SCHEDULE 14A
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 Section 240.14a-12
Cooper Industries, Ltd.
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(Name of Registrant as Specified in Its Charter)
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(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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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(COOPER INDUSTRIES, LTD. LOGO)
March 14, 2003
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 Tuesday,
April 29, 2003, 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. If you elected to
receive your proxy statement electronically, you will not receive a proxy card
and must vote via the Internet or by telephone. 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, LTD.
P.O. BOX 4446
HOUSTON, TEXAS 77210
TIME............................. 11:00 a.m. on Tuesday, April 29, 2003.
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 2006 Annual Meeting of
Shareholders.
2. Appoint Ernst & Young LLP as
independent auditors of Cooper for
the year ending December 31, 2003
and authorize the Audit Committee of
the Board of Directors to determine
their remuneration.
3. 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.
4. If presented at the meeting,
consider and vote upon a shareholder
proposal requesting the Board of
Directors to change Cooper's
jurisdiction of incorporation.
5. Consider any other matters to come
properly before the meeting or any
adjournment thereof.
RECORD DATE...................... Holders of Class A common shares of record
at the close of business on March 3, 2003,
may vote at the meeting.
FINANCIAL STATEMENTS............. Our audited financial statements for the
year ended December 31, 2002, 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.
VOTING YOUR PROXY................ 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 28, 2003; OR
2. GO TO THE WEBSITE:
www.eproxyvote.com/cbe to vote over
the Internet anytime up to 12:00
midnight New York time on April 28,
2003; 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 14, 2003
TABLE OF CONTENTS
<Table>
Questions and Answers............................................................................ 2
Cooper Stock Ownership........................................................................... 5
Proposal 1: Election of Directors................................................................ 6
Information about Management and Organization of the Board of Directors.......................... 9
Executive Management Compensation................................................................ 12
Company Performance.............................................................................. 15
Management Development and Compensation Committee Report on Executive Compensation............... 17
Other Compensation Matters....................................................................... 20
Audit Committee Report .......................................................................... 23
Relationship with Independent Auditors........................................................... 23
Proposal 2: Appointment of Independent Auditors.................................................. 24
Proposal 3: Shareholder Proposal for a Sustainability Report..................................... 24
Proposal 4: Shareholder Proposal for a Change of Incorporation Jurisdiction...................... 26
Appendix A: Audit Committee Charter.............................................................. A-1
</Table>
1
PROXY STATEMENT
We have sent you this booklet and proxy card because the Board of Directors
of Cooper Industries, Ltd. ("Cooper") is soliciting your proxy to vote at our
2003 Annual Meeting of Shareholders on April 29, 2003. 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?
o The election of four nominees to serve on our Board of Directors;
o The appointment of Ernst & Young LLP as independent auditors of Cooper
for the year ending December 31, 2003 and authorization of the Audit
Committee of the Board of Directors to determine their remuneration;
o If presented, a shareholder proposal that the Board of Directors report
to shareholders on social and environmental issues related to
sustainability; and
o If presented, a shareholder proposal that the Board of Directors change
Cooper's jurisdiction of incorporation.
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HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
The Board recommends voting:
o FOR each of the nominees for the Board of Directors;
o FOR the appointment of Ernst & Young LLP as independent auditors of
Cooper;
o AGAINST the shareholder proposal regarding sustainability reporting; and
o AGAINST the shareholder proposal regarding a change of Cooper's
jurisdiction of incorporation.
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WHO IS ENTITLED TO VOTE?
Holders of Class A common shares as of the close of business on March 3,
2003 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:
o electronically using the Internet,
o by telephone, or
o 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:
o filing with Cooper's Corporate Secretary an instrument revoking your
proxy;
o attending the meeting and giving notice of revocation; or
o submitting a later-dated proxy by any of the three voting methods
described above.
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2
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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WHAT SHARES ARE INCLUDED ON MY PROXY CARD?
The shares listed on your proxy card represent ALL of your record shares,
including the following, as applicable:
o shares held in the Cooper Dividend Reinvestment and Stock Purchase Plan;
o 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
o 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 STOCK IN CO-SAV VOTED?
If you hold Cooper Class A common shares 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 Class A common shares 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?
As of the March 3, 2003 record date, 93,247,312 Class A common shares were
issued and outstanding. These are the only securities entitled to vote. Each
holder of Class A common shares is entitled to one vote for each share held.
Cooper's subsidiary, Cooper Industries, Inc., held 1,547,926 Class A common
shares on March 3, 2003. A voting agreement requires that the Class A common
shares held by Cooper Industries, Inc. will be voted (or abstained from
voting) in the same proportion as the Class A common shares held by other
shareholders. As a result, the voting of shares held by Cooper Industries,
Inc. does not dilute the voting power of other shareholders. Cooper's Class
B common shares, which are held by Cooper Industries, Inc., have no vote on
the matters presented at this meeting.
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WHAT VOTE IS REQUIRED FOR APPROVAL?
Provided a quorum is present, the election of a director, the appointment of
the independent auditors and the approval of each of the shareholder
proposals 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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3
WHAT IS A "QUORUM"?
A "quorum" is a majority of the issued and outstanding Class A common
shares. Shareholders may represent their shares by attending 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 3, 2003, 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, Ltd., 600 Travis Street, Suite 5800, Houston, Texas 77002, or
bring proof of ownership to the meeting.
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HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
Although we do not know of any other business to be considered at the 2003
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 2004 ANNUAL MEETING DUE?
All shareholder proposals must be submitted in writing to Terrance V. Helz,
Associate General Counsel and Secretary, Cooper Industries, Ltd., 600 Travis
Street, Suite 5800, Houston, Texas 77002. Any shareholder who intends to
present a proposal at the 2004 Annual Meeting of Shareholders must deliver
the proposal to us so that it is received no later than November 15, 2003,
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 29, 2004, 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 2004 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. 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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4
COOPER STOCK OWNERSHIP
As of March 3, 2003, there were 26,467 registered holders of Class A
common shares. 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, other than the following which have filed statements of ownership on
Schedule 13G with the Securities and Exchange Commission.
<Table>
<Caption>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
TITLE AND CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
--------------- ------------------------------------ ----------- --------
Class A common shares...... AXA 10,618,371(1) 11.5%
27 Avenue Matignon
75008 Paris, France
Class A common shares...... T. Rowe Price Associates, Inc. 6,282,748(2) 6.8%
100 E. Pratt Street
Baltimore, MD 21202
Class A common shares...... Barrow, Hanley, Mewhinney & Strauss, Inc. 4,662,500(3) 5.1%
3232 McKinney Avenue, 15th Floor
Dallas, TX 75204-2429
Class A common shares...... Vanguard Windsor Funds - Vanguard Windsor II Fund 4,650,800(4) 5.1%
100 Vanguard Blvd.
Malvern, PA 19355
</Table>
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(1) Based on Schedule 13G dated February 12, 2003 filed jointly on behalf
of AXA Financial, Inc., AXA, and four French mutual insurance companies
(AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA
Conseil Vie Assurance Mutuelle, AXA Courtage Assurance Mutuelle) as a
group. Individually and as a group, the French mutual insurance
companies and AXA have sole voting power over 5,430,048 shares, shared
voting power over 1,070,839 shares, sole dispositive power over
10,616,371 shares and shared dispositive power over 2,000 shares. AXA
Financial, Inc. has sole voting power over 5,430,048 shares, shared
voting power over 1,070,839 shares, sole dispositive power over
10,616,371 shares and shared dispositive power over no shares. The
shares are beneficially owned directly by AXA entities or subsidiaries
of AXA Financial, Inc. as follows: AXA Rosenberg Investment Management
LLC - 2,000 shares; Alliance Capital Management L.P. - 10,615,771
shares; and The Equitable Life Assurance Society of the United States -
600 shares. The addresses of the joint filers are: AXA Conseil Vie
Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle and AXA Assurances
Vie Mutuelle, 370 rue Saint Honore, 75001 Paris, France; AXA Courtage
Assurance Mutuelle, 26 rue Louis le Grand, 75002 Paris, France; and AXA
Financial, Inc., 1290 Avenue of the Americas, New York, New York 10104.
(2) Based on Schedule 13G dated February 14, 2003 filed by T. Rowe Price
Associates, Inc. These securities are owned by various individual or
institutional investors which T. Rowe Price Associates, Inc. ("Price
Associates") serves as investment advisor with power to direct
investments and/or sole power to vote securities. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price
Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities. Price Associates has sole voting
power over 1,581,228 shares, shared voting power over no shares, sole
dispositive power over 6,282,748 shares and shared dispositive power
over no shares.
(3) Based on Schedule 13G dated February 8, 2003 filed by Barrow, Hanley,
Mewhinney & Strauss, Inc. Barrow, Hanley, Mewhinney & Strauss, Inc. has
sole voting power over 8,900 shares, shared voting power over 4,653,600
shares, sole dispositive power over 4,662,500 shares and shared
dispositive power over no shares.
(4) Based on Schedule 13G dated February 13, 2003 filed by Vanguard Windsor
Funds - Vanguard Windsor II Fund. Vanguard Windsor Funds - Vanguard
Windsor II Fund has sole voting power over 4,650,800 shares, shared
voting power over no shares, sole dispositive power over no shares and
shared dispositive power over 4,650,800 shares.
5
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. 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 2006, or when their
successors are elected and qualified. The nominees are: Ivor J. Evans, Clifford
J. Grum, Ralph E. Jackson, Jr. and James R. Wilson. All of the nominees are
directors and members of the class whose term expires at the meeting, except Mr.
Evans who has been nominated to replace Sir Ralph H. Robins as a director. Sir
Ralph H. Robins is a director whose term also expires at the 2003 Annual
Meeting. He is retiring in accordance with the Board of Directors' retirement
policy.
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.
NOMINEES FOR TERMS EXPIRING IN 2006
<Table>
IVOR J. EVANS (PHOTO) Mr. Evans has been President and Chief Operating
Age 59 Officer of Union Pacific Railroad Company (rail
carrier) since 1998. He served in various
executive positions at Emerson Electric Company
from 1990 until 1998, most recently as Senior Vice
President, Industrial Components and Equipment. He
is also a director of Union Pacific Corporation.
CLIFFORD J. GRUM (PHOTO) Mr. Grum served as Chairman of the Board and Chief
Chairman - Committee on Executive Officer of Temple-Inland Inc. (container and
Nominations and Corporate containerboard, pulp and paperboard, building products
Governance and financial services) from 1991 until 2000, when he
Member - Executive retired. He is also a director of Trinity Industries
Committee and Management Inc. and Tupperware Corporation.
Development and
Compensation Committee
Director since 1982
Age 68
RALPH E. JACKSON, JR. (PHOTO) Mr. Jackson is Deputy Chairman and Chief Operating
Director since 2001 Officer of Cooper Industries, Ltd. He was named
Age 61 Executive Vice President, Operations in 1992, Chief
Operating Officer in 2001 and Deputy Chairman in
2002.
JAMES R. WILSON (PHOTO) Mr. Wilson served as Chairman, President and Chief
Chairman - Audit Committee Executive Officer of Cordant Technologies Inc. from
Member - Management 1995 until 2000, when he retired. He is also a
Development and director of Goodrich Corporation.
Compensation Committee and
Committee on Nominations
and Corporate Governance
Director since 1997
Age 62
</Table>
6
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 2004
<Table>
H. LEE SCOTT (PHOTO) Mr. Scott has been President and Chief Executive
Member - Audit Committee Officer of Wal-Mart Stores, Inc. (discount retailer)
Director since 1999 since January 2000. He has been with Wal-Mart since
Age 53 1979. He served as 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.
STEPHEN G. BUTLER (PHOTO) Mr. Butler served as Chairman and Chief Executive of
Member - Audit Committee KPMG, LLP (accounting firm) from 1996 until June 30,
Director since 2002 2002 when he retired.
Age 55
DAN F. SMITH (PHOTO) Mr. Smith has served as President and Chief Executive
Member - Audit Committee, Officer of Lyondell Chemical Company (petrochemicals
Executive Committee and and refining operations) since 1996. Since 1997, he
Management Development has also served as Chief Executive Officer of Equistar
and Compensation Committee Chemicals, LP, a joint venture company owned 70.5% by
Director since 1998 Lyondell. He is also a director of Lyondell Chemical
Age 56 Company.
GERALD B. SMITH (PHOTO) Mr. Smith is Chairman and Chief Executive Officer of
Member - Audit Committee Smith Graham & Company, an investment management firm
Director since 2000 that he founded in 1990. He is also a director of
Age 52 Rorento Fund N.V., a Trustee of The Charles Schwab
Mutual Funds and a member of the Audit Committee
of Northern Border Partners, L.P.
</Table>
7
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 2005
<Table>
WARREN L. BATTS (PHOTO) Mr. Batts was the Chairman and Chief Executive Officer
Member - Management of Tupperware Corporation (diversified consumer
Development and products) since its spin-off from Premark
Compensation Committee and International, Inc. in 1996 until his retirement in
Committee on Nominations 1997. He also served as Chairman and Chief Executive
and Corporate Governance Officer of Premark International, Inc. (food
Director since 1986 containers, commercial food equipment, housewares and
Age 70 decorative laminates) from 1986 until 1996 and as
Chairman of Premark International, Inc. until 1997.
He is also a director of Methode Electronics, Inc.
ROBERT M. DEVLIN (PHOTO) Mr. Devlin is Chairman of Curragh Capital Partners
Chairman - Management (venture capital, merchant banking). He was Chairman,
Development and President and Chief Executive Officer of American
Compensation Committee General Corporation (financial services) from 1997
Member - Executive until September 2001. He was elected Vice Chairman in
Committee and Committee on 1993, was named President in 1995 and Chief Executive
Nominations and Corporate Officer in 1996, and was elected Chairman in 1997.
Governance
Director since 1997
Age 62
LINDA A. HILL (PHOTO) Ms. Hill is a Professor at the Harvard Business
Member - Audit Committee School. She joined the faculty of Harvard Business
Director since 1994 School in 1984 as an Assistant Professor in
Age 46 organizational 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 Executive
Chairman - Executive Officer of Cooper Industries, Ltd. He was named
Committee President and Chief Operating Officer in 1992, Chief
Director since 1992 Executive Officer in 1995 and Chairman in 1996. He
Age 62 is also a director of The Allstate Corporation and
Baker Hughes Incorporated.
</Table>
8
INFORMATION ABOUT MANAGEMENT AND ORGANIZATION
OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICERS
The table below contains certain information as of March 3, 2003 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.
<Table>
<Caption>
YEARS OF OFFICER
NAME POSITION AGE SERVICE SINCE
---- -------- --- ---------- --------
H. John Riley, Jr. ........ Chairman, President and Chief Executive Officer 62 40 1982
Ralph E. Jackson, Jr. ..... Deputy Chairman and Chief Operating Officer 61 26 1992
Kirk S. Hachigian ......... Executive Vice President and Chief Operating 43 2 2001
Officer, Electrical Products
Terry A. Klebe ............ Senior Vice President and Chief Financial 48 8 1995
Officer
Diane K. Schumacher ....... Senior Vice President, General Counsel 49 23 1988
and Chief Compliance Officer
David R. Sheil ............ Senior Vice President, Human Resources and 46 17 1996
Chief Administrative Officer
Richard J. Bajenski ....... Vice President, Investor Relations 50 21 1998
Thomas E. Briggs........... Vice President, Sales and Marketing, 57 23 2003
Cooper Connection
Kenneth V. Camarco ........ Vice President, Business Systems 39 17 2003
Grant L. Gawronski ........ Vice President, Manufacturing Services 40 0 2003
and Technology
Victoria B. Guennewig ..... Vice President, Public Affairs 52 4 1999
Terrance V. Helz .......... Associate General Counsel and Secretary 49 12 2001
Alan J. Hill .............. Vice President and Treasurer 58 25 1979
E. Daniel Leightman ....... Vice President, Taxes 62 15 1994
Jeffrey B. Levos .......... Vice President and Controller 42 3 2000
Robert W. Teets ........... Vice President, Environmental Affairs and 52 25 1993
Risk Management
</Table>
All of the executive officers have been employed by Cooper in
management positions for more than five years, except Thomas E. Briggs, Grant L.
Gawronski, Victoria B. Guennewig, Kirk S. Hachigian, Terrance V. Helz and
Jeffrey B. Levos. Thomas E. Briggs served as President of Cooper B-Line from May
2000 when Cooper acquired B-Line until January 2003 and from 1979 to 2000 served
as President of B-Line Systems, a division of Sigma-Aldrich Co. Grant L.
Gawronski joined Cooper after serving as General Manager, Global Six Sigma
Quality, of GE Lighting since 2001 and as General Manager of the Asia Pacific
Operations unit at GE Lighting from 1997 to 2001. Victoria B. Guennewig joined
Cooper in 1999 after serving as Vice President, Public Affairs, of The Coastal
Corporation since 1997. Kirk S. Hachigian joined Cooper in 2001 after serving as
President and Chief Executive Officer of the Asia Pacific Operations unit of GE
Lighting since 1997. Terrance V. Helz became Secretary of Cooper after serving
as Associate General Counsel and Assistant Secretary since 1998. Jeffrey B.
Levos joined Cooper in 2000 after serving as Vice President and Controller of
The Coastal Corporation since 1997.
9
SECURITY OWNERSHIP OF MANAGEMENT
As of February 24, 2003, each director, nominee and each executive
officer named in the Summary Compensation Table beneficially owned the number of
Cooper Class A common shares listed in the following table. Each of the named
individuals owned less than 1%, and all directors and executive officers as a
group beneficially owned 2.5% of Cooper's outstanding Class A common shares as
of that date.
<Table>
<Caption>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)
------------------------ ---------------------
H. John Riley, Jr. ................................................ 864,466(2)(3)
Warren L. Batts ................................................... 26,890(4)(5)
Stephen G. Butler ................................................. 984
Robert M. Devlin .................................................. 5,700
Ivor J. Evans ..................................................... 0
Clifford J. Grum .................................................. 24,200
Linda A. Hill .................................................... 6,200
Ralph E. Jackson, Jr. ............................................. 344,712(2)(3)
Sir Ralph H. Robins ............................................... 6,728(5)
H. Lee Scott ...................................................... 6,555(5)
Dan F. Smith ...................................................... 9,458(5)
Gerald B. Smith .................................................. 1,039
James R. Wilson .................................................. 13,777(5)
Kirk S. Hachigian ................................................ 149,301(6)
D. Bradley McWilliams ............................................. 185,321(2)(3)
Diane K. Schumacher ............................................... 130,994(3)
All Directors and Executive Officers as a Group ................... 2,340,766(2)(3)
</Table>
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(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 February 24, 2003, as follows: Mr. Riley -
624,833 shares; Mr. Batts - 4,000 shares; Mr. Devlin - 2,000 shares;
Mr. Grum - 3,000 shares; Ms. Hill - 4,000 shares; Mr. Jackson - 271,833
shares; Sir Ralph Robins - 4,000 shares; Mr. D. Smith - 1,000 shares;
Mr. Wilson - 3,000 shares; Mr. Hachigian - 123,333 shares; Mr.
McWilliams - 133,233 shares; Ms. Schumacher - 101,732 shares; and all
directors and executive officers as a group - 1,727,619 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. McWilliams - 19,635 shares; and all executive officers as a group -
240,204 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 - 5,690 shares; Sir Ralph Robins - 1,048
shares; Mr. Scott - 6,155 shares; Mr. D. Smith - 7,658 shares; and Mr.
Wilson - 9,077 shares.
(6) Includes 15,000 shares issuable within a period of 60 days from
February 24, 2003, upon the lapse of restrictions on restricted stock
units.
10
MEETINGS OF THE COOPER BOARD AND ITS COMMITTEES
Our Board of Directors met on five occasions during 2002. 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. Scott.
Audit Committee
The Audit Committee, which consists of all independent directors, held five
meetings during 2002. The Committee's principal responsibilities are to:
o Confer with management and the independent auditors regarding
financial reporting issues and practices.
o Review SEC filings, including the annual financial statements and the
annual report on Form 10-K.
o Appoint, subject to shareholder approval, the independent auditors and
review the auditors' independence, scope of annual audit and audit
results.
o Review the internal audit program and the corporate compliance program
including compliance with Cooper's Code of Ethics and Business
Conduct.
o 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 2002.
Finance Committee
The Finance Committee, which consisted of all independent directors, held
two meetings during 2002. The Committee's principal responsibilities were to:
o Review Cooper's financial objectives, capital structure, financing
arrangements and similar matters of a financial nature.
o Make recommendations to the Board regarding dividends.
o Review pension plan asset management.
In November 2002, the Finance Committee was dissolved in order to simplify
the Board Committee structure. The Management Development and Compensation
Committee assumed oversight responsibility for reviewing pension plan asset
management and the Board now directly handles the balance of the
responsibilities that were delegated to the Finance Committee.
Management Development and Compensation Committee
The Management Development and Compensation Committee, which consists of
all independent directors, held two meetings during 2002. The Committee's
principal responsibilities are to:
o Establish corporate compensation policies, including determining base
salary and annual and long-term incentive awards for executive
officers and other key employees.
o Establish specific performance goals and objectives to be used to
evaluate performance over a given period.
o 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.
o Determine stock option and long-term performance share grants to
employees.
o Review compliance with stock ownership guidelines for executive
officers and other key employees.
o 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 four meetings in 2002. The Committee's principal
responsibilities are to:
o Recommend nominees for election to the Board and Committee
assignments.
o Review and recommend action on shareholder proposals.
o Review corporate governance principles.
o 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, Ltd., 600 Travis Street, Suite 5800, Houston, Texas
77002.)
11
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 2000,
2001 and 2002.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
---------------------------------- --------------------------- ------------
(A) (B) (C) (D) (F) (G) (H) (I)
RESTRICTED SECURITIES ALL
STOCK UNDERLYING LTIP OTHER
NAME AND SALARY BONUS AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) (#) ($)(3) ($)(4)
- ---------------------------- ---- ------------ ------------ ------------ ------------ ------------ ------------
Riley, Jr., H. J. - 2002 $ 970,000 $ 943,500 $ 2,787,200 414,000 $ 0 $ 43,650
Chairman, President and 2001 965,000 0 0 162,500 0 85,388
Chief Executive Officer 2000 910,000 932,500 0 150,000 1,258,351 72,671
Jackson, Jr., R. E. - Deputy 2002 555,000 440,000 0 240,000 0 24,975
Chairman and Chief Operating 2001 525,000 0 0 80,000 0 37,573
Officer 2000 479,063 344,400 0 60,000 460,361 35,350
Hachigian, K.S. - Executive 2002 413,750 275,000 1,045,200 90,000 0 27,619
Vice President and Chief 2001 283,333 700,000 2,076,000 140,000 0 12,750
Operating Officer,
Electrical Products (5)
McWilliams, D. B. - Senior 2002 397,833 210,000 0 100,000 0 17,903
Vice President and Chief 2001 385,917 0 0 33,300 0 17,366
Financial Officer (6) 2000 368,500 235,700 0 26,000 306,907 25,686
Schumacher, D. K. - Senior 2002 344,000 210,000 836,160 70,200 0 15,480
Vice President, General 2001 327,500 0 0 27,500 0 22,254
Counsel and Chief Compliance 2000 306,500 208,800 0 20,000 245,516 21,722
Officer
</Table>
- ----------------
(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) Restricted stock award values in the table above are based on the closing
price of Cooper Class A common shares on the New York Stock Exchange on the
date of grant. Based on the closing price of Cooper Class A common shares
on the New York Stock Exchange on December 31, 2002, the number and value
of the aggregate restricted stock unit holdings of each of the Named
Executives on such date were as follows: H.J. Riley, Jr. - 80,000 units
($2,916,000); K.S. Hachigian - 75,000 units ($2,733,750); and D.K.
Schumacher - 24,000 units ($874,800). The restricted stock units granted to
Mr. Riley in 2002 vest in December 2005 upon his retirement at age 65. The
restricted stock units granted to Mr. Hachigian in 2002 vest in December
2006. The 60,000 restricted stock units granted to Mr. Hachigian in 2001
replace restricted stock grants forfeited upon his resignation from his
prior employer and vest as follows: 15,000 units in each of April 2002 and
2003; 12,500 units in each of April 2004 and December 2005; and 5,000 units
in April 2006. The 24,000 restricted stock units granted to Ms. Schumacher
in 2002 vest as follows: 8,000 units in each of December 2004, 2005 and
2006. Dividend equivalents relating to cash dividends paid by Cooper are
paid in cash on restricted stock units for which restrictions have not yet
lapsed.
(3) Represents performance-based shares that were earned by the Named
Executives under the Stock Incentive Plan in 2000, the last year of a
four-year performance period ending on December 31, 2000.
12
(4) The figures in column (i) for 2002 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. $3,638 and $40,012; K.S.
Hachigian $7,500 and $20,119; R. E. Jackson, Jr. $5,203 and $19,772; D.B.
McWilliams $3,406 and $14,497; and D. K. Schumacher $3,172 and $12,308.
(5) The $700,000 bonus for 2001 consists of payments to replace compensation
and other benefits that Mr. Hachigian lost when leaving his previous
employer to join Cooper.
(6) Effective December 31, 2002, Mr. McWilliams resigned as Senior Vice
President and Chief Financial Officer, in anticipation of his planned
retirement on April 1, 2003.
STOCK OPTIONS
The following table presents information about stock option grants to the
Named Executives in the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
Individual Grants
------------------------------------------------
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present
Name Granted(#) Fiscal Year ($/Sh)(1) Date(2) Value($)(3)
(a) (b) (c) (d) (e) (f)
- ------------------------- -------------- -------------- -------------- -------------- --------------
Riley, Jr., H. J ........ 414,000 14.75 $ 35.21 2/29/2012 $ 3,875,040
Jackson, Jr., R. E ...... 240,000 8.55 35.21 2/29/2012 2,246,400
Hachigian, K.S .......... 90,000 3.21 35.21 2/29/2012 842,400
McWilliams, D. B ........ 100,000 3.56 35.21 2/29/2012 936,000
Schumacher, D. K ........ 70,200 2.50 35.21 2/29/2012 657,072
</Table>
- ------------
(1) The exercise price of each option is equal to the fair market value of
Cooper's Class A common shares 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 3.9%, a risk-free interest rate of 4.8%, an expected stock price
volatility based on historical experience of 33.0% 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.
13
The following table presents information about options exercised during
2002 and the unexercised stock options held at December 31, 2002 by the Named
Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<Table>
<Caption>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options In-the-Money Options
Acquired Value at Fiscal Year-End (#) at Fiscal Year-End ($)
On Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
Name Exercise(#) (a) (b) (c) (d) (e)
- ------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Exercisable Unexercisable Exercisable Unexercisable
------------ ------------- ------------ -------------
Riley, Jr., H. J ........ 0 $ 0 382,665 572,335 $ 0 $ 397,440
Jackson, Jr., R. E ...... 0 0 145,165 313,335 0 230,400
Hachigian, K.S .......... 0 0 46,666 183,334 62,066 210,534
McWilliams, D. B ........ 0 0 80,133 130,867 0 96,000
Schumacher, D. K ........ 0 0 62,499 95,201 0 67,392
</Table>
The following table provides information as of December 31, 2002 with
respect to our equity compensation plans pursuant to which options, restricted
stock units or other rights to acquire shares may be granted.
EQUITY COMPENSATION PLAN INFORMATION
<Table>
<Caption>
Number of securities
remaining available for
Number of securities to Weighted-average exercise future issuance under
be issued upon exercise price of outstanding equity compensation plans
of outstanding options, options, warrants and (excluding securities
warrants and rights rights reflected in column (a))
----------------------- ------------------------- -------------------------
(a) (b) (c)
----------------------- ------------------------- -------------------------
Equity compensation plans approved
by security holders ................... 8,623,168(1) $ 40.76(2) 5,470,363(3)
Equity compensation plans not
approved by security holders .......... 0 N/A 494,680(4)
Total ................................. 8,623,168 $ 40.76(2) 5,965,043
</Table>
(1) Includes (a) shares earned, the receipt of which has been deferred
under Cooper plans as follows: Executive Restricted Stock Incentive
Plan - 156,481 shares; Stock Incentive Plan - 124,123 shares;
Management Annual Incentive Plan - 20,532 shares; Directors' Stock Plan
- 5,190 shares; and Directors' Retainer Fee Stock Plan - 23,455 shares;
and (b) 628,884 performance-based share awards that are issuable to the
extent set performance goals are achieved and 287,600 restricted stock
unit awards that are issuable upon vesting under the Stock Incentive
Plan.
(2) Weighted average exercise price of outstanding options excludes the
shares referred to in note 1 above.
(3) Includes 2,423,976 shares available for future issuance under the
Employee Stock Purchase Plan.
(4) Consists of shares available for issuance under the Cooper (UK)
Employee Share Purchase Plan, which was approved by the Board of
Directors on February 9, 2000. The exercise price for options granted
under the plan is 85% of the market price of Cooper Class A common
shares on the grant date. The plan allows Cooper employees residing in
the United Kingdom to apply payroll deductions to the purchase of
shares by exercising options granted under the plan.
14
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG COOPER
INDUSTRIES, LTD., S&P 500 AND COOPER INDUSTRIES PEER GROUP
The following graph compares the total shareholder return on Cooper's
Class A common shares for the five-year period December 31, 1997 through
December 31, 2002 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, 1997 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. In April 2002
one of the companies previously included in the Cooper Peer Group Index, U.S.
Industries, sold its lighting products business to another of our peers. As a
result, U.S. Industries is no longer representative of our business segments.
Acuity Brands, Inc., formerly the lighting products division of National Service
Industries, was formed as a separate publicly traded company in November 2001.
Accordingly, we have replaced U.S. Industries with Acuity Brands, Inc. in the
Cooper Peer Group Index. Because of this change, both the old Cooper Peer Group
Index and the new Cooper Peer Group Index are included in the following graph.
The other members of our Peer Group Index are: (1) Danaher Corporation, (2)
Emerson Electric Co., (3) Hubbell Incorporated (Class B), (4) The Stanley Works
and (5) Thomas and Betts Corporation. 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, 1997
WITH DIVIDENDS REINVESTED
(CHART)
<Table>
<Caption>
DEC-97 DEC-98 DEC-99 DEC-00 DEC-01 DEC-02
---------- ---------- ---------- ---------- ---------- ----------
COOPER INDUSTRIES LTD $ 100 $ 100 $ 87 $ 103 $ 81 $ 88
S&P 500(R) $ 100 $ 129 $ 156 $ 141 $ 125 $ 97
OLD CUSTOM COMPOSITE INDEX $ 100 $ 104 $ 97 $ 127 $ 106 $ 100
(6 STOCKS)
NEW CUSTOM COMPOSITE $ 100 $ 108 $ 101 $ 134 $ 112 $ 107
INDEX (6 STOCKS)
</Table>
15
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, 2002, 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, 1997
WITH DIVIDENDS REINVESTED
(CHART)
<Table>
<Caption>
DEC-97 DEC-98 DEC-99 DEC-00 DEC-01 DEC-02
---------- ---------- ---------- ---------- ---------- ----------
COOPER INDUSTRIES LTD $ 100 $ 100 $ 87 $ 103 $ 81 $ 88
OLD NON-WEIGHTED CUSTOM $ 100 $ 94 $ 84 $ 82 $ 77 $ 75
COMPOSITE INDEX (6 STOCKS)
NEW NON-WEIGHTED CUSTOM $ 100 $ 101 $ 93 $ 99 $ 111 $ 110
COMPOSITE INDEX (6 STOCKS)
</Table>
***PEER GROUP NOT WEIGHTED BY MARKET CAP
16
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 conducts a complete review of management performance,
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:
o At the beginning of each performance period, the Committee
establishes specific objectives to be used as the basis for
evaluating the executive's performance.
o During the performance period, the Committee holds periodic
discussions on the status of performance objectives.
o 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.
o The Committee determines increases in base salary and annual
cash incentive awards based on actual accomplishments during
the performance period.
o 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. From time to time, the
Committee also seeks independent advice on executive compensation from other
executive compensation consultants regarding the design, administration and
competitiveness of Cooper's programs. Most recently, in 2001 and 2002, the
Committee consulted with The Hay Group for this purpose.
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 2002, the Hay Survey of Compensation Practices included 286
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 using a smaller
17
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 343 companies
compiled by Hewitt Associates. During 2002, 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 Class A common shares or a combination of
cash and shares. 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 2002, 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 actual results
compared to budgeted performance for 2002 on two financial measures: (1)
earnings per share; and (2) free cash flow. 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 2003, the Committee determined results under the MAIP for
2002 and awarded bonuses to the Named Executives and other executive officers at
an average of 55.5% of bonus opportunity. The Committee credited management with
achieving solid earnings performance despite a challenging economic environment
through a combination of strategic initiatives and stringent cost controls. The
Committee also recognized the Company's record cash flow performance
accomplished through operating efficiencies, inventory reductions and improved
management of working capital and receivables. The bonus amounts for each of the
Named Executives are shown in column (d) of the Summary Compensation Table.
LONG-TERM EQUITY BASED COMPENSATION
Stock Incentive Compensation
The Committee provides stock 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. Annually, the
Committee determines the number of options and/or 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 1999, the Committee granted performance-based share awards
under the Stock Plan to the Named Executives and other key executives for a
four-year performance period beginning on January 1, 1999 and ending on December
31, 2002. 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
18
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.
In February 2003, the Committee determined that the cumulative increase
in Cooper's operating earnings per share during the four-year performance period
ending December 31, 2002 was below the level for any shares to be awarded. As a
result, based on the performance criteria established in 1999, 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, 2002.
In February 2002, the Committee granted stock options to the Named
Executives under the Stock Plan. The Committee also granted stock options to
other executives and middle and upper level management 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 February
2002 have an exercise price equal to the fair market value on the date of grant,
which was $35.21 per share. In February 2002, the Committee elected not to award
performance-based share awards to the Named Executives or to any other executive
officers or management employees.
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. In
February 2002, the Committee awarded restricted stock grants to certain of the
Named Executives, including the Chief Executive Officer, in order to provide
financial incentives to remain in the employ of Cooper for a period of 3 to 5
years to ensure management continuity. The Committee believes that management
continuity is vital to the Company's long-term success, particularly in view of
the significant issues confronting Cooper from the uncertain economic
environment and the Federal-Mogul bankruptcy issue. The restricted awards to
certain of the Named Executives and other key executives will be forfeited in
the event the executive terminates employment before restrictions lapse.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Riley did not receive a salary increase in 2002. His most recent
salary increase occurred in February 2001.
In February 2003, under the MAIP, the Committee awarded Mr. Riley a
cash bonus of $943,500 after reviewing Cooper's performance and the performance
goals established under the MAIP for 2002. Specific accomplishments during 2002
included solid financial results in a challenging economic environment, record
cash flows from operational enhancements, inventory reductions and improved
management of working capital and receivables. The Committee also recognized Mr.
Riley's leadership in dealing with issues related to the Federal-Mogul
bankruptcy as well as steps taken to position the Company for future growth
through initiatives such as the Cooper Connection distribution relationship
program.
Also in February 2003, the Committee determined that Mr. Riley earned
no performance shares from the performance-based stock award granted in 1999
under the Stock Plan.
In 2002, the Committee granted 414,000 stock options and 80,000
restricted stock units to Mr. Riley under the Stock Plan. The options are shown
on the table "Option Grants in Last Fiscal Year" on page 13 and the restricted
stock units are shown on the Summary Compensation Table on page 12. The
Committee determined the number of option shares and restricted stock units
awarded to Mr. Riley using the same criteria as for other executive officers and
with the advice of Frederic W. Cook & Co., a compensation consulting firm. The
Committee believes that the stock options granted to Mr. Riley are competitive
with awards provided to chief executive officers of other industrial companies
in the Hay Survey of Compensation Practices and other compensation studies used
by the Committee to establish compensation policies. Through the stock options
and restricted stock 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 December 31, 2000.
19
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:
o Chief Executive Officer -- 4.5 times base salary
o Other Senior Officers, including those other officers named in
the Summary Compensation Table - 3 times base salary
o Other officers and division presidents - 1.5 times base salary
At its February 2003 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 2002 was 2.25% and will be 1.5% for 2003. 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
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.
20
PENSION BENEFITS
<Table>
<Caption>
Credited Year Annual
Service as of Individual Estimated
January 1, Reaches Age Benefit at Age
2003 65 65
------------ ------------ ------------
Riley, Jr., H. J ........ 40.2 2005 $ 841,000
Jackson, Jr., R. E ...... 27.0 2006 148,000
Hachigian, K.S .......... 1.8 2024 145,000
McWilliams, D. B.(1) .... 31.1 2006 111,000
Schumacher, D. K ........ 22.9 2018 134,000
</Table>
- ----------
(1) Mr. McWilliams announced his retirement from the Company effective
April 1, 2003. The annual estimated benefit for Mr. McWilliams is based
on his age of 61 years as of his retirement date.
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 2002 levels; and an interest credit rate of 1.5%.
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 his or her 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, restricted stock
units 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. Restricted stock units vest pursuant to schedules
approved by the Committee.
21
Upon vesting, the restrictions on the stock units lapse and the holder is issued
one unrestricted Class A common share per restricted stock unit. Dividend
equivalents relating to cash dividends paid by Cooper are paid in cash on
restricted stock units prior to vesting. 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, 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 Class A common shares (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, all restrictions will lapse on any outstanding restricted
stock units, and the Named Executives shall receive such form of consideration
as they would have received had they been the owner of record of the performance
shares and the shares representing restricted stock units at the time of the
change of control plus a cash payment for accrued dividends on the 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. The Board has established a stock ownership guideline of
three times the annual retainer for each director.
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
Cooper Class A common shares instead of cash, under the Directors' Retainer Fee
Stock Plan, which was approved by shareholders in April 1998. 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 Cooper 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
Cooper Class A common shares 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 Class A common shares 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, 2002, options for 58,000 shares were outstanding under the
Directors' Stock Plan.
22
AUDIT COMMITTEE REPORT
The Audit Committee is composed of seven independent directors and acts
under a written charter adopted by the Board of Directors, which is attached to
this proxy statement as Appendix A. 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 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, 2002, 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, 2002, for filing with
the Securities and Exchange Commission.
James R. Wilson, Chairman H. Lee Scott
Stephen G. Butler Dan F. Smith
Linda A. Hill Gerald B. Smith
Sir Ralph H. Robins
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Audit Committee selects, subject to shareholder approval, our
independent auditors for each year. During the year ended December 31, 2002,
Ernst & Young LLP was employed principally to perform the annual audit and to
render other services. Fees paid to Ernst & Young LLP for each of the last two
fiscal years are listed in the following table.
<Table>
<Caption>
Year Ended December 31, Audit Fees Audit-Related Fees Tax Fees All Other Fees
----------------------- ----------- ------------------ ----------- --------------
2002 $ 2,117,612 $260,993 $ 748,976 $ 151,319
2001 1,992,762 246,581 1,246,256 204,839
</Table>
Audit fees include fees for the audit and quarterly reviews of the
consolidated financial statements, statutory audits of subsidiaries required by
governmental or regulatory bodies, comfort letters, consents, assistance with
and review of documents filed with the SEC and accounting and financial
reporting consultations and research work necessary to comply with generally
accepted auditing standards. Audit-related fees principally include fees for
pension and benefit plan audits. Tax fees primarily include fees for tax
consultations and tax return preparation for international subsidiaries, and tax
planning and advice relating to tax audits, appeals, internal reorganizations
and international operations. All other fees include fees for international
corporate administrative services and the strategic alternatives review process.
The Audit Committee has considered the compatibility of nonaudit services with
the auditors' independence.
The Audit Committee has adopted procedures for pre-approving all audit
and non-audit services provided by independent auditors. These procedures
include reviewing a budget for audit and permitted non-audit services. The
budget includes a description of, and a budgeted amount for, particular
categories of non-audit services that are anticipated at the time the budget is
submitted. Audit Committee approval is required to exceed the budget amount
23
for a particular category of non-audit services and to engage the independent
auditor for any non-audit services not included in the budget. The Committee may
delegate pre-approval authority to one or more members of the Committee. The
Audit Committee periodically monitors the services rendered and actual fees paid
to the independent auditors to ensure that such services are within the
parameters approved by the Committee.
Representatives of Ernst & Young LLP 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, 2002.
Representatives of Ernst & Young LLP 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, 2002 as filed with the Securities and Exchange Commission is
included in the Annual Report sent to you with this proxy statement. It is also
available at the "Investor Center" tab on our website (www.cooperindustries.com)
or may be obtained upon request and without charge, by writing to:
Public Affairs Department
Cooper Industries, Ltd.
P.O. Box 4446
Houston, Texas 77210
PROPOSAL 2
APPOINTMENT OF INDEPENDENT AUDITORS
Under Section 89 of the Companies Act, 1981 of Bermuda, our
shareholders have the authority to appoint our independent auditors and to
authorize our Audit Committee to determine the auditors' remuneration. The Audit
Committee has tentatively selected Ernst & Young LLP as independent auditors to
audit our consolidated financial statements for the fiscal year ending December
31, 2003. The Board of Directors is asking shareholders to approve such
appointment and authorize our Audit Committee to determine the auditors'
remuneration.
Ernst & Young LLP acted as independent auditors for the 2002 fiscal
year. Information pertaining to the services rendered by Ernst & Young LLP is
included under the caption "Relationship with Independent Auditors."
For these reasons, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE OF FOR
PROPOSAL 2.
PROPOSAL 3
SHAREHOLDER PROPOSAL FOR A SUSTAINABILITY REPORT
Nine 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
Cooper Class A common shares; the Loretto Literary and Benevolent Institution
(also known as the Sisters of Loretto), 527 Larkhill Court, St. Louis, Missouri
63119-4943, owner of 391 Cooper Class A common shares; Domini Social Investments
LLC, 536 Broadway, 7th Floor, New York, New York 10012-3915, owner of 24,300
Cooper Class A common shares; the Sisters of Charity of Saint Elizabeth, P.O.
Box 476, Convent Station, New Jersey 07961-0476, owner of 100 Cooper Class A
common shares; the Congregation of Holy Cross, Southern Province, 2111
Brackenridge Street, Austin, Texas 78704-4322, owner of 75 Cooper Class A common
shares; St. Joseph Health System, P.O. Box 14132, Orange, California 92863-1532,
owner of 100 Cooper Class A common shares; the Dominican Sisters of Springfield,
Illinois, 1237 West Monroe, Springfield, Illinois 62704, owner of 75 Cooper
Class A common shares; the Congregation of the Sisters of Charity of the
Incarnate Word, P.O. Box 230969, Houston, Texas 77223-0969, owner of at least
$2,000 worth of Cooper Class A common shares; and Carla Kleefeld, 71 Atlantic
Avenue, Boston, Massachusetts 02111-2908, owner of 250 Class A common shares.
24
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, 1987)
We believe the ability of corporations to continue to provide
goods/services in our 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.
According to the 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)
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.
The Social Investment Forum, the national trade association for the
socially responsible investing (SRI) industry wrote in a letter to the New York
Stock Exchange, "Investors in the U.S. currently face a significant disadvantage
by their companies not adequately disclosing material social and environmental
risks. We support principles that would encourage companies to better disclose,
in an aggregate manner, material risks, liabilities, and impairments." (8/6/02)
We believe corporate sustainability includes a commitment to pay a
sustainable living wage to employees. Workers need to have the purchasing power
to meet their basic needs. A 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 sustainability report. A summary of the report should be
provided to shareholders by October 2003.
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.
25
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 3.
We believe that our current policies and practices address the concerns
of the shareholder proposal concerning sustainability. Simply put, we believe
sustainability is good corporate citizenship. Our Code of Ethics and Business
Conduct underlies our core values and specifically states that:
Cooper is committed to the highest level of integrity in its dealings
with people and organizations and will conduct its business within both
the letter and spirit of the law... Cooper is committed to maintaining
employment practices that provide equal opportunity for all qualified
employees. Cooper is committed to providing a safe and healthy work
environment and an atmosphere of open communications for all employees. To
attract and retain quality employees, Cooper expects to pay wages and
benefits that are competitive in the community... and within the industry.
Cooper will conduct its operations in a manner that safeguards the
environment... 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.
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 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 3.
PROPOSAL 4
SHAREHOLDER PROPOSAL FOR CHANGE OF INCORPORATION JURISDICTION
The Amalgamated Bank LongView Collective Investment Fund, 15 Union
Square, New York, New York 10003-3378, owner of 30,793 Cooper Class A common
shares, has informed us that it intends to present the following proposal at the
meeting.
RESOLVED: The shareholders of Cooper Industries, Ltd. ("Cooper" or the
"Company") hereby request the Board of Directors to take all necessary measures
to change the Company's jurisdiction of incorporation from Bermuda to a state in
the United States.
SUPPORTING STATEMENT
In May 2002 the Company reincorporated itself from Ohio to Bermuda in
order to obtain more favorable tax treatment and more flexibility in conducting
its business. We urge the Board should reconsider this decision because we
believe that the disadvantages of Bermuda incorporation outweigh any potential
tax savings or operational flexibility.
26
Since the time that Cooper shareholders were asked to approve the
Bermuda incorporation, significant political attention has focused on U.S.
corporations seeking to reincorporate in offshore tax havens such as Bermuda.
Individual Members of Congress have called reincorporation in Bermuda
"unpatriotic" at a time when domestic companies and workers are being asked to
finance the war against terrorism with their tax dollars. In 2002 Congress
seriously considered, but did not enact, legislation to deny government
contracts to companies incorporated in offshore tax havens. This legislation,
had it passed, could have affected Cooper Industries, which in 2001 had more
than $6 million worth of government contracts.
In June 2002 the Senate Finance Committee passed a bill to treat
reincorporating companies as U.S. firms for tax purposes, thus negating the
perceived tax benefits, and a similar House bill has over 140 co-sponsors. We
anticipate that the issue will re-emerge in 2003.
Reincorporation is troubling as well to some institutional investors.
The State Treasurer of California has proposed that California public pension
funds should not invest in companies incorporated in offshore tax havens, such
as Bermuda. Press reports indicate that other state treasurers may follow his
lead.
These developments are in addition to the risks that we perceive for
shareholders under a Bermuda reincorporation. Bermuda law differs from U.S.
corporate law in that Bermuda does not generally allow shareholders to sue
officers and directors on behalf of the corporation in "derivative suits" for
breach of fiduciary duty, corporate waste, and actions in violation of
applicable law, among other things. We view this omission as significant because
we regard shareholder derivative suits as a critical mechanism for remedying
breaches of fiduciary duty and of promoting management accountability to
shareholders. Moreover, a company's jurisdiction of incorporation may affect the
enforceability of certain judgments and liabilities. With Cooper reincorporated
in Bermuda, it may be difficult for shareholders who file suit in the United
States to effect service of process and to enforce judgments obtained in such
litigation in Bermuda.
For these reasons, we believe that Cooper Industries should repatriate
itself by reincorporating in the United States.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
At our May 14, 2002 Special Meeting of Shareholders over 90% of the
votes cast were cast in favor of changing Cooper's place of incorporation from
Ohio to Bermuda. This vote is a clear indication that our shareholders
recognized that incorporation in Bermuda offers Cooper strategic advantages that
we did not have under our previous structure. Simply stated, reincorporating in
Bermuda strengthened our position vis-a-vis competitors in the global
marketplace. Currently many of our foreign-based competitors are significantly
advantaged by current U.S. tax law, which ultimately puts at risk domestic
industry ownership, many U.S. jobs, valuable U.S. based research and development
and many parts of the U.S. service industry because foreign-owned companies are
more likely to look for these services in their home country. This is not an
insignificant concern. The Congressional Quarterly reported that, from 1998
through 2000, 80% of all acquisition transactions valued at $300 million or more
involved foreign companies buying U.S. firms.
The proponent refers to possible action by the U.S. Congress with
respect to foreign reincorporation by U.S. companies as a reason to make a
change now. We applaud those lawmakers who are making an effort to revise our
business tax structure to protect American industrial competitiveness. However,
we believe we should wait for Congress to determine the course of action it
wishes to take regarding this matter. We believe that Congress' lack of
immediate action in this respect reflects the complexity of the issues involved
and the validity of the concerns we share with many other companies and
shareholders regarding the competitive disadvantages that U.S. companies endure
under the current U.S. tax system. If legislation is enacted, the Board will
review the legislation and take action if appropriate.
The proponent also cites the perceived differences in the U.S. and
Bermuda corporate law as support for its proposal. We believe the proponent's
description of Bermuda law is overly simplistic and leaves out the various
circumstances in which shareholders may bring suit against a Bermuda company or
its directors. Shareholders may bring suit against a Bermuda company or its
directors if the right alleged to have been infringed is a personal right vested
in shareholders. For example, our outside counsel has advised us that in certain
circumstances where directors assume fiduciary duties to shareholders, such as
in the context of a takeover transaction, shareholders may bring suit against
directors for breach of their fiduciary duties. Shareholders may also bring suit
against a Bermuda company or its directors where action is taken that is beyond
the scope of a company's powers or outside the authority of the Board
27
of Directors. Also, shareholders may bring suit in respect of illegal acts, such
as acts which constitute a violation of applicable company law or an abuse of
the directors' powers. Finally, shareholders may bring suit for conduct which
constitutes a "fraud on the minority" under Bermuda law. "Fraud on the minority"
can be any act which amounts to an unconscionable use of majority power
resulting or likely to result in either financial loss or unfair discriminatory
treatment of the minority. This is easier to establish than U.S. common law
fraud.
The proponent's statements about enforceability of judgments do not, in
our view, present an entirely correct picture either. First, Cooper Industries,
Ltd. is subject to U.S. securities laws and has consented to receive service of
process with respect to actions based on offers and sales of securities made in
the United States and other violations of the U.S. securities laws at its
principal office in Houston, Texas. Also, Cooper has significant assets in the
United States. Therefore, shareholders with claims based on violations of U.S.
securities laws may seek recourse through the U.S. court system and should be
able to enforce a judgment obtained without pursuing any action in the Bermuda
court system. Second, with respect to claims that are not based on violations of
U.S. securities laws, our outside counsel has advised us that a final and
conclusive judgment for compensatory money damages obtained in a U.S. court
should be enforced by the Supreme Court of Bermuda, as long as (1) the U.S.
court that gave the judgment was competent to hear the action in accordance with
private international law principles as applied by the courts in Bermuda, and
(2) the judgment is not contrary to natural justice of Bermuda and is not based
on an error in Bermuda law. We do not believe these issues significantly
compromise the rights of shareholders.
For these reasons, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
28
APPENDIX A
COOPER INDUSTRIES, LTD.
AUDIT COMMITTEE CHARTER
Purpose and Processes
The primary purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors (the "Board") in fulfilling its oversight responsibilities
relating to:
o the integrity of the Company's financial statements;
o the financial reporting process;
o the systems of internal accounting and financial controls;
o the performance of the Company's internal audit function and
independent auditors;
o the independent auditors' procedures concerning qualifications
and independence; and
o the Company's compliance with legal and regulatory
requirements and ethics programs as established by management.
The Committee shall also prepare the report required by the SEC to be included
in the Company's annual proxy statement.
The independent auditors shall report directly to the Committee. The
Committee shall regularly report to the Board on the results of its activities
and submit to the Board any recommendations the Committee may have from time to
time. The Company's internal audit staff has a dual reporting relationship,
directly to the Committee and to the Senior Vice President, General Counsel and
Chief Compliance Officer of the Company.
The Committee may, from time to time, adopt rules and make provisions
as deemed appropriate for the conduct of meetings, considering, acting upon and
recording matters within its authority and making such reports to the Board as
it may deem appropriate. In discharging its oversight role, the Committee is
empowered to investigate any matter within the scope of its authority and may
engage independent legal, accounting or other advisors to assist in its
investigations as it deems necessary. The Company shall provide for appropriate
funding, as determined by the Committee, for payment of compensation to any
advisors employed by the Committee to assist in such investigations.
Membership
Committee members shall be appointed by the Board on recommendation of
the Committee on Nominations and Corporate Governance. The Committee shall be
comprised of not less than three directors. Each member shall be a director who
is independent of management and the Company. Members shall be considered
independent as long as they do not accept any consulting, advisory, or other
compensatory fee from the Company (other than director's compensation), are not
an affiliated person of the Company or its subsidiaries, and meet the
independence requirements of the applicable stock exchange listing standards.
All members shall have a basic understanding of finance and accounting and be
able to read and understand fundamental financial statements. In addition, at
least one member of the Committee shall be an "audit committee financial
expert," as defined by regulations of the Securities and Exchange Commission
("SEC").
Key Responsibilities
The Committee's job is one of oversight, and it recognizes that the
Company's management is responsible for preparing the Company's financial
statements and that the independent auditors are responsible for auditing the
Company's annual financial statements and for reviewing the Company's unaudited
interim financial statements. Additionally, the Committee recognizes that the
Company's financial management (including the internal audit staff), as well as
the independent auditors, have more time, knowledge and more detailed
information on the Company than do Committee members; consequently, in carrying
out its oversight responsibilities, the Committee is not providing any expert or
special assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work.
A-1
The Board has delegated to the Committee the following duties and
responsibilities:
o Appoint and terminate the Company's independent auditors
(subject, if applicable, to shareholder ratification or
approval).
o Review and pre-approve all audit and permitted non-audit
services provided by the independent auditors. The Committee
may delegate pre-approval authority to one or more members of
the Committee. The decisions of any Committee member(s) to
whom pre-approval authority is delegated must be presented to
the full Committee at its next scheduled meeting.
o Review with the independent auditors the planned scope and
results of their audit.
o Discuss with management and the independent auditors the
annual financial statements and quarterly financial
statements, including the disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"; consider any matters required to be communicated
to the Committee by the independent auditors under generally
accepted auditing standards; review with the independent
auditors any audit problems or difficulties and management's
response; and resolve any disagreements between management and
the auditor regarding financial reporting.
o Receive reports from the independent auditors on the critical
accounting policies and practices of the Company and the
alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management.
o Meet periodically with management, the internal auditors, and
the independent auditors in separate executive sessions to
discuss issues and concerns warranting Committee attention.
o At least annually, obtain and review a report by the
independent auditors describing:
(a) The audit firm's internal quality control procedures;
(b) Any material issues raised by the most recent
internal quality control review, or peer review, of
the firm, 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 firm, and any
steps taken to deal with any such issues; and
(c) All relationships between the independent auditors
and the Company (to assess the auditors'
independence).
o Review the scope and results of the Company's internal audit
program.
o Discuss policies with respect to risk assessment and risk
management, including a review of matters involving major
financial risk exposures to the Company and actions management
has taken to monitor and control such exposures.
o Review the Company's Code of Ethics and Business Conduct and
the procedures for monitoring compliance including procedures
for the receipt, retention, and treatment of complaints
received by the Company regarding accounting, internal
accounting controls, or auditing matters, and the
confidential, anonymous submission by Company employees of
concerns regarding questionable accounting or auditing
matters. At least annually, review compliance with applicable
laws, regulations and the Code of Ethics and Business Conduct,
including a review of any reports by attorneys representing
the Company of any material violation of laws or breach of
fiduciary duties.
o Review filings made with the SEC as required.
o Review and discuss earnings press releases, as well as
financial information and earnings guidance provided to
analysts and rating agencies.
A-2
o Set clear hiring policies for employees or former employees of
the independent auditors that meet the SEC regulations and
applicable stock exchange listing standards.
o Review and reassess the adequacy of its charter on an annual
basis.
o Conduct an annual performance evaluation of the Committee.
A-3
COOPER INDUSTRIES, LTD.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS [Cooper Logo]
APRIL 29, 2003
P SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R The undersigned shareholder of Cooper Industries, Ltd. ("Cooper") appoints
Diane K. Schumacher and Terrance V. Helz, or either of them, proxies, with
O 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
X Shareholders of Cooper on Tuesday, April 29, 2003, at 11:00 a.m. (Central
Time) in the J.P. Morgan Chase Center Auditorium, 601 Travis Street,
Y 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
(I.J. EVANS, C.J. GRUM, R.E. JACKSON, JR., J.R. WILSON), FOR PROPOSAL 2,
AGAINST PROPOSALS 3 AND 4, 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)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
HOW TO RECEIVE YOUR ANNUAL REPORT AND
PROXY STATEMENT ON-LINE
You may receive future Cooper Industries, Ltd. 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 2003
Annual Report and the Proxy Statement for the 2004 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, Ltd. 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 A VOTE FOR PROPOSALS 1 AND 2 THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST PROPOSALS 3 AND 4.
- --------------------------------------------------------------------------- --------------------------------------------------
1. Election of For Withheld 2. Appoint Ernst For Withheld Abstain 3. Shareholder proposal For Withheld Abstain
Directors. & Young as relating to social
01 I.J. Evans independent and environmental
02 C.J. Grum [ ] [ ] auditors [ ] [ ] [ ] issues related to [ ] [ ] [ ]
03 R.E. Jackson, Jr. for the sustainability.
04 J.R. Wilson year ending
12/31/2003 4. Shareholder proposal
to change [ ] [ ] [ ]
To withhold your vote for any Cooper's jurisdiction
nominee(s), write the name(s) here: of incorporation.
- -----------------------------
- ------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE (over)
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 28, 2003.
Telephone and Internet proxy voting is permitted under the laws of the
jurisdiction 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 followthe 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.