UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.      )

Filed by the Registrant þ

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

Cooper Tire & Rubber Company

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COOPER TIRE & RUBBER COMPANY

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

TO THE STOCKHOLDERS:

 

The 2010 Annual Meeting of Stockholders of Cooper Tire & Rubber Company (the “Company”) will be held at The Westin Detroit Metropolitan Airport, Lindbergh Ballroom, McNamara Terminal, 2501 Worldgateway Place, Detroit, Michigan 48242 on Tuesday, May 4, 2010, at 10:00 a.m., Eastern Daylight Time, for the following purposes:

 

 

Only holders of Common Stock of record at the close of business on March 11, 2010, are entitled to notice of and to vote at the Annual Meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS

James E. Kline,

Vice President,

General Counsel, and Secretary

 

Findlay, Ohio

March 25, 2010

 

Please mark, date, and sign the enclosed proxy and return it promptly in the enclosed addressed envelope, which requires no postage. In the alternative, you may vote by Internet or telephone. See page 2 of the proxy statement for additional information on voting by Internet or telephone. If you are present and vote in person at the Annual Meeting, the enclosed proxy card will not be used.

 

TABLE OF CONTENTS

 

 

COOPER TIRE & RUBBER COMPANY

 

701 Lima Avenue, Findlay, Ohio 45840
March 25, 2010

 

 

PROXY STATEMENT

 

 

GENERAL INFORMATION AND VOTING

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Cooper Tire & Rubber Company (the “Company”, “Cooper Tire”, “our”, “we”, or “us”) to be used at the Annual Meeting of Stockholders of the Company to be held on May 4, 2010, at 10:00 a.m., Eastern Daylight Time, at The Westin Detroit Metropolitan Airport, Lindbergh Ballroom, McNamara Terminal, 2501 Worldgateway Place, Detroit, Michigan 48242. This proxy statement and the related form of proxy were first mailed or made available to stockholders on or about March 25, 2010.

 

Purpose of Annual Meeting

 

The purpose of the Annual Meeting is for stockholders to act on the matters outlined in the notice of Annual Meeting on the cover page of this proxy statement. These matters consist of (1) the election of three Directors, (2) the ratification of the selection of the Company’s independent registered public accounting firm for the year ending December 31, 2010, (3) the consideration of a proposal to declassify the Board of Directors, (4) the approval of the Cooper Tire & Rubber Company 2010 Incentive Compensation Plan, and (5) the transaction of such other business as may properly come before the Annual Meeting or any postponement(s) or adjournment(s) thereof.

 

Voting

 

Only stockholders who owned shares of Common Stock at the close of business on March 11, 2010, (the “record date”) will be eligible to vote at the Annual Meeting. As of the record date, there were 61,146,610 shares of Common Stock outstanding. Each stockholder will be entitled to one vote for each share owned.

 

The holders of a majority of the shares of Common Stock issued and outstanding, and present in person or represented by proxy, constitute a quorum. Abstentions and “broker non-votes” with respect to a proposal will be counted to determine whether a quorum is present at the Annual Meeting. “Broker non-votes” occur when certain nominees holding shares for beneficial owners do not vote those shares on a particular proposal because the nominees do not have discretionary authority to do so and have not received voting instructions with respect to the proposal from the beneficial owners.

 

Agenda Item 1.  Except in the case of a contested election, each nominee for election as a Director who receives a majority of the votes cast with respect to such Director’s election by stockholders will be elected as a Director. In the case of a contested election, the nominees for election as Directors who receive the greatest number of votes will be elected as Directors. Abstentions and “broker non-votes” are not counted for purposes of the election of Directors.

 

Agenda Item 2.  Although the Company’s independent registered public accounting firm may be selected by the Audit Committee of the Board of Directors without stockholder approval, the Audit Committee will consider the affirmative vote of a majority of the shares of Common Stock having voting power present in person or represented by proxy at the Annual Meeting to be a ratification by the stockholders of the selection of

Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2010. As a result, abstentions will have the same effect as a vote cast against the proposal, but “broker non-votes” will have no effect on the outcome of this proposal.

 

Agenda Item 3.  The proposal to declassify the Board of Directors requires the affirmative vote of 80% of the Common Stock issued and outstanding. As a result, “broker non-votes” and abstentions will have the same effect as a vote cast against the proposal.

 

Agenda Item 4.  The proposal to approve the Cooper Tire & Rubber Company 2010 Incentive Compensation Plan requires the affirmative vote of a majority of shares of Common Stock having voting power present in person or represented by proxy at the Annual Meeting. As a result, abstentions will have the same effect as a vote cast against the proposal, but “broker non-votes” will have no effect on the outcome of this proposal.

 

Proxy Matters

 

Stockholders may vote by completing, properly signing, and returning the accompanying proxy card, or by attending and voting at the Annual Meeting. If you properly complete and return your proxy card in time to vote, your proxy (one of the individuals named in the proxy card) will vote your shares as you have directed. If you sign and return the proxy card but do not indicate specific choices as to your vote, your proxy will vote your shares (i) to elect the nominees listed under “Nominees for Director”, (ii) for the ratification of the selection of the Company’s independent registered public accounting firm, (iii) for the proposal to declassify the Board of Directors, and (iv) for approval of the 2010 Incentive Compensation Plan.

 

Stockholders of record and participants in certain defined contribution plans sponsored by the Company (see below) may also vote by using a touch-tone telephone to call 1-800-690-6903, or by the Internet by accessing the following website: http://www.proxyvote.com.

 

Voting instructions, including your stockholder account number and personal proxy control number, are contained on the accompanying proxy card. You will also use this accompanying proxy card if you are a participant in the following defined contribution plans sponsored by the Company:

 

 

Those stockholders of record who choose to vote by telephone or Internet must do so no later than 11:59 p.m., Eastern Daylight Time, on May 3, 2010. All voting instructions from participants in the defined contribution plans sponsored by the Company and listed above must be received no later than 5:00 p.m., Eastern Daylight Time, on April 30, 2010.

 

A stockholder may revoke a proxy by filing a notice of revocation with the Secretary of the Company, or by submitting a properly executed proxy card bearing a later date. A stockholder may also revoke a previously executed proxy (including one submitted by Internet or telephone) by attending and voting at the Annual Meeting, after requesting that the earlier proxy be revoked. Attendance at the Annual Meeting, without further action on the part of the stockholder, will not operate to revoke a previously granted proxy card. If the shares are held in the name of a bank, broker or other holder of record, the stockholder must obtain a proxy executed in his or her favor from the holder of record to be able to vote at the Annual Meeting.

 

The Bylaws of the Company provide for the Board of Directors to be divided into three classes. Three Directors are to be elected to the class having a term expiring in 2013. If elected, each Director will serve for a three-year term expiring in 2013 and until his or her successor is elected and qualified. Each of the nominees is a Director standing for re-election and has consented to stand for election to a term as described above. In the event that any of the nominees becomes unavailable to serve as a Director before the Annual Meeting, the Board of Directors will designate a new nominee, and the persons named as proxies will vote for that substitute nominee.

 

The Board of Directors recommends that stockholders vote FOR the three nominees for Director.

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NOMINEES FOR DIRECTOR (CONT.)

 

 

 

 

 

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DIRECTORS WHO ARE NOT NOMINEES (CONT.)

 

 

 

 

 

 

 

DIRECTORS WHO ARE NOT NOMINEES (CONT.)

 

 

 

 

 

 

 

Note:  The beneficial ownership of the Directors and nominees in the Common Stock of the Company is shown in the table at page 67 of this proxy statement.

 

Ernst & Young LLP served as the independent registered public accounting firm of the Company in 2009 and has been retained by the Audit Committee to do so in 2010. In connection with the audit of the 2009 financial statements, the Company entered into an engagement letter with Ernst & Young LLP that sets forth the terms by which Ernst & Young LLP will perform audit services for the Company. That agreement is subject to alternative dispute resolution procedures. The Board of Directors has directed that management submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Annual Meeting.

 

Stockholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm is not required by the Company’s Bylaws or otherwise. However, the Board of Directors is submitting the selection of Ernst & Young LLP to the stockholders for ratification. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain the firm. In such event, the Audit Committee may retain Ernst & Young LLP, notwithstanding the fact that the stockholders did not ratify the selection, or select another nationally recognized accounting firm without resubmitting the matter to the stockholders. Even if the selection is ratified, the Audit Committee reserves the right in its discretion to select a different nationally recognized accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

 

The Board of Directors recommends that stockholders vote FOR the ratification of the selection of the Company’s independent registered public accounting firm.

 

The stockholders are asked to consider and vote upon the following proposal:

 

That subject to stockholder approval, the Company’s Restated Certificate of Incorporation (the “Certificate”) be amended and restated to provide for the annual election of all Directors beginning at the 2011 Annual Meeting of Stockholders; provided, however, that prior to the 2011 Annual Meeting of Stockholders, any Director elected by the stockholders of the Company to a three-year term may complete the term to which he or she has been elected, and such other conforming and technical changes to the Certificate as may be necessary or appropriate.

 

General Description

 

Article NINTH of the Company’s Certificate currently provides that our Board be divided into three classes of approximately equal size, composed of directors each serving terms of office of three years. On February 25, 2010, the Board voted to approve, and to recommend to our stockholders that they approve, a proposal to amend and restate our Certificate to phase out the classification of the Board to provide instead for the annual election of all directors and to make certain conforming and technical changes to the Certificate as necessary or appropriate.

 

If this proposal is approved by our stockholders, those directors previously elected for three-year terms of office by our stockholders will complete their three-year terms, and would be eligible for re-election thereafter for one-year terms at each annual meeting of stockholders. This means that directors whose terms expire at the 2011 and 2012 annual meetings of stockholders would be elected for one-year terms, and beginning with the 2013 annual meeting, all directors would be elected for one-year terms at each annual meeting. In addition, in the case of any vacancy on the Board occurring after the 2010 annual meeting, including a vacancy created by an increase in the number of directors, the vacancy would be filled by interim election of the Board, with the new director to serve a term ending at the next annual meeting. At all times, directors are elected to serve for their respective terms and until their successors have been elected and qualified. This proposal would not change the present number of directors, and it would not change the Board’s authority to change that number and to fill any vacancies or newly created directorships.

 

Delaware law provides that members of a board that is classified may be removed only for cause by the holders of a majority of the shares then entitled to vote at an election of directors, unless the certificate of incorporation otherwise provides. At present, because our Board is classified, the Certificate provides that our directors are removable only for cause. If this proposal to declassify our Board is approved by the stockholders, Article NINTH of the Certificate would be amended to provide that each director elected by the stockholders on or after the annual meeting in 2011 may be removed with or without cause by the holders of a majority of the shares of the Company entitled to vote in the election of Directors.

 

The affirmative vote of at least 80% of the voting power of our outstanding common stock is necessary to amend the Certificate and approve this proposal. Unless such vote is received, the present classification of the Board will continue.

 

The proposed amendments to the Certificate as a result of this proposal are substantially in the form of Appendix A to this proxy statement, with additions indicated

by underlining and deletions indicated by strike-outs. The general description above is subject to the actual text reflected in Appendix A.

 

If approved, this proposal will become effective upon the filing of an amended and restated certificate of incorporation containing these amendments with the Secretary of State of Delaware, which the Company intends to do promptly after stockholder approval is obtained. If this proposal is approved by the Company’s stockholders, the Board will also make conforming and technical changes to the Company’s Bylaws as may be necessary or appropriate to phase out the classification of the Board.

 

In deciding to recommend declassification of the Board, the Board considered the arguments in favor of and against continuation of the classified Board, including the view of some stockholders who believe that classified boards have the effect of reducing the accountability of directors to stockholders because classified boards limit the ability of stockholders to evaluate and elect all directors on an annual basis. The Board has determined that providing for the annual election of directors in order to maintain and enhance the accountability of our Board to our stockholders outweighs the legitimate benefits of a classified board.

 

The Board of Directors recommends a vote FOR amending the Company’s Restated Certificate of Incorporation to provide for the annual election of Directors.

 

The Company desires to establish a new equity performance and incentive plan in order to advance the interests of the Company and its stockholders by attracting and retaining officers and employees and rewarding its officers and employees for contributing to the success of the Company and the creation of stockholder value. The Plan also advances the interests of the Company and its stockholders by attracting, retaining, and motivating high caliber individuals who are not currently employees of the Company to serve as members of the Board of Directors by providing them equity-based compensation. For this purpose, the stockholders are being asked to approve the Cooper Tire & Rubber Company 2010 Incentive Compensation Plan (the “Incentive Plan”), which will provide for the issuance of up to 4,968,798 shares of Common Stock under the Incentive Plan, subject to adjustment pursuant to the terms of the Incentive Plan. As part of this request, the Company proposes that 3,118,798 shares that the stockholders previously approved for issuance and that remain unissued under the 1998 Non-Employee Directors Compensation Deferral Plan, the 2002 Non-Employee Directors Stock Option Plan (together the “Directors Plans”), and the 2006 Incentive Compensation Plan be reauthorized for issuance and be included in the total number of shares authorized above for issuance under the Incentive Plan.

 

There are several features in the 2010 Incentive Compensation Plan that are different from the 2006 Incentive Compensation Plan:

 

 

On February 25, 2010, the Board adopted the Incentive Plan subject to stockholder approval of the Incentive Plan at the 2010 Annual Meeting. If the Incentive Plan is approved, no further awards will be made under the 2006 Incentive Compensation Plan and the Directors Plans. Also, as of February 25, 2010, approximately 40 executives were eligible to participate in the Incentive Plan.

 

As of March 1, 2010, there were total grants outstanding of 2,537,755 (outstanding stock options of 1,930,220 plus outstanding full-value awards of 607,535) under the Company’s prior incentive plans. The weighted average term of those outstanding stock options was 6.7 years and the weighted average exercise price was $11.00 per share.

 

As of March 11, 2010 (the record date), there were 61,146,610 shares of Common Stock outstanding.

 

In connection with the approval of the Incentive Plan, the stockholders are also being asked to approve the criteria for each of the Performance Goals listed under the Incentive Plan (“Performance Goals”), pursuant to which the Compensation Committee of the Board of Directors (the “Committee”) may make payments which meet the requirements for “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Approval of the Incentive Plan, including the Performance Goals, at the Annual Meeting requires the affirmative vote of a majority of the shares of Common Stock having voting power present in person or represented by proxy at the Annual Meeting.

 

The complete text of the Incentive Plan is attached to this proxy statement as Appendix B. The following is a summary of the key terms of the Incentive Plan, which is qualified in its entirety by reference to the text of the Incentive Plan.

 

The Board of Directors recommends that stockholders vote FOR the approval of the Cooper Tire & Rubber Company 2010 Incentive Compensation Plan.

 

General Terms.  Under the Incentive Plan, the Committee is authorized to make awards to eligible individuals in the form of (1) Common Stock (including Restricted Shares), (2) restricted stock units, (3) options to purchase shares of Common Stock, (4) stock appreciation rights; (5) performance units, (6) dividend equivalents, (7) performance awards, and (8) other awards. The Committee will oversee and administer the Incentive Plan and make awards and grants under it. The Committee may also in certain circumstances delegate authority to administer the Incentive Plan to officers and members of the Committee and Board of Directors. The Incentive Plan allows the Committee to grant annual and long-term performance cash and stock awards that meet the criteria for “qualified performance-based compensation” under Section 162(m) of the Code.

 

Shares Available Under the Plan.  The Company’s ability to issue shares of Common Stock under the Incentive Plan is subject to a number of limits set forth in the Incentive Plan. The number of shares of Common Stock that may be issued or transferred (1) as Common Stock (“Stock Awards”), (2) as restricted stock units (“RSUs”), (3) upon the exercise of options (“Stock Options”), (4) upon the exercise of stock appreciation rights (“Stock Appreciation Rights”), (5) in payment of performance awards (“Performance Awards”) or performance units (“Performance Units”) that have been earned, (6) in payment of dividend equivalents paid with respect to awards made under the Incentive Plan (“Dividend Equivalents”), or (7) as other awards (“Other Awards”), may not exceed a total of 4,968,798 shares authorized for issuance under the Incentive Plan, of which amount includes, as of March 1, 2010, 2,478,599 shares originally authorized for issuance and which remain unissued under the 2006 Incentive Compensation Plan, and, as of March 1, 2010, 640,199 shares originally authorized for issuance and which remain unissued under the Directors Plans (plus any Common Stock relating to awards that expire or are forfeited or cancelled under the Incentive Plan) (the “Plan Limit”), subject to adjustment pursuant to the terms of the Incentive Plan. In addition, the Company is requesting an additional reserve of 1,850,000 shares under the Incentive Plan.

 

The Incentive Plan adopts a “fungible share reserve approach” for purposes of counting full value share awards. Each share of Common Stock issued with respect to a Stock Option or Stock Appreciation Right will be counted against the Plan Limit as one (1) share, and each share of Common Stock issued with respect to any other type of award will be counted against the Plan Limit as one and fifty-five one-hundredths (1.55) shares. To satisfy the requirements of Section 162(m) of the Code, no eligible individual may receive under the Incentive Plan in any calendar year Stock Options covering more than 1,000,000 shares. Furthermore, no participant may be granted Performance Awards denominated in Common Stock for more than 1,000,000 shares of Common Stock during any calendar year; and no performance payment to a participant for any performance period of 12 months or less with respect to a Performance Award denominated in cash may exceed $4,000,000 ($10,000,000 for periods exceeding 12 months) as further described under “Performance Awards” below. The limits described above are subject to adjustment by the Committee in the event of a merger, consolidation, stock dividend, stock split, or other event affecting the Common Stock.

 

On March 1, 2010, the closing price of the Common Stock reported by the New York Stock Exchange was $17.83.

 

Eligibility.  Officers, employees, and Non-Employee Directors of the Company or any of its subsidiaries are eligible to receive awards under the Incentive Plan. In addition, any person who has agreed to begin serving as an officer or employee within 30 days of the date of grant is eligible to be selected by the Committee to receive benefits under the

Incentive Plan. It is contemplated that the Committee will also authorize the Chief Executive Officer to make awards of shares to employees in recognition of superior service and contribution to the success of the Company (“Recognition Awards”). The Committee will make and authorize grants to individuals on the basis of management objectives.

 

The Incentive Plan contemplates the following types of awards:

 

Stock Options.  Stock Options may be either non-qualified Stock Options or Incentive Stock Options within the meaning of Section 422 of the Code. Incentive Stock Options may only be granted to eligible individuals who meet the definition of “employee” under Section 3401(c) of the Code. Stock Options entitle the optionee to purchase shares of Common Stock at a predetermined price per share, which may not be less than the market value of a share at the date of grant. Except for adjustments made in connection with a corporate transaction such as a merger, consolidation, stock dividend or recapitalization, the Committee may not reduce the exercise price of an Option without stockholder approval. Each grant will specify whether the exercise price will be payable (1) in cash at the time of exercise, (2) by the transfer to the Company of shares of Common Stock owned by the optionee for at least six months and having a value at the time of exercise equal to the exercise price, (3) if authorized by the Committee, by the delivery of shares of Restricted Shares or other forfeitable shares, other vested Stock Options or Performance Units, or (4) by a combination of those payment methods. To the extent permitted by law, grants may provide for the deferred payment of the exercise price from the proceeds of sale through a broker on the date of exercise of some or all of the shares of Common Stock to which the exercise relates.

 

No Stock Options may be exercisable more than ten years from the date of grant.

 

Each grant must specify the period of continuous employment with the Company that is required before the Stock Options become exercisable. In addition, grants may provide for the earlier exercise of a Stock Option in the event of retirement, disability, death, or a change of control of the Company or other similar transactions or events. In order to comply with the provisions of the Code, the Incentive Plan does not allow for the grant of Incentive Stock Options to an individual in any calendar year for the purchase of Common Shares with a value in the aggregate of more than $100,000 at the date of grant.

 

Stock Awards.  Stock Awards (including without limitation Restricted Shares) generally consist of one or more shares of Common Stock granted to a participant for no consideration or sold to a participant for a stated amount and may be granted in lieu of other compensation or benefits payable to a participant in the settlement of a previously granted award. Stock Awards may be subject to restrictions on transfer and to vesting conditions, as the Committee may determine.

 

Stock Appreciation Rights.  Awards of Stock Appreciation Rights may be granted in tandem with or in connection to all or any part of a Stock Option, either concurrently with the grant of a Stock Option or at any time thereafter during the term of the Stock Option, or may be granted independently of Stock Options; provided, however, that in the case of Incentive Stock Options, Stock Appreciation Rights may be granted only at the time such Options are granted and may only be exercised when the value of the Common Shares subject to the Incentive Stock Option exceeds the Option Price of the Option. Stock Appreciation Rights granted in tandem with Stock Options will become unexercisable upon termination or exercise of the related Stock Options. A Stock Appreciation Right granted without a related Stock Option will be exercisable, in whole or in part, at such time as specified by the Committee. No Stock Appreciation Right may, however, be exercised after the tenth (10th) anniversary of the date of its grant.

The exercise price of a Stock Appreciation Right may not be less than 100% of the fair market value of the shares subject to the Right on the date of grant. The Committee may not reduce the exercise price of a Stock Appreciation Right after it has been granted without stockholder approval, except for adjustments made in connection with a corporate transaction such as a merger, consolidation, stock dividend or recapitalization. Each Stock Appreciation Right grant may, in the Committee’s discretion, provide for earlier exercise in the event of retirement, death, disability or a change of control of the Company or a similar transaction or event.

 

Upon exercise, the holder of the Stock Appreciation Right will receive from the Company an amount equal to the excess of the market value of the shares subject to the Stock Appreciation Right on the date of exercise over the exercise price. The Company’s payment obligation may be paid in shares, in cash, or any combination thereof, as the Committee may determine.

 

Restricted Shares and RSUs.  An award of Restricted Shares involves the immediate transfer of ownership of a specific number of shares of Common Stock by the Company to a participant in consideration of the performance of services or at a purchase price determined by the Committee. The participant is immediately entitled to voting, dividend, and other ownership rights in such shares.

 

Each RSU represents the right of a participant to receive the value of one share of Common Stock at a payment date specified in connection with the grant of the unit, subject to the terms and conditions established by the Committee. When these terms and conditions are satisfied, RSUs will be payable, at the discretion of the Committee, in cash, shares of Common Stock, or both.

 

Except for Recognition Awards and awards to Non-Employee Directors, Restricted Shares must be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Committee. An example would be a provision that the Restricted Shares would be forfeited if the participant ceased to serve as an officer or employee of the Company during a specified period of years. If service alone is the criterion for non-forfeiture, the period of service must be at least three years. However, if other Performance Goals are included, non-forfeiture may occur one year from the date of grant. In order to enforce these forfeiture provisions, the transferability of Restricted Shares will be prohibited or restricted in a manner and to the extent prescribed by the Committee for the period during which the forfeiture provisions are to continue. The Committee may also require the automatic deferral and reinvestment (in additional Restricted Shares) of any or all dividends or other distributions paid on the award during which forfeiture provisions are to continue. Additionally, the Committee may provide for a shorter period during which the forfeiture provisions are to apply in the event of retirement, disability, death, or a change of control of the Company or a similar transaction or event.

 

Performance Units.  Performance Units may be granted as fixed or variable shares, or dollar-denominated units, subject to such conditions of vesting and time of payment as the Committee may determine. Performance Units will be payable, at the discretion of the Committee, in cash, shares of Common Stock, other incentive awards granted under the Incentive Plan, other property, or any combination thereof. Awards of Performance Units may be subject to adjustment to reflect changes in a participant’s compensation or other factors. However, no adjustments will be made to a “covered employee” within the meaning of Section 162(m) of the Code if such action would result in a loss to the Company of an available exemption under such provision.

Dividend Equivalents.  Each Dividend Equivalent granted under the Incentive Plan generally entitles a participant to receive the value of any dividends paid in respect of a share of Common Stock. The Committee may also specify that the Dividend Equivalents be paid or distributed when they have accrued and may be paid in cash, additional shares of Common Stock, other incentive awards granted under the Incentive Plan, other property, or any combination thereof, deemed reinvested in additional shares of Common Stock, or other investment vehicles as the Committee may determine. These awards may be awarded on a free-standing basis or in connection with another award and may be subject to the same terms and conditions as the awards with which the Dividend Equivalents were granted. Alternatively, the Dividend Equivalents may be subject to different terms and conditions, as the Committee may specify. Dividend Equivalents may not, however, be granted with respect to Stock Options or Stock Appreciation Rights.

 

Other Awards.  The Incentive Plan also authorizes the Committee to fashion other types of equity and non-equity based awards and gives the Committee discretion to specify the terms and provisions of such Other Awards. Other Awards may be based upon Performance Goals, the value of a share of Common Stock, the value of other securities of the Company, such as preferred stock, debentures, convertible debt securities, warrants, or other criteria that the Committee specifies. Other Awards may also consist solely of cash bonuses or supplemental cash payments to a participant to permit the participant to pay some or all of the tax liability incurred in connection with the vesting, exercise, payment, or settlement of an incentive award granted under the Incentive Plan. The Committee may also grant Other Awards in the place of other compensation or benefits a participant would ordinarily be entitled to receive or in settlement of awards the Committee has previously granted to the participant under the Incentive Plan.

 

Performance Awards.  The Incentive Plan permits the Committee to establish one or more performance periods and to provide for performance payments to participants upon the achievement of the targets for one or more Performance Goals applicable to the performance period. Performance Awards may take the form of any Other Awards or an annual or long- term cash incentive bonus. A performance period may be for a duration of time designated by the Committee. The Incentive Plan also allows the Committee to establish concurrent or overlapping performance periods. This performance period may be subject to earlier termination in the event of retirement, disability, or death or a change of control of the Company or other similar transaction or event. Performance payments are intended to qualify as “qualified performance-based compensation” for purposes of Section 162(m) of the Code and to be fully deductible for federal income tax purposes by the Company. A minimum level of acceptable achievement may also be established by the Committee. If, by the end of the performance period, the participant has achieved the specified Performance Goals, the participant will be deemed to have fully earned the Performance Award.

 

The Performance Goals and targets established by the Committee for a given performance period shall be established prior to, or reasonably promptly following, the beginning of a performance period. To the extent required by Section 162(m) of the Code, the Performance Goals and targets shall be established no later than the earlier of the date that is ninety (90) days after the beginning of the performance period or the day prior to the date on which 25% of the performance period has elapsed. At the time that the Committee establishes the Performance Goals and targets for a specified performance period, the Committee shall also specify (1) the target payments that will be payable if the participant achieves the specified target, (2) the target payments that will be payable, if any, if the participant exceeds the specified target, and (3) the amount by which the target payments

will be reduced if the performance is less than the target established for a specified performance period.

 

To the extent earned, the Performance Awards will be paid to the participant at the time and in the manner determined by the Committee in cash, shares of Common Stock, Other Awards granted under the Incentive Plan, other property, or in any combination of those methods. The Committee may also permit a participant to defer receipt of a performance payment or may require the mandatory deferral of some or all of a performance payment if the Committee has established rules and procedures relating to such deferrals in a manner intended to comply with Section 409A of the Code. Following the completion of a performance period, the Incentive Plan requires the Committee to certify that the applicable performance targets have been achieved and to determine the amount of the performance payment to be made to a participant for the performance period.

 

Where a performance payment is made in the form of Common Stock that is subject to transfer or other restrictions, the Incentive Plan permits, but does not require, the Committee to apply a discount not in excess of 25% to the fair market value of a share of Common Stock to determine the number of shares of Common Stock that will be delivered to the participant as part of the performance payment.

 

The maximum value of a performance payment that may be made to a participant with respect to a Performance Award denominated in cash for any performance period of twelve months or less is $4,000,000 ($10,000,000 for any periods exceeding twelve months).

 

Performance Goals.  The Incentive Plan requires that the Committee establish Performance Goals for Performance Awards. In addition, if the Committee so chooses, Stock Options, Stock Appreciation Rights, Stock Awards, Restricted Shares, Performance Units, and Other Awards may also specify Performance Goals. Performance Goals may be described either in terms of Company-wide objectives, individual participant objectives, objectives related to performance of one or more operating units, divisions, subsidiaries, acquired businesses, minority investments, partnerships, or joint ventures in which the participant is employed or relative to the performance of other corporations. Performance Goals applicable to any award may include asset turnover, capacity utilization, cash flow, customer satisfaction, earnings growth, earnings per share, economic value added, environmental health and safety, expenses, increase in the Fair Market Value of Common Shares, market share, net income, net operating income, net operating profit, operating profit margin, pretax profits, pretax operating income, quality, revenue growth, return on capital, return on sales, return on equity, return on assets managed, return on investment, return on invested capital, sales margin, sales volume, total return to stockholders, working capital, profit margins, liquidity measures, or other operational measures and strategic goals.

 

Transferability.  No award granted or amount payable under the Incentive Plan is transferable by a participant other than by will or the laws of descent and distribution. However, Stock Options (except for Incentive Stock Options) may be transferable by a participant to the participant’s immediate family or trusts established solely for the benefit of one or more members of the participant’s immediate family. No award, however, including a Stock Option, may be transferred in exchange for consideration except in connection with adjustments made as a result of a corporate transaction such as a merger, consolidation, stock dividend or recapitalization. Except as otherwise determined by the Committee, Stock Options are exercisable during the optionee’s lifetime only by him or her.

 

The Committee may specify at the date of grant that part or all of the shares of Common Stock that are to be issued or transferred by the Company upon exercise of Stock

Options, upon payment under any grant of Performance Awards or Performance Units, or no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in the Incentive Plan, shall be subject to further restrictions on transfer.

 

Adjustments.  The maximum number of shares of Common Stock covered by outstanding Stock Awards, Stock Options, Performance Awards, and Restricted Shares granted under the Incentive Plan, and the prices per share applicable to those shares, are subject to adjustment in the event of stock dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, spin-offs, reorganizations, liquidations, issuances of rights or warrants, and similar events. In the event of any such transaction, the Committee is given discretion to provide a substitution of alternative consideration for any or all outstanding awards under the Incentive Plan, as it in good faith determines to be equitable under the circumstances, and may require the surrender of all awards so replaced. The Committee may also make or provide for adjustments in the numerical limitations under the Incentive Plan as the Committee may determine appropriate to reflect any of the foregoing transactions or events.

 

Administration.  The Committee administers the Incentive Plan and has the authority to select the participants from those eligible under the Incentive Plan. The Committee determines the type, number, and other terms and conditions of the awards. The Committee may prescribe award documents, establish rules and regulations for the administration of the Incentive Plan, construe and interpret the Incentive Plan and the award documents, and make all other decisions or interpretations as the Committee may deem necessary. The Committee may make awards to participants under any or a combination of all of the various categories of awards that are authorized under the Incentive Plan, or in its discretion, make no awards. At or after the time of grant of an award, the Committee may determine the vesting, exercisability, payment, and other restrictions that apply to the award. The Committee will also have authority, at or after the time of grant, to determine the effect, if any, that a participant’s termination of employment or service or a change of control of the Company will have on the vesting and exercisability of an award. In accordance with rules and procedures established by the Committee, the Committee may permit a participant to defer some or all of an award at the time of grant and may also require mandatory deferrals of a portion of an award in excess of an amount specified by the Committee. The Committee may delegate its responsibility with respect to administration of the Incentive Plan to officers of the Company, members of the Committee or members of the Board of Directors. The Committee may not, however, delegate its authority to make awards to individuals subject to Section 16 of the Securities Exchange Act of 1934 or to make awards intended to constitute “qualified performance-based compensation” under Section 162(m) of the Code.

 

Amendment and Termination.  To the extent permitted by Section 409A of the Code, the Incentive Plan may be amended from time to time by the Committee. However, any amendment that must be approved by the stockholders of the Company in order to comply with applicable law or the rules of the principal national securities exchange or quotation system upon which the Common Stock is traded or quoted will not be effective unless and until such approval has been obtained in compliance with those applicable laws or rules. These amendments would include any increase in the number of shares issued or certain other increases in awards available under the Incentive Plan (except for increases caused by adjustments made pursuant to the Incentive Plan). Presentation of the Incentive Plan or any amendment of the Incentive Plan for stockholder approval is not to be construed to limit the Company’s authority to offer similar or dissimilar benefits through plans that are not subject to stockholder approval. The Incentive Plan does not confer on any participant a right to continued employment with the Company.

The Committee may provide for special terms for awards to participants who are foreign nationals or who are employed by the Company outside the United States of America as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom.

 

To the extent permitted by Section 409A of the Code, the Board or the Committee may, at any time, terminate or, from time to time, amend, modify, or suspend the Incentive Plan. However, no amendment may increase the limits set forth in the Incentive Plan, allow for grants of Stock Options at an exercise price less than fair market value at the time of grant, or amend the Incentive Plan in any way that would permit a reduction in the exercise price of Stock Options, without stockholder approval.

 

No grants shall be made under the Incentive Plan more than 10 years (May 4, 2020) after the Incentive Plan is approved by stockholders.

 

Withholding Taxes.  To the extent that the Company or any subsidiary is required to withhold federal, state, local, or foreign taxes in connection with any payment made or benefit realized by a participant under the Incentive Plan, and the amounts available to the Company or any subsidiary for that withholding are insufficient, it is a condition to the receipt of payment or the realization of the benefit that the participant make arrangements satisfactory to the Company for payment of the balance of those taxes required to be withheld, which arrangements (in the discretion of the Committee) may include relinquishment of a portion of that benefit. The Company and a participant or such other person may also make arrangements with respect to payment in cash of any taxes with respect to which withholding is not required. No Common Stock or benefit withholding shall exceed the minimum required withholding.

 

Compliance with Section 409A of the Code.  To the extent applicable, it is intended that the Incentive Plan and any grants made under the Incentive Plan comply with the provisions of Section 409A of the Code. The Incentive Plan and any grants made under the Incentive Plan will be administered in a manner consistent with this intent, and any provision of the Incentive Plan that would cause the Incentive Plan or any grant made under the Incentive Plan to fail to satisfy Section 409A shall have no force and effect until amended to comply with Section 409A (which amendment may be retroactive to the extent permitted by Section 409A and may be made by the Company without the consent of the participants). Any reference to Section 409A will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

 

New Plan Benefits.  No awards of any kind have yet been made under the Incentive Plan. Given the discretion of the Committee in administering the Incentive Plan, it is not possible to determine in advance whether awards will be granted or how any types of awards authorized under the Incentive Plan will be allocated among eligible participants. For information regarding options granted to the Company’s Named Executive Officers during fiscal year 2009, see “Summary Compensation Table” on page 39 of this proxy statement, and for long-term performance awards granted to those individuals in 2009, see “Long-Term Incentive Payouts for Periods Ending in 2009 Reflect our Performance” on page 31.

 

 

The following is a brief summary of some of the federal income tax consequences of certain transactions under the Incentive Plan based on federal income tax laws in effect on January 1, 2010. This summary is not intended to be complete and does not describe state or local tax consequences.

Tax Consequences to Participants

 

Non-Qualified Stock Options.  In general, (1) no income will be recognized by an optionee at the time a non-qualified Stock Option is granted; (2) at the time of exercise of a non-qualified Stock Option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and (3) at the time of sale of shares acquired pursuant to the exercise of a non-qualified Stock Option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.

 

Incentive Stock Options.  No income generally will be recognized by an optionee upon the grant or exercise of an incentive Stock Option. The exercise of an Incentive Stock Option, however, may result in alternative minimum tax liability. If shares of Common Stock are issued to the optionee pursuant to the exercise of an Incentive Stock Option, and if, no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.

 

If shares of Common Stock acquired upon the exercise of an Incentive Stock Option are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the option price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.

 

Stock Appreciation Rights.  No income generally will be recognized by the recipient upon the grant of a Stock Appreciation Right. At the time of exercise, the recipient will recognize ordinary income in an amount equal to the difference between the exercise price of the Stock Appreciation Right and the value of the shares subject to the Stock Appreciation Right at the time of exercise.

 

Restricted Shares.  The recipient of Restricted Shares generally will be subject to tax at ordinary income tax rates on the fair market value of the Restricted Shares (reduced by any amount paid by the participant for such Restricted Shares) at such time as the shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such, Restricted Shares. If a Section 83(b) election has not been made, any dividends received with respect to Restricted Shares that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the participant.

 

RSUs.  No income generally will be recognized upon the award of RSUs. Any subsequent transfer of unrestricted shares of Common Stock or cash in satisfaction of such award will generally result in the recipient recognizing ordinary income at the time of transfer, in an amount equal to the aggregate amount of cash and the fair market value of the unrestricted shares of Common Stock or other property received.

Performance Awards and Performance Units.  No income generally will be recognized upon the grant of Performance Awards or Performance Units. Upon payment with respect to Performance Awards or Performance Units earned, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted shares of Common Stock or other property received.

 

Tax Consequences to the Company or Subsidiary

 

To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code, and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

 

Compensation Discussion and Analysis

 

We have designed a compensation program for the named executive officers of Cooper Tire that is driven by the strategic goals of the Company and the primary principle of pay for performance. The compensation program for this group primarily consists of a base salary, cash incentive awards, and equity awards.

 

During 2009, our named executive officers were Mr. Roy V. Armes, Chairman, President, and Chief Executive Officer; Philip G. Weaver, VP, Chief Financial Officer (resigned his officer position on November 18, 2009), Bradley E. Hughes, VP, Chief Financial Officer as of November 18, 2009; James E. Kline, VP, General Counsel, and Secretary; Harold C. Miller, President, International Tire Division; and Mark W. Krivoruchka, Senior VP, Global Human Resources and Communications (resigned his officer position on September 25, 2009). If not for resigning his officer position earlier in the year, Mr. Krivoruchka would have been one of the most highly compensated executive officers at the end of 2009. Ms. Brenda S. Harmon, Senior VP, Chief Human Resources Officer, joined the Company on December 16, 2009, but was not a named executive officer for 2009. Aspects of her compensation are discussed in this Compensation Discussion and Analysis because she is expected to be a named executive officer following the completion of 2010.

 

The Cooper Tire executive officer compensation program is designed to:

 

 

Our executive compensation program emphasizes pay-for-performance through annual cash incentive and long-term incentive programs which, collectively, are the majority of our named executive officers targeted annual compensation. These annual and long-term incentive programs only pay out if specific financial goals are achieved. In addition, our executives also receive base salaries set on competitive market data, individual performance, and other factors as well as retirement savings and limited other benefits.

 

Our Philosophy is to Provide Market Competitive Pay for Achieving Targeted Results

 

Compensation Peer Group

 

The Compensation Committee uses a peer group to assess market pay levels and competitive executive program designs. The peer group represents the kinds of companies that have similar characteristics and may compete with Cooper Tire for executive leadership positions. For each element of compensation and in the aggregate, the Committee targets compensation levels that are near the middle of the range offered by comparably-sized companies.

 

For officer positions, market pay practices were reviewed against comparably-sized general industry companies and a comparator group of 29 consumer-branded durable goods companies. There were no changes in the peer group from 2008 to 2009. These companies (listed below) were selected by the Compensation Committee based on industry, annual revenues and location (generally international operations with a significant presence in the Midwest). Market data was gathered for base salary, target annual and long-term incentive award levels for executives in comparable positions.

 

 

General industry data reflecting companies between $1.5 billion and $6 billion in annual revenue that participated in an executive compensation survey conducted by Towers Watson (formerly Towers Perrin) was used to assess competitive market levels for the Company’s executive positions in 2010.

Our Compensation Levels Are Set Considering Business Needs, Market Data and Other Factors

 

We use a comprehensive and structured approach in setting the compensation framework for all executive positions. We begin with a review of the Company’s overall strategy and the particular role each position is expected to play in achieving the goals of the Company. With this baseline understanding, we then obtain relevant market benchmark data for each position regarding base salary, annual cash incentive opportunities, and long-term incentive award levels from our outside compensation consultant. We assess the market data to determine an appropriate range of salary for each position. For positions within the Company that we determine to be comparable in scope, authority, and impact on the organization, we establish uniform target incentive award guidelines as a percentage of base salary.

 

To facilitate a comprehensive view of all current and previously granted forms of compensation for each named executive officer, tally sheets are used by the Compensation Committee in the determination of individual compensation packages. Informed by tally sheet data, competitive market data, organization strategies, and individual performance assessments, the Compensation Committee uses its judgment in deciding on the target compensation for each named executive officer each year. A formulaic approach is not used to determine executive pay. Actual individual total compensation levels can vary from the targeted levels based on company, business unit and individual performance, long-term organizational strategy, and other factors. Base salary levels are determined with reference to competitive market levels, individual performance, internal equity, and overall budget. Annual cash incentive payouts can vary by position depending upon the mix of Company and business unit performance measures and the performance against those measures, as well as an individual’s performance. Long-term incentive payouts vary in accordance with the specific amount awarded to an individual at the beginning of the performance period and the overall Company performance.

 

Our Pay Program is Designed to Attract, Motivate, and Retain Outstanding Executive Talent

 

In order to maximize stockholder value, we have designed our executive compensation program to attract, motivate and retain outstanding executives through the following principles:

 

 

 

Our Executive Compensation Program Emphasizes Pay For Performance

 

In order to motivate and reward executives for maximizing stockholder value, the majority of each executive’s annual target compensation is variable, “at-risk” compensation that is based on achievement of performance goals and/or stock price appreciation. The majority of the target total direct compensation (at target) established for our named executive officers is “at-risk”. If specified targets are not achieved, the incentives paid out will be between zero and less-than-target. For performance above target levels, the potential exists for incentive payouts that are up to two times the target award opportunity.

 

Our Executive Officer Compensation Program is Administered by the Compensation Committee.

 

The Compensation Committee is responsible for performing the duties of the Board of Directors relating to the compensation of our executive officers and other senior management. With input, as appropriate, from management (including Mr. Armes and HR leadership) and the outside compensation consultant, the Compensation Committee reviews and approves all elements of our executive compensation program. Management is responsible for making recommendations to the Compensation Committee regarding executive officer compensation (except with respect to Mr. Armes’ compensation) and effectively implementing our executive compensation program, as approved by the Compensation Committee.

 

The Compensation Committee is authorized by the Board of Directors to determine the compensation package for Mr. Armes. In making this determination, the Committee considers a formal assessment of Mr. Armes’ performance by the Board of Directors, overall business results, competitive market practices, strategic objectives, recent compensation paid to Mr. Armes, and other relevant factors.

 

The Compensation Committee retained Towers Watson, an outside compensation consultant, to provide pay benchmarking and other assistance, as directed by the Compensation Committee. The Compensation Committee annually analyzes market benchmark data provided by Towers Watson regarding base salary and annual and long-term incentive opportunities, and periodically evaluates market benchmark data regarding other compensation elements.

 

Additional information about the role and processes of the Compensation Committee is presented under the heading “Meetings of the Board of Directors and its Committees — Compensation Committee” in the Proxy Report of the Company.

 

Our Incentive Performance Targets are Set With Reference to the Annual Operating Plan and Other Factors.

 

The Compensation Committee, with input from the compensation consultant, sets annual incentive performance targets at the beginning of each year based on its review of the operating plan as approved by the Board and its determination of what would constitute appropriate incentive performance goals for the Company and for individual

business units. Our Chief Executive Officer, Chief Financial Officer, and Chief Human Resources Officer present specific recommendations to our Compensation Committee regarding the annual performance targets. Management and the Compensation Committee analyze and discuss these recommendations. Modifications, as necessary, may be made by the Compensation Committee generally before it approves the annual performance targets. In setting the performance targets, the following primary factors are considered:

 

 

Components

 

We believe that our executive compensation program, by element and in total, best achieves our objectives. The majority of each named executive officer’s compensation opportunity is based on the achievement of financial and strategic goals established at the beginning of the respective performance period. The primary elements of our executive compensation program, which are key to the attraction, retention, and motivation of our named executive officers, are shown in the following table:

 

 

We provide market competitive base salaries to attract and retain outstanding talent and to provide a fixed component of pay for our named executive officers. Base salaries are reviewed annually and are determined according to the role of the executive, competitive median market data regarding similar roles in similar organizations, individual performance, budget, and other considerations. The Compensation Committee uses the median of market data as the reference point for base salary decisions because it believes that the median is the best representation of competitive salaries in the market for similar roles and talent.

 

In setting base salaries for 2009, the Compensation Committee considered how long the officer has been in his or her current role with Cooper Tire, the impact of his or her role on the Company’s results, the overall quality and manner in which the officer performs his or her role, and the financial position of the Company. Although each of the named executive officers had, at the beginning of 2009, base salary levels slightly below the market median, the Committee determined that because of concerns about the overall business environment and because of a decision to aggressively preserve cash in 2009, no salary increases were given in 2009 to any of the named executive officers.

 

Annual cash incentives are provided to reward our named executive officers for the achievement of financial and strategic goals that create stockholder value.

 

Target Opportunity

 

At target levels of achievement, the Annual Cash Incentive Plan is designed to approximate the market median of award for executives in similar roles in similar organizations. At the highest level of achievement, the annual cash incentive opportunity for our named executive officers can be up to 200% of the target opportunity.

 

The Compensation Committee uses the median of general industry market data as the reference point for target annual cash incentive opportunities because it believes that the median is the best representation of competitive annual cash incentive levels in the market for similar roles and talent. With regard to setting individual annual cash incentive opportunity levels, the Compensation Committee has the discretion to adjust the target opportunity levels as it sees fit. Typical reasons for adjusting an individual officer’s target annual cash incentive opportunity level above or below the market median include how long the officer has been in his or her current role, the impact of the role upon the organization, and the multiple of salary needed to bring the total cash compensation of the executive to a competitive level.

 

Performance Metrics for 2009

 

The opportunity for annual cash incentive awards is based on our Company performance against financial targets (net income or operating income, free cash flow) and strategic initiative goals.

 

The performance metrics for the 2009 Annual Cash Incentive Program for Messrs. Armes, Kline, Weaver, and Hughes were as follows: 50% Corporate Net Income, 30% Corporate Free Cash Flow, and 20% Corporate Strategic Goals. The major strategic goals included revenue growth, operational excellence, and enhancements of organizational capabilities. For Mr. Miller, the 2009 performance metrics were 50% International

Tire Division Operating Income, 30% Corporate Free Cash Flow, and 20% Corporate Strategic Goals.

 

Each of the performance metrics had targets that are set by the Compensation Committee at the beginning of the fiscal year. Both the Corporate Net Income and the Free Cash Flow measures excluded the impact of the closure of our Albany, Georgia facility and were set at levels that, in light of the overall market forecasts and projections for Cooper Tire at the time the 2009 targets were set, the Compensation Committee determined would be a challenge to achieve.

 

The potential payout on each of the financial metrics ranged from 0% to 225%. The potential payout on each of the strategic goals was 0% or 100%. Overall, the annual cash incentive payout on all of the combined measures was capped at 200%.

 

Long-term incentive awards represent a significant component of each named executive officer’s compensation package. We grant long-term incentive awards to our named executive officers and to other executives in order to align their interests with the investment interests of our stockholders. This emphasis is appropriate because these officers have a primary role in establishing the Company’s direction and strategy, and should, therefore, have the greatest proportion of their compensation aligned with the long-term interests of stockholders.

 

Long-term incentive awards were granted under the Cooper Tire 2006 Incentive Compensation Plan. The Plan allows for a variety of forms of long-term incentives; since the Plan was adopted in 2006, the Company has used stock options, restricted stock units, performance units, and dividend equivalents for its long-term incentive awards.

 

The Compensation Committee approves long-term incentive award opportunities for each senior executive (including the named executive officers) and the aggregate awards for all other participants.

 

Award Grant Timing and Pricing

 

Regarding grants of equity-based awards, our policy is to set the grant/exercise price of awards at the average of the high and low trading price of our common stock, as quoted on the New York Stock Exchange, on the date of grant. For current executives, the grant date is typically the date of our February Compensation Committee meeting. For new executives, the grant date is as of, or shortly after, the hiring date of the new eligible executive.

 

Long-Term Incentive Grants from Years Prior To 2009

 

For the 2007 and 2008 long-term incentive grants, the award opportunity was provided entirely in performance-based units (which have a value equivalent to a share of our common stock). Key design features of these grants include:

 

 

 

 

The Compensation Committee selected these performance metrics because improvement in the Company’s earnings and prudent management of capital were imperative over the three-year period. The ultimate value of earned awards is based on the Company’s financial results and the stock price which aligns with long-term stockholder value creation. The performance goals are set based on the operating plans for each respective year.

 

Awards earned for the 2007-2009 cycle were paid in shares of common stock in early 2010. For the 2008-2010 cycle, earned awards will be paid in early 2011.

 

In accordance with the regulations established by the Securities and Exchange Commission for the Summary Compensation Table, the “Stock Awards” column shows only the tranches granted each calendar year. For example, the 2009 values for the “Stock Awards” include the 2009 portions of the 2007-2009 and 2008-2010 cycles.

 

Because he joined the Company late in 2009, Mr. Hughes received a prorated grant for the 2009 tranche of the 2008-2010 grant.

 

2009 Long-Term Incentives: Performance-Based Units

 

The third tranche of the 2007-2009 Long-Term Incentive Program and the second tranche of the 2008-2010 Long-Term Incentive Program were approved and granted by the Compensation Committee at the beginning of 2009. With the exception of Mr. Hughes, the size of the 2009 tranche for each named executive officer was the same as it had been in 2008. Because he joined the Company late in 2009, Mr. Hughes received a prorated grant for the 2009 tranche of the 2008-2010 Long-Term Incentive Program.

 

2009 Long-Term Incentives: Stock Options

 

Because of a very unpredictable market environment at the beginning of 2009 and share usage limits under the 2006 Incentive Compensation Plan, the 2009 Long-Term Incentive Award was exclusively in the form of stock options. The size of the stock option grant was determined with reference to competitive median levels for executives in similar roles in similar organizations, the historic and recent price for the Company’s stock, as well as individual performance and other long-term considerations. The grant date (accounting) value of the option grants were lower than the market median levels based on the Compensation Committee’s consideration of the current stock price relative to historic levels, economic/business conditions, share usage, and other factors.

 

The stock options granted in 2009 vest in equal installments of one-third per year beginning one year after the date of grant. The option term is 10 years, after which, if not exercised, the option expires.

Restricted Stock Units Granted in 2009

 

In December 2009, Mr. Hughes and Ms. Harmon received restricted stock units as an inducement for each of them to join Cooper Tire. Mr. Hughes received 75,000 restricted stock units. Ms. Harmon received 25,000 restricted stock units. These restricted stock units will vest in 25% increments over four years, provided each is employed by the Company on their respective vesting dates. In the case of death, disability, retirement (as defined in the Company’s “Spectrum Retirement Savings Plan”), or involuntary termination, all of the restricted share units will vest and become immediately non-forfeitable on the event date. The restricted stock units are eligible for dividend equivalent units.

 

The Company plans to continue the same basic structure of the overall compensation plan for named executive officers in 2010 as was used in 2009.

 

Base pay levels will be set with reference to individual roles, impact, individual performance, and median levels of competitive market pay as determined by peer group and general market comparisons.

 

Annual cash incentive opportunity levels will be benchmarked against competitive norms as measured against general industry data for similar executive positions as provided by our executive compensation consultant, Towers Watson. Individual annual cash incentive opportunity levels will be adjusted, if warranted, to maintain competitive compensation packages for our named executive officers. The Annual Cash Incentive Plan performance measures will continue to be based on financial (corporate/business unit operating profit and corporate free cash flow) goals.

 

The Long-Term Incentive Plan for 2010 will include a mix of stock options, performance-based units and performance cash. The stock options will vest in equal installments of one-third per year beginning one year after grant. The performance-based share units and performance cash award will be measured against net income and return on invested capital. Units earned under this Plan will be paid upon approval of the Committee in 2013.

 

Year In Review

 

2009 proved to be a very successful year for Cooper Tire. The Company reacted quickly to the sudden downturn in the overall business environment that started in late 2008 and took decisive action to prepare the Company for the uncertainties ahead. As expected, most global tire markets declined in units shipped in 2009 versus 2008, including the world’s largest tire market in the United States, where total industry shipments decreased in 2009. In North America, the Company’s shipments on a comparable basis declined 6 percent. The Company’s global results were in line with the market as total company unit sales were 2.5 percent lower in 2009. However, despite the lower sales, we made significant improvements in our cost structure, operating margins, and cash flow. During 2009, we secured new customers which helped drive improved sales performance in the last half of the year. The Company’s cost structure was improved mainly through the efficient closing of the Albany, Georgia plant (completed three months earlier than scheduled) and the ability to quickly shift production from Albany into our other plants in Findlay, Texarkana, and Tupelo. The Company effectively managed its global production sourcing despite a significantly higher tariff imposed in September on tires made in the People’s Republic of China and imported into the United States. The Company made

significant gains in its overall cash position and liquidity through improved profit margins and effective working capital management. The Company also increased its year-end cash position by $179 million during 2009 while also paying off $97 million in long-term debt. The above actions, along with a sustained decrease in raw material costs in 2009, resulted in Company profits exceeding the planned operating profit, net income, and cash flow for 2009.

 

Expecting a very difficult business environment in 2009, we designed the compensation program for our named executive officers in a manner to preserve cash and, at the same time, motivate and retain the named executive officers as they worked to maximize the financial and operating performance of the Company. Specifically, the following executive pay actions were taken for 2009:

 

 

2009 Annual Cash Incentive Awards Reflect Our Financial Performance

 

The 2009 annual cash incentive awards for the named executive officers were based on the Company’s overall performance, except for Mr. Miller, whose award was based on a mix of overall Company financial and strategic goals and International Tire Division financial goals.

 

Each of the performance metrics had targets that are set by the Committee at the beginning of the fiscal year. Both the Corporate Net Income and the Free Cash Flow measures excluded the impact of the closure of our Albany, Georgia facility and were set at levels that the Committee considered challenging. For 2009, the net income goal was set at negative $78,898,000; the free cash goal was set at $8,000,000. In light of the overall market forecasts and projections for Cooper Tire at the time the 2009 targets were set, the Compensation Committee determined that these goals would be a challenge to achieve.

 

Because we were effective in reducing costs, improving production capabilities, and responding quickly to changes in the market, we significantly exceeded the financial and strategic targets for 2009. As a result, the annual cash incentive payout for 2009 for each named executive officer was 200% of their target annual cash incentive opportunity (by contrast, no annual cash incentive payments were made for 2008). The Committee was satisfied that the excellent performance in 2009 warranted maximum annual cash incentive award for each of the named executive officers.

Presented below are the target and actual incentive awards for the named executive officers and Ms. Harmon in 2009:

 

 

Long-Term Incentive Payouts for Periods Ending in 2009 Reflect Our Performance

 

The Compensation Committee reviewed the performance under the 2007-2009 Long-Term Incentive Program and the 2008-2010 Long-Term Incentive Program for the interim periods ending in 2009 and determined that the maximum award level was earned for performance-based units measured against 2009 performance. Each of the named executive officers notionally earned 200% of the target number of performance-based units for the 2009 tranche of the 2007-2009 and 2008-2010 Long-Term Incentive Programs.

 

The long-term incentive award for the period beginning in 2009 consisted solely of stock options that equally vest in increments of one-third over three years. The exercise price on the grant date was $4.82; and, as of December 31, 2009, the closing stock price was $20.05.

 

Presented below are the target numbers of performance-based units and the number of units earned for each of the named executive officers and Ms. Harmon during 2009 under the 2007-2009 and 2008-2010 Long-Term Incentive Programs:

 

 

The 2009 Long-Term Incentive Grant Was Calibrated to Business and Market Conditions

 

Stock options were determined to be the best form of award for the 2009 grant because there were a limited number of full value shares available for equity awards under the 2006 Incentive Compensation Plan.

 

The size of the 2009 stock option grants to our named executive officers was based on several factors that included competitive grant levels for similar positions in our peer group companies, the present and historical value of our Company stock, individual

performance assessments and the Compensation Committee’s wish to balance overall compensation costs with the need to engage and motivate executives to lead the Company through difficult times. Considering all these factors, the Compensation Committee used its judgment to set the final long-term incentive award for 2009. Specifically, the Committee awarded fewer stock options to the executive team than the normative amount that peer group companies used in previous years. The Committee was of the opinion that if the Company did not re-gain a significant portion of its share price relative to historic levels, a smaller incentive value would be warranted. At the same time, the Committee believed that the historically low stock price on the actual date of the stock option grant created significant upside opportunities for our executives if they achieved significant stock price improvement over the three-year vesting period for the stock options.

 

The potential award range for the 2009 stock option grants, by named executive officer, are presented in the “2009 Grants of Plan-Based Awards Table” that is included below.

 

2009 Compensation Arrangement for Mr. Roy V. Armes, Chairman, President, and Chief Executive Officer.

 

Because of a very disconcerting business climate at the beginning of 2009, the Compensation Committee determined that the structure of the compensation package provided to Mr. Armes would be essentially the same in 2009 as it was in 2008. His base salary remained at $850,000 and his target annual cash incentive opportunity continued at 100%. He was awarded 360,000 stock options that incrementally vest over three years.

 

In 2009, under the second tranche year of the 2008-2010 cycle of the Long-Term Incentive Plan, Mr. Armes had the opportunity to earn 54,106 performance-based stock units for “at target” performance. For “maximum” performance, Mr. Armes had the opportunity to earn up to 108,212 performance-based stock units (see table on page 31). Because the Company performed so well in 2009, Mr. Armes notionally earned the maximum award under this tranche of the Plan. Upon final approval of the 2008-2010 Long-Term Incentive Plan by the Compensation Committee, this award will be paid in the form of common shares in early 2011.

 

Also in 2009, under the third tranche of the 2007-2009 cycle of the Long-Term Incentive Plan, Mr. Armes had the opportunity to earn 38,991 performance-based stock units for “at target” performance. For “maximum” performance, Mr. Armes had the opportunity to earn up to 77,982 performance-based stock units. Because the Company performed so well in 2009, Mr. Armes earned the maximum award under this plan. Upon final approval by the Compensation Committee of the 2007-2009 Long-Term Incentive Plan, this award was paid in the form of common shares in early 2010. Previously, Mr. Armes had notionally earned 77,982 performance-based stock units for the first year of the 2007-2009 cycle of the Long-Term Incentive Plan; none were earned for the second year of this cycle.

 

During 2009, Mr. Armes also had an outstanding award of not-yet-vested restricted stock units that were granted in 2007 in order to induce Mr. Armes to join the Company. This grant had a grant date value equal to $4,000,000, subject to a three-year “cliff” vesting period (which means that the award vested in full on January 1, 2010).

 

Mr. Armes was awarded total compensation of $3,957,915 for his service as Cooper Tire’s Chief Executive Officer and Chairman of the Board in 2009. Mr. Armes’

compensation reflects the role he plays in establishing our strategic agenda and long-range plan, meeting the challenges that arise in the day-to-day operations of a company as large and complex as Cooper Tire, and leading the Company in an increasingly, challenging global economic environment. Mr. Armes’ 2009 compensation also reflects the Compensation Committee’s annual review of competitive market data for similar Chairman & CEO positions. Although his compensation is determined using the same methodology as used for each of the other named executive officers, Mr. Armes’ compensation is significantly higher than the compensation paid to any of the other named executive officers as his responsibilities and obligations at Cooper Tire are significantly greater than those of any of the other named executive officers.

 

Each of the other named executive officers and Ms. Harmon received total compensation in 2009 as follows: Mr. Weaver, $2,605,593; Mr. Hughes, $1,770,509; Ms. Harmon, $625,723; Mr. Kline, $1,005,060; Mr. Krivoruchka, $762,725; and Mr. Miller, $1,007,244.

 

The compensation paid to Mr. Miller reflects the relative performance of the International Tire segment of the business for which he was responsible during 2009.

 

Consistent with past years, the most significant component of the total compensation paid to the named executive officers in 2009 was in the form of equity. The grant-date fair value of the equity awards granted to Mr. Armes in 2009 represented approximately 40% of his overall compensation. The grant-date fair value of the equity awards granted to the other named executive officers in 2009 represented approximately 30% of their overall compensation. The greater emphasis on equity awards in Mr. Armes’ compensation is consistent with the Committee’s view that with his greater responsibilities, more of his compensation should be based on the Company’s future performance. These grants are described below in the “Grants of Plan-Based Awards” table that is included below.

 

With respect to Mr. Armes, his annual target incentive for 2009 remained at 100% of his salary; this level is competitive with the market median of annual cash incentive opportunity levels for CEOs in similar companies. Messrs. Weaver, Kline, Krivoruchka, and Miller each had a target annual cash incentive opportunity equal to 50% of their base salary. Upon his hire into the Company, Mr. Hughes was given a target annual cash incentive opportunity equal to 60% of his base salary. As a percent of salary, this opportunity level was determined to be competitive with other CFO positions in the compensation peer group. Ms. Harmon was given a total annual cash incentive opportunity equal to 50% of her base salary. As a percent of salary, this opportunity level was determined to be competitive with other Senior Vice President of Human Resources positions in the compensation peer group.

 

In order to facilitate and reward long-term service of our named executive officers, we provide the following retirement benefits that are designed to be competitive with market practices:

 

 

As of July 1, 2009, the Company match was changed to 100% of the first 1% of pay contributed by the employee and 50% of the next 5% of pay contributed by the employee.

 

In addition, the Company may make a discretionary contribution into the Plan on behalf of eligible employees for the Spectrum Retirement Savings Plan, up to the limits determined annually by the Internal Revenue Service. For the last six months of 2009, a discretionary contribution equal to approximately 3% of an eligible employee’s salary was made to the 401(k) Plan.

 

 

The actuarial change from 2008 in our named executive officers’ pension benefits is presented in the “2009 Summary Compensation Table” on page 39. Detailed information about these pension plans is also presented in the “2009 Pension Benefits Table” and related disclosures on page 44.

 

In order to provide executives an opportunity to defer earned salary or cash incentive awards, the Company has a non-qualified deferred compensation plan. The plan allows selected senior management employees (including our named executive officers) to elect to defer receipt of up to 80% of their base salary and up to 100% of their annual and long-term incentive cash compensation each year (subject to an aggregate $10,000 minimum per year), until a date or dates chosen by the participant; such dates must be in compliance with Section 409A of the Code. We do not make matching or other employer contributions to the Executive Deferred Compensation Plan. Amounts deferred into this plan are credited to a notional account that is notionally invested in investment vehicles similar to those offered in the Company’s 401(k) Plan. These investment choices include the opportunity to invest in our Common Stock. The plan does not provide any fixed, above-market earnings opportunity. Detailed information about this plan is

presented in the “2009 Non-Qualified Deferred Compensation Table” and related disclosures below. This plan is compliant with and administered in accordance with the rules and regulations of Section 409A of the Code, as are all other plans of the Company that have an element of deferred compensation.

 

As part of a market-competitive executive compensation package, we provide a limited amount of perquisites to our named executive officers. We provide these perquisites, which we believe are consistent with those offered by similar companies, to attract and retain executives. In 2009, we provided automobiles and executive physical examinations for named executive officers. In addition, it is our policy to cover travel costs (including tax gross-up of imputed income) of spouses to accompany the executives and participate in business-related activities. The value of these perquisites is presented in the “All Other Compensation” column of the 2009 Summary Compensation Table.

 

Beginning in 2010, the Company will phase out Company-paid automobiles for the named executive officers. At the time of the phase-out, affected officers will receive a compensatory adjustment to their base salary.

 

Requirements to Maintain a Minimum Level of Stock Ownership

 

We believe that our named executive officers, whose business decisions impact our operations and results, should obtain and maintain a reasonable equity ownership in Cooper Tire. As such, the Compensation Committee has established minimum stock ownership guidelines for our named executive officers.

 

In December 2008, the Compensation Committee approved new stock ownership guidelines effective January 1, 2009, for named executive officers. At present, the individuals listed below must achieve the ownership guidelines as follows:

 

 

If any of our named executive officers do not in a timely manner satisfy the stock ownership guidelines, then the Compensation Committee may take further action including requiring that 50% of an executive’s annual cash incentive be paid in stock; requiring that the executive retain 50% of the net after-tax shares following the exercise of any stock options or upon the vesting of other equity awards; requiring that 50% of the executive’s long-term incentive awards be paid in stock; or reducing the executive’s long-term incentive grants.

 

The Company has an employment agreement with Mr. Armes that specifies minimum pay levels and provides severance benefits in certain circumstances (both with and without a change of control). The terms of Mr. Armes’ employment agreement were negotiated in the light of market benchmark data for similar companies provided by Towers Watson, cost and other considerations, and were set to attract him to join the

Company. The terms of the original agreement were amended and restated on December 22, 2008, to be in full compliance with Section 409A of the Code. Mr. Armes’ current base salary under his employment agreement is $850,000.

 

As a tool to facilitate attraction and retention of key executive talent, the Company also has a change of control plan that covers each of the other named executives. Under this plan, benefits are received only in the event that an actual change of control and termination occurs, and thus are not considered part of annual compensation. We believe that a change of control plan maintains productivity, facilitates a long-term commitment, and encourages retention when, and if, we are confronted with the potential disruptive impact of a change of control of the Company.

 

See “Potential Payments Upon Termination or Change of Control” for more information regarding these arrangements.

 

Clawback Policy

 

Our Board has adopted a policy that permits us to recoup the annual and long-term incentive compensation paid to our executives in certain circumstances. Under this policy, if the Company significantly restates its reported financial results, the Board will review the circumstances that caused such restatement, consider issues of accountability and oversight, and analyze the impact of such restatement on compensation paid or awarded to Company employees. If the restatement is the result of fraud or misconduct, the Board may elect to recover all annual cash incentive awards, long-term incentive pay (“LTIP”), and other incentive-based compensation paid to the employees who engaged in such fraud or misconduct. Additionally, for participants in the LTIP, the Board may elect to recover LTIP paid out to the extent the Company’s performance goals were over-stated as a result of such restatement, and, for all employees, the Board may adjust any unvested or conditionally vested LTIP amounts related to the relevant performance period(s) to reflect the restatement. If the restatement is not the result of fraud or misconduct, the Board may adjust any unvested or conditionally vested LTIP amounts related to the relevant performance period(s) to reflect the restatement. The policy also provides that if the Board determines that any employee has engaged in unethical conduct detrimental to the Company, the Board may seek recoupment of all annual cash incentives, LTIP, or other incentive-based compensation paid to such employee during the period(s) of such unethical behavior, and cancel all unvested or conditionally vested incentive-based compensation related to such period(s). Recovery under the Clawback Policy is in addition to any recoupment required or permitted by law, including the Sarbanes-Oxley Act of 2002 and common law, or by contract.

 

Tax Deductibility of Executive Compensation

 

The financial reporting and income tax consequences of the compensation elements are considered by the Compensation Committee when it analyzes the design and level of compensation. The Compensation Committee balances its objective of ensuring effective and competitive compensation packages with the desire to maximize the tax deductibility of compensation.

 

Regulations issued under Section 162(m) of the Code provide that compensation in excess of $1 million paid to the Chief Executive Officer and other named executive officers will not be deductible unless it meets specified criteria for being “performance-based”. The Compensation Committee generally designs and administers the executive incentive

programs of the Company to qualify for the performance-based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances the business objectives of the Company.

 

During 2009, Towers Watson was paid $119,000 in fees for executive compensation consulting and $213,000 in fees for non-executive compensation assistance. The decision to use Towers Watson for non-executive compensation consulting purposes was recommended by management and approved by the Compensation Committee.

 

The following report has been submitted by the Compensation Committee of the Board of Directors:

 

The Compensation Committee of the Board of Directors has reviewed and discussed the Company’s Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s definitive proxy statement on Schedule 14A for its 2010 Annual Meeting, which is incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, each as filed with the Securities and Exchange Commission.

 

The foregoing report was submitted by the Compensation Committee of the Board and shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A promulgated by the Securities Exchange Commission or Section 18 of the Securities Exchange Act of 1934.

 

Respectfully submitted,

 

Richard L. Wambold, Chairman
John J. Holland
John F. Meier
Robert D. Welding

 

The following tables and narratives provide, for the fiscal year ended December 31, 2009, descriptions of the cash compensation paid by the Company, as well as certain other compensation paid or accrued, during 2009 to our named executive officers, including:

 

 

The following table shows compensation information for 2007, 2008 and 2009 for our named executive officers.

 

 

 

 

 

The following table shows all plan-based awards granted to our named executive officers during 2009. The stock option awards and the unvested portion of the stock awards identified in this table are also reported in the “Outstanding Equity Awards at 2009 Fiscal Year-End Table” below. All awards were granted under our 2006 Incentive Compensation Plan. For a summary of the incentive plan designs, see “Compensation and Discussion Analysis” above.

 

 

 

 

 

Dividend equivalents accrue on the restricted stock units and performance-based units at the same quarterly rate as that paid to our stockholders, which for 2009 was $0.105 per share. For all named executive officers, the non-equity incentive awards reflected in columns (c) through (e) of the above table were granted under our Annual Cash Incentive Plan, and the equity incentive awards reflected in columns (f) through (h) and (l) of the above table were granted by our Compensation Committee on February 23, 2009, as part of our long-term incentive compensation program. For more information about these awards, see “Compensation Discussion and Analysis” above.

 

Certain of our named executive officers are or were parties to employment agreements with us. For more information about these agreements, see “Compensation Discussion and Analysis — Employment Agreements and Change of Control Arrangements” above. For more information about the compensation arrangements in which our named executive officers participate and the proportion of our named executive officers’ total compensation represented by base salary and bonus, see “Compensation Discussion and Analysis” above.

 

The following table shows all outstanding equity awards (stock options, performance-based units that have not been earned and restricted stock units) held by our named executive officers at the end of 2009.