26.655 per share, being the fair market value of
the Class A Common Stock on the date of grant. The options are immediately
exercisable and expire 10 years from the date of grant. The value of the annual
stock option award and/or the number of shares covered by the award will vary in
future years.
13
Transactions with Management/Principal Shareholders and Directors. Roy J.
Carver, Jr., brother of Martin G. Carver, owns 100% of Carver Aero, Inc., which
operates fixed base operations at airports in Muscatine, Iowa; Davenport, Iowa,
and Clinton, Iowa. During 2002, it sold $93,264.94 of aviation fuel and charter
services to the Corporation at competitive prices based on volume purchased and
services utilized. Phillip J. Hanrahan, a director, is a partner of the law firm
of Foley & Lardner, Milwaukee, Wisconsin, which has provided legal services to
the corporation for several years, including 2002, and expects to provide legal
services in 2003. Mr. Edgar D. Jannotta, a director, is Chairman of William
Blair & Company, L.L.C. and Chairman of that firm's Executive Committee. William
Blair & Company, L.L.C. has provided investment banking services to the
Corporation for several years, including 2002, and may provide services in 2003
if requested by the Corporation.
On June 19, 2002, pursuant to an agreement executed on June 18, 2002, the
Corporation purchased 1,114,746 shares of the Corporation's Class B Common Stock
and 418,371 shares of its Class A Common Stock from Lucille A. Carver, widow of
the founder of the Corporation and a director from 1957 until May 14, 2002. Mrs.
Carver is the mother of Martin G. Carver, Chairman of the Board, Chief Executive
Officer and President and a director of the Corporation, and Roy J. Carver, Jr.,
a director of the Corporation. The purchase price per share was $27.04 and
$24.00 for the Class B Common Stock and Class A Common Stock, respectively,
which was equal to the composite closing prices of the Corporation's Common
Stock (in the case of the Class B Common Stock) and Class A Common Stock on the
New York Stock Exchange as of the close of business on June 18, 2002, less a
discount of 3.5% per share in the case of the Class B Common Stock and 4.0% per
share for the Class A Common Stock. The total purchase price was approximately
$40,184,000.
AUDIT COMMITTEE REPORT
Pursuant to its written charter, the Audit Committee ("Committee") oversees
the Corporation's 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
the audited financial statements in the Annual Report with management, 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 Corporation's accounting
principles and such other matters as are required to be discussed with the
Committee under generally accepted auditing standards. In addition, the
Committee discussed with the independent auditors the auditors' independence
from management and the Corporation, including the matters in the written
disclosures required by the Independence Standards Board, and considered the
compatibility of non-audit services provided by the auditors to the Corporation
with their independence.
The Committee discussed with the Corporation's independent auditors the
overall scope and plans for their audit of the Corporation's consolidated
financial statements. The Committee meets with the independent auditors, both
with and without management present, as deemed advisable, to discuss the results
of their examination, their evaluation of the Corporation's internal controls,
and the overall quality of the Corporation's financial reporting. In addition,
the Committee reviews with management and the independent auditors proposed
interim financial statements. The Committee held nine meetings during fiscal
year 2002.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board of Directors has accepted
that recommendation) that the audited financial statements be included in the
Annual Report on Form 10-K for the fiscal year ended December 31, 2002 for
filing with the Securities and Exchange Commission. Upon the Committee's
recommendation, the Board of Directors has selected Ernst & Young LLP as the
Corporation's independent auditors for the fiscal year ending December 31, 2003,
subject to shareholder ratification.
14
Bandag, Incorporated
Audit Committee
Robert T. Blanchard, Chairman James R. Everline
Gary E. Dewel R. Stephen Newman
SHAREHOLDER RETURN PERFORMANCE INFORMATION
Set forth on the following pages is a line graph comparing the yearly
percentage change during the last five years in the cumulative total shareholder
return (assuming reinvestment of dividends) on the Corporation's Common Stock
and Class A Common Stock with the cumulative total returns of the Standard &
Poor's 500 Stock Index and the Dow Jones & Co., Inc. Tire and Rubber - Index
("Tire and Rubber Index"). The graph assumes $100 Invested on December 31, 1997
in Bandag, Incorporated Common Stock and Class A Common Stock, the S&P 500 Stock
Index and the Dow Jones & Co., Inc. Tire and Rubber - Index.
Bandag, Incorporated Stock Performance Chart
[CHART OMITTED]
Comparison of Five Year Cumulative Total Return
- ------------------------ ----------------------------------------------------
December 31
- ------------------------ ----------------------------------------------------
1997 1998 1999 2000 2001 2002
- ------------------------ ------- ------ ------ ------ ------ ------
- ------------------------ ------- ------ ------ ------ ------ ------
Bandag, Incorporated 100 76 49 82 74 88
- ------------------------ ------- ------ ------ ------ ------ ------
S&P 500 Stock Index 100 129 156 141 125 97
- ------------------------ ------- ------ ------ ------ ------ ------
Tire and Rubber -Index 100 81 49 42 49 22
- ------------------------ ------- ------ ------ ------ ------ ------
15
Proposal No. 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Corporation's
independent auditors for the fiscal year ending December 31, 2003.
Ernst & Young LLP served as the Corporation's independent auditors for the
fiscal year ended December 31, 2002. Representatives of Ernst & Young LLP will
be present at the Annual Meeting and will be available to respond to any
questions raised at the meeting and make any comments they deem appropriate.
Although this selection is not required by law to be submitted to a vote by
shareholders, the Board of Directors believes it appropriate, as a matter of
policy, to request that the shareholders ratify the selection of Ernst & Young
LLP as independent auditors for 2003. If the shareholders should not ratify, the
Board of Directors will reconsider the selection.
Assuming a quorum is present, ratification of the appointment requires that
more votes represented by shares of Common and Class B Common Stock be voted in
favor of such ratification than are voted against such ratification. Any shares
not voted at the Annual Meeting with respect to such ratification (whether as a
result of abstentions, broker non-votes or otherwise) will have no impact on the
vote.
Audit Fees
The aggregate fees billed by Ernst & Young LLP for professional services
rendered for the audit of the Corporation's annual financial statements for the
fiscal year ended December 31, 2002 and the review of the financial statements
included in the Corporation's Form 10-Q were $663,200.
Financial Information Systems Design and Implementation Fees
Ernst & Young LLP did not provide any professional services in connection
with financial systems design and implementation during the fiscal year ended
December 31, 2002.
All Other Fees
For the fiscal year ended December 31, 2002, the aggregate fees billed for
services rendered by Ernst & Young LLP, other than the audit fees described
above, were $248,300, including audit-related services of $185,300 and non-audit
services of $63,000. Fees for pension and foreign statutory audits make up the
majority of the audit-related services. Also included in audit-related services
are fees for accounting consultations, SEC registration statements and a $10,500
final billing for internal audit services which were discontinued at the end of
2001. Except for certain tax and certain audit-related services (not to include
internal audit), the Corporation will not engage Ernst & Young LLP to provide
services beyond those provided in conjunction with the annual audit.
The Audit Committee took into consideration whether the providing of
services described above under "All Other Fees" was compatible with maintaining
the independence of Ernst & Young LLP.
Proposal No. 3 - OTHER MATTERS
The management of the Corporation knows of no matters to be presented at
the meeting other than those set forth in the Notice of Annual Meeting of
Shareholders. However, if any other matters properly come before the meeting, it
is intended that the persons named in the enclosed proxy will vote on such
matters in accordance with their best judgments.
2004 SHAREHOLDERS' PROPOSALS
The date by which proposals of shareholders intended to be presented at the
2004 Annual Meeting of the Corporation must be received by the Corporation for
inclusion in its Proxy Statement and form of proxy relating to that meeting is
December 10, 2003. The Corporation may exercise discretionary voting authority
under proxies
16
solicited by it for the 2004 Annual Meeting of Shareholders if it receives
notice of a proposed non-Rule 14a-8 shareholder action after February 23, 2004.
MISCELLANEOUS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers, directors and more than 10% shareholders
("Insiders") to file with the Securities and Exchange Commission reports on
prescribed forms of their beneficial ownership of the Corporation's stock and
furnish copies of such reports to the Corporation. Based solely on a review of
the copies of such forms furnished to the Corporation, or written
representations that no Form 5 was required to be filed, the Corporation
believes that during the year ended December 31, 2002 all reports required by
Section 16(a) to be filed by the Corporation's Insiders were filed on a timely
basis.
Expenses
The expense of preparing, printing and mailing this Proxy Statement and the
proxies solicited hereby will be borne by the Corporation.
Some of the officers and regular employees of the Corporation may, without
extra remuneration, solicit proxies personally or by telephone, e-mail or
telefax. The Corporation will request brokerage houses, nominees, custodians and
fiduciaries to forward proxy materials to the beneficial owners of shares held
of record and will reimburse such persons for their expenses.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
EXHIBIT A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
BANDAG, INCORPORATED
A. Purpose
The Audit Committee of Bandag, Incorporated ("Company") is appointed by the
Board of Directors to assist the Board in its oversight of:
(1) The integrity of the Company's financial statements.
(2) The independent auditors' qualifications and independence.
(3) The Company's compliance with legal and regulatory requirements.
(4) The performance of the Company's internal audit function and of the
independent auditors.
(5) Other functions which may, from time to time, be assigned to the Audit
Committee by the Board of Directors.
In addition, the Audit Committee shall prepare the report required by the
Securities and Exchange Commission (the "Commission") to be included in the
Company's annual proxy statement.
B. Membership
The Audit Committee shall be composed of at least three members, all of whom
shall meet the independence and experience requirements of the New York Stock
Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations of the Commission. By no later
than December 31, 2003, at least one member of the Audit Committee shall be an
audit committee financial expert as defined by the Commission. Audit Committee
members shall not simultaneously serve on the audit committees of more than
three public companies, including the Company.
C. Meetings
The Audit Committee shall meet at least once each quarter or more frequently as
it determines. The Audit Committee shall meet periodically in separate executive
sessions with Company management, with the internal auditors (or other personnel
responsible for the internal audit function) and with the independent auditors.
The Audit Committee may permit, at its request, any member of Company management
or other employee of the Company or the Company's outside counsel or independent
auditors or members of any accounting firm performing internal audit functions
to attend any meeting of the Audit Committee, or to meet with any member of, or
consultants or advisors to, the Audit Committee.
D. Duties and Responsibilities
The Audit Committee shall have sole authority for the appointment (subject to
shareholder ratification), termination, compensation and oversight of the work
of the independent auditors (including resolution of disagreements between
Company management and the independent auditors regarding financial reporting).
The independent auditors are accountable to and shall report directly to the
Audit Committee.
The Audit Committee shall preapprove all auditing services and permitted
non-audit services, including fees and terms, to be performed by the independent
auditors, subject to the de minimis exceptions for non-audit services described
in Section 10A(i)(B) of the Exchange Act which must be approved by the Audit
Committee prior to the completion of the audit.
The Audit Committee shall have the authority to engage independent legal
counsel, accountants and other advisors as it determines necessary or
appropriate. The Company shall provide for appropriate funding, as determined by
the
Audit Committee, for payment of compensation to the independent auditors for
the purpose of rendering or issuing an audit report and to any independent legal
counsel or other advisors engaged by the Audit Committee.
The Audit Committee shall make regular reports to the Board covering any issues
that arise with respect to the quality or integrity of the Company's financial
statements, the Company's compliance with legal or regulatory requirements, the
performance and independence of the Company's independent auditors, or the
performance of the internal audit function.
The Audit Committee shall annually review its own performance.
The Audit Committee will undertake the following activities to discharge the
five basic responsibilities described above:
E. Integrity of Financial Statements
(1) Meet with the independent auditors prior to the annual audit to review
the scope, planning and staffing of the audit. Discuss any changes in
accounting principles or procedures which may significantly impact the
audit and/or the resulting financial statements.
(2) Meet at least annually with the independent auditors and Company
management, both collectively and individually in separate executive
sessions, to discuss the annual financial statements (including
disclosures made in Management's Discussion and Analysis of Financial
Condition and Results of Operations) and the results of the annual
audit of the Company's financial statements, including communications
required by Statement on Auditing Standards No. 61 "Communications
with Audit Committees" and any other matters required to be
communicated to the Audit Committee by the independent auditors under
generally accepted auditing standards.
(3) Review and discuss with Company management and the independent
auditors the Company's quarterly interim and annual financial
statements prior to their public release. Review and discuss with
Company management and the independent auditors the Company's
quarterly report on Form 10-Q, and the Company's disclosure under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the report of the independent auditors on
their review of the Company's quarterly interim financial statements
prior to filing the Form 10-Q with the Commission.
(4) Discuss with Company management and the independent auditors
significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial statements,
including any significant changes in the Company's selection or
application of accounting principles, any major issues as to the
adequacy of the Company's internal controls and any actions taken to
correct material internal control deficiencies.
(5) Discuss with Company management the Company's earnings press releases,
as well as financial information provided to analysts and rating
agencies. The Audit Committee need not discuss in advance each
earnings press release. Such discussion may be done generally (i.e.,
discussion of the types of information to be disclosed and the type of
presentation to be made).
(6) Discuss with Company management the Company's policies with respect to
risk assessment and risk management, the Company's major financial
risk exposures and the steps Company management has taken to monitor
and control such exposures.
(7) Regularly review with the independent auditors any difficulties the
independent auditors encountered in the course of the audit work,
including any restrictions on the scope of the independent auditors'
activities or on access to requested information, or any significant
disagreements with Company management.
(8) Discuss with Company management and the independent auditors the
effect of legal and accounting developments, as well as off-balance
sheet structures, if any, on the Company's financial statements.
2
(9) Review and discuss reports from the independent auditors on:
a. All critical accounting policies and practices to be used.
b. All alternative treatments of financial information within
generally accepted accounting principles that have been discussed
with Company management, ramifications of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditors.
c. Other material written communications between the independent
auditors and Company management, such as any management letter or
schedule of unadjusted differences.
F. Oversight of the Company's Relationship with the Independent Auditors
(1) Review and evaluate the lead partner of the independent auditors'
team.
(2) Obtain and review a report from the independent auditors at least
annually regarding (a) the independent auditors' internal
quality-control procedures, (b) any material issues raised by the most
recent internal quality-control review, or peer review, of the
independent auditors, or by any inquiry or investigation by
governmental or professional authorities within the preceding five
years respecting one or more independent audits carried out by the
independent auditors, (c) any steps taken to deal with any such
issues, and (d) all relationships between the independent auditors and
the Company. Evaluate the qualifications, performance and independence
of the independent auditors, taking into account the opinions of
Company management and internal auditors (or other personnel
responsible for the internal audit function). The Audit Committee
shall present its conclusions with respect to the independent auditors
to the Board.
(3) Assure the rotation of the lead (or coordinating) audit partner
(having primary responsibility for the audit) and other partners on
the audit engagement team as required by law. Consider whether, in
order to assure continuing auditor independence, it is appropriate to
adopt a policy of rotating the independent auditing firm on a regular
basis.
(4) Approve policies for the Company's hiring of employees or former
employees of the independent auditors who participated in any capacity
in the audit of the Company.
(5) Discuss with the independent auditors any communications between the
audit team and the national office of the independent auditors
respecting auditing or accounting issues presented during the audit.
G. Compliance with Legal and Regulatory Requirements
(1) Annually review and reassess the charter of the Audit Committee and
recommend its approval (with any proposed changes) by the Board of
Directors.
(2) Recommend to the Board of Directors, if appropriate, that the audited
financial statements be included in the Company's Annual Report on
Form 10-K.
(3) Discuss with Company management and the independent auditors any
correspondence from regulators or governmental agencies which raises
material issues concerning the Company's financial statements or
accounting policies.
(4) Establish "whistle-blower" procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal controls, or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
(5) Annually review the report from Company management regarding
compliance with the Foreign Corrupt Practices Act.
3
(6) Review legal and regulatory matters brought to its attention that may
have a material impact on the Company's financial statements.
H. Oversight of the Company's Internal Audit Function
(1) Review the appointment and replacement of the senior internal auditing
executive.
(2) Approve the engagement (including terms and fees) of non-Company
entities which provide internal auditing services.
(3) Review the responsibilities of the internal audit staff (and any
non-Company entity providing internal auditing services), budget and
staffing of the internal audit.
(4) Review reports, or summaries thereof, to Company management prepared
by the internal audit staff (including any non-Company entity
providing internal audit services) regarding internal controls and the
internal audit and Company management's responses thereto.
I. Carrying Out Other Functions Assigned by the Board of Directors
(1) Annually obtain a report from the independent auditors regarding the
status of annual audits of employee benefit plans and significant
matters noted as a result of such audits. Discuss as appropriate with
Company management and the independent auditors.
(2) Annual review the report from Company management regarding compliance
with the Company's Global Ethics Policy.
J. Effect of Charter
While the Audit Committee has the specific responsibilities set forth in
this charter, it is not the duty of the Audit Committee to conduct audits or
investigations, or determine that the Company's financial statements are
accurate and in compliance with generally accepted accounting practices. Also,
it is not the duty of the Audit Committee to assure compliance with laws and
regulations or the Company's Global Ethics Policy. Preparation of complete and
accurate financial statements in accordance with generally accepted accounting
principles and assuring compliance with applicable laws and regulations and the
Company's Global Ethics Policy are the responsibilities of Company management.
It is the responsibility of the independent auditors to express an opinion on
the financial statements based on their audits.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
PROXY
BANDAG, INCORPORATED
Muscatine, Iowa
PROXY FOR ANNUAL MEETING - MAY 13, 2003
The undersigned hereby appoints Martin G. Carver and Roy J. Carver, Jr., or
either of them, the true and lawful proxies of the undersigned, with full power
of substitution, to represent and to vote as designated herein all shares of
Common Stock (COM) and Class B Common Stock (CLB) of Bandag, Incorporated which
the undersigned is entitled to vote at the Annual Meeting of Shareholders of
Bandag, Incorporated to be held May 13, 2003 and at all adjournments thereof,
hereby revoking any proxy heretofore executed by the undersigned for such
meeting.
This proxy is solicited on behalf of the Board of Directors of Bandag,
Incorporated. Every properly signed proxy will be voted as directed. Unless
otherwise directed, proxies will be voted FOR all the indicated nominees as
directors in Item (1) and FOR Item (2) and in the discretion of the proxy holder
in connection with Item (3).
You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVERSE SIDE. The proxy holder cannot vote your shares unless you
sign and return this card.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
|X| Please mark
votes as in
this example.
This Proxy, when properly executed, will be voted in the manner directed herein. This Proxy will be voted FOR the proposals if no
specification is made:
1. Election of Directors: 2. Ratification of selection of Ernst & Young FOR AGAINST ABSTAIN
LLP as independent auditors for the |_| |_| |_|
(01) Robert T. Blanchard, (02) Gary E. Dewel, fiscal year ending December 31, 2003.
(03) R. Stephen Newman
FOR WITHHOLD 3. In their discretion upon such other matters as may
ALL [ ] [ ] FROM ALL properly come before the meeting.
NOMINEES NOMINEES
|_|
-----------------------------------------------------------
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE. (Instruction: To withhold vote from any
nominee(s), check the box above and insert the name of such nominee(s) in the line above.)
MARK HERE FOR |_| MARK HERE |_|
COMMENTS/ADDRESS IF YOU PLAN TO
CHANGE AND NOTE ATTEND
AT LEFT 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:_____________________________ Date:_________________ Signature:_____________________________ Date:_________________