OMB APPROVAL
--------------------------
OMB Number: 3235-0059
Expires: February 28, 2006
Estimated average burden
hours per response...12.75
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
MASCO CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
[MASCO LETTERHEAD LOGO]
April 14, 2005
Dear Stockholders:
You are cordially invited to attend Masco Corporation's Annual Meeting of
Stockholders on Tuesday, May 10, 2005 at 10:00 A.M. at our corporate
headquarters in Taylor, Michigan. Information regarding the meeting schedule and
the matters proposed for your consideration at the meeting are contained in the
following pages.
As a stockholder, you are requested to vote on the matters presented in the
accompanying Notice and Proxy Statement. At our meeting, we also expect to
provide a review of our Company's operations and respond to your questions.
Your vote is important. Whether or not you are able to attend the Annual
Meeting, please vote your shares. Instructions on how to vote can be found at
the bottom of the Notice of Annual Meeting. Please review the enclosed proxy
materials carefully and send in your vote today.
On behalf of our entire Board of Directors, we thank you for your continued
support of Masco Corporation and look forward to seeing you on May 10.
Sincerely,
/s/ Richard A. Manoogian
Richard A. Manoogian
Chairman of the Board and
Chief Executive Officer
MASCO CORPORATION
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: MAY 10, 2005
TIME: 10:00 A.M.
PLACE: MASCO CORPORATION
21001 VAN BORN ROAD
TAYLOR, MICHIGAN 48180
The purposes of the Annual Meeting are:
1. To elect three Class II Directors and one Class I Director;
2. To consider and act upon a proposal to approve the 2005 Long Term
Stock Incentive Plan;
3. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the Company for the year 2005; and
4. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 15, 2005 are
entitled to vote at the meeting or any adjournment thereof.
Your attention is called to the accompanying Proxy Statement and Proxy.
Whether or not you plan to attend the meeting, you can be sure your shares are
represented at the meeting by promptly voting and submitting your Proxy by
telephone, by internet, or by completing, signing, dating and returning your
Proxy Card in the enclosed postage prepaid envelope. Prior to being voted, the
Proxy may be withdrawn in the manner specified in the Proxy Statement.
By Order of the Board of Directors
/s/ Eugene A. Gargaro, Jr.
EUGENE A. GARGARO, JR.
Secretary
April 14, 2005
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
MASCO CORPORATION
May 10, 2005
GENERAL INFORMATION
The solicitation of the enclosed Proxy is made by the Board of Directors of
Masco Corporation (the "Company") for use at the Annual Meeting of Stockholders
of the Company to be held at its offices at 21001 Van Born Road, Taylor,
Michigan 48180, on Tuesday, May 10, 2005 at 10:00 A.M., and at any adjournment.
This Proxy Statement and the enclosed Proxy are being mailed or given to
stockholders on or about April 14, 2005.
The expense of this solicitation will be borne by the Company. Solicitation
will be by mail, and executive officers and other employees of the Company may
solicit Proxies, without additional compensation, personally and by telephone
and other means of communication. In addition, the Company has retained Morrow &
Co., Inc. to assist in the solicitation of Proxies for a fee of $12,000, plus
expenses. The Company will also reimburse brokers and other persons holding
Company Common Stock in their names or in the names of their nominees for their
reasonable expenses in forwarding Proxies and Proxy materials to beneficial
owners.
Stockholders of record at the close of business on March 15, 2005 are
entitled to vote at the meeting. On that date, there were 437,280,603 shares of
Company Common Stock, $1 par value, outstanding and entitled to vote. Each share
of outstanding Company Common Stock entitles the holder to one vote. The meeting
will be held if a quorum, consisting of a majority of the outstanding shares of
Company Common Stock, is represented in person or by proxy. Broker non-votes and
abstentions will be counted toward the establishment of a quorum. A broker
"non-vote" occurs when a nominee holding shares for a beneficial owner does not
vote on a proposal because the nominee has not been instructed by the beneficial
owner how to vote on the proposal and does not have discretionary voting power
to vote on the proposal.
Stockholders can ensure that their shares are voted at the meeting by
submitting proxy instructions by telephone, by internet, or by completing,
signing, dating and returning the enclosed Proxy Card in the envelope provided.
Submitting instructions by any of these methods will not affect the right to
attend the meeting and vote. The telephone and internet voting procedures are
designed to authenticate stockholders' identities, to allow stockholders to give
their voting instructions and to confirm that stockholders' instructions have
been recorded properly. Specific instructions for stockholders of record who
wish to use the telephone or internet voting procedures are included with the
enclosed Proxy Card. A stockholder who gives a Proxy may revoke it at any time
before it is exercised by voting in person at the meeting, by delivering a
subsequent Proxy, or by notifying the Company in writing of such revocation
(Attention: Eugene A. Gargaro, Jr., Secretary, at 21001 Van Born Road, Taylor,
Michigan 48180).
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of
the Class II Directors, consisting of Verne G. Istock, David L. Johnston and J.
Michael Losh, expires at this meeting. The Board proposes the re-election of
Messrs. Istock and Losh and Professor Johnston to the Board of Directors as
Class II Directors. In December 2004, the Board appointed Dennis W. Archer to
serve as a Class I Director, but his continuing service as a Director is subject
to stockholder approval at the Annual Meeting. The Board is proposing the
election of Dennis W. Archer as a Class I Director.
Wayne B. Lyon, a Class I Director, attained the Board's normal retirement
age of 72 in October of 2004. Mr. Lyon intended to serve only until this Annual
Meeting and as part of his retirement, he notified the Board that his
directorship would end effective immediately prior to the meeting. Mr. Lyon has
been a Director since 1988 and served as the Company's President and Chief
Operating Officer from 1985 until 1996. We wish to express our deep appreciation
to Mr. Lyon for his dedication and many years of service. The Board will consist
of nine Directors effective upon Mr. Lyon's retirement.
The terms of office of Class I, Class II and Class III Directors expire at
the Annual Meeting of Stockholders in 2007, 2008 and 2006, respectively, or when
their respective successors are elected and qualified. The Board of Directors
expects that the persons named as proxies on the Proxy Card will vote the shares
represented by each Proxy for the election of the above nominees as Directors
unless a contrary direction is given. If prior to the meeting a nominee is
unable or unwilling to serve as a Director, which the Board of Directors does
not expect, the persons named as proxies will vote for such alternate nominee,
if any, as may be recommended by the Board of Directors. Directors are elected
by a plurality of the votes cast. Proxies cannot be voted for a greater number
of persons than the number of nominees named. Abstentions and broker non-votes,
if any, will not be treated as votes cast, and therefore will not affect the
election.
INFORMATION CONCERNING THE NOMINEES AND CONTINUING DIRECTORS IS SET FORTH
BELOW.
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
CLASS I (TERM TO EXPIRE AT THE ANNUAL MEETING IN 2007)
Peter A. Dow........................... Mr. Dow, 71, initially joined Campbell-Ewald Company in
Private investor; Retired Vice 1958 and returned in 1979 to serve as Executive Vice
Chairman, Chief Operating Officer and President and Director of General Accounts. In 1982 he
Chairman of the Executive Committee became President, Chief Operating Officer and Chairman of
of Campbell-Ewald, an advertising and the Executive Committee, and then served as Vice Chairman
marketing communications company. from 1993 until his retirement in 1995. He was named
Director since 2001. Director of Advertising for the Chrysler-Plymouth Division
of Chrysler Corporation in 1968. Subsequently, he became
responsible for advertising and merchandising for Chrysler
Corporation and all of its divisions, and in 1978 he was
named Director of Marketing for Chrysler Corporation. Mr.
Dow is currently serving as a director of two privately
held companies.
Anthony F. Earley, Jr. ................ Mr. Earley, 55, has served as Chairman of the Board and
Chairman of the Board, Chief Chief Executive Officer of DTE Energy Company and its
Executive Officer and President and subsidiary, The Detroit Edison Company, since 1998 and as
Chief Operating Officer, DTE Energy President and Chief Operating Officer of both companies
Company, a diversified energy since 1994. From 1989 to 1994, he served as President and
company. Director since 2001. Chief Operating Officer of Long Island Lighting Company,
an electric and gas utility in New York. Prior to 1989,
Mr. Earley held several other positions with Long Island
Lighting, including Executive Vice President and General
Counsel. He is a director of DTE Energy Company, Comerica
Incorporated and Plug Power, Inc.
2
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
CLASS I (NOMINEE FOR TERM TO EXPIRE AT THE ANNUAL MEETING IN 2007)
Dennis W. Archer....................... Mr. Archer, 63, has served as the Chairman of Dickinson
Chairman, Dickinson Wright PLLC, a Wright PLLC since 2002. Mr. Archer was President of the
Detroit, Michigan-based law firm. American Bar Association from 2003 through 2004 and served
Director since 2004. two terms as Mayor of the City of Detroit, Michigan from
1994 through 2001. He was appointed as an Associate
Justice of the Michigan Supreme Court in 1985 and in 1986
was elected to an 8-year term. Mr. Archer is a director of
Compuware Corporation and Johnson Controls, Inc.
CLASS II (NOMINEES FOR TERM TO EXPIRE AT THE ANNUAL MEETING IN 2008)
Verne G. Istock........................ Mr. Istock, 64, joined NBD Bank in 1963 and served as Vice
Retired Chairman/President of Bank Chairman and director of NBD Bank and its parent, NBD
One Corporation. Director since 1997. Bancorp, from 1985 until he was named Chairman and Chief
Executive Officer in 1994. Upon the merger of NBD and
First Chicago Corporation in December 1995, he was named
President and Chief Executive Officer of First Chicago NBD
Corporation and was elected Chairman in May 1996. Upon the
merger of First Chicago NBD Corporation and Bank One
Corporation in October 1998, he was named Chairman of the
Board of Bank One Corporation, where he served in various
executive positions until his retirement in September
2000. Mr. Istock is a director of Kelly Services, Inc. and
Rockwell Automation, Inc.
David L. Johnston...................... Professor Johnston, 63, has served as President and Vice
President and Vice Chancellor of the Chancellor of the University of Waterloo since July, 1999.
University of Waterloo, Ontario, Previously, he was Principal and Vice Chancellor of McGill
Canada. Director since 2003. University from 1979 through 1994, at which time he
returned to teaching on McGill University's Faculty of
Law. Professor Johnston began his professional career in
1966 as an Assistant Professor in the Faculty of Law at
Queen's University, following which, in 1968, he moved to
the Law Faculty of the University of Toronto. In 1974, he
was named Dean of the Faculty of Law at the University of
Western Ontario. Professor Johnston serves as a director
of Alcatel and CGI Group Inc.
J. Michael Losh........................ Mr. Losh, 58, was named the Interim Chief Financial
Interim Chief Financial Officer of Officer of Cardinal Health, Inc. in July 2004. He was the
Cardinal Health, Inc., retired Chairman of Metaldyne Corporation, a global manufacturer
Chairman of Metaldyne Corporation and of highly engineered metal components for the
retired Chief Financial Officer and transportation industry, from 2000 through 2002. Prior to
Executive Vice President of General joining Metaldyne, he worked for General Motors
Motors Corporation. Director since Corporation for 36 years, most recently as Chief Financial
2003. Officer and Executive Vice President. He is currently a
director of Cardinal Health, Inc., AON Corporation, AMB
Property Corporation, Metaldyne Corporation, H.B. Fuller
Company, and TRW Automotive Inc.
3
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
CLASS III (TERM TO EXPIRE AT THE ANNUAL MEETING IN 2006)
Thomas G. Denomme...................... Mr. Denomme, 65, served as Vice Chairman and Chief
Retired Vice Chairman and Chief Administrative Officer of Chrysler Corporation from 1994
Administrative Officer of Chrysler until he retired in December 1997 and served as a director
Corporation. Director since 1998. of Chrysler Corporation since 1993. He joined Chrysler
Corporation in 1980 and was elected Vice
President -- Corporate Strategic Planning in 1981,
Executive Vice President -- Corporate Staff Group in 1991,
and Executive Vice President and Chief Administrative
Officer in 1993. Previously, he held a number of positions
at Ford Motor Company, including Director, Marketing
Policy and Strategy Office and Director, Sales Operations
Planning.
Richard A. Manoogian................... Mr. Manoogian, 68, joined the Company in 1958, was elected
Chairman of the Board and Chief Vice President and a Director in 1964 and President in
Executive Officer of the Company. 1968 and has served as Chairman and Chief Executive
Director since 1964. Officer since 1985. He is a director of JPMorgan Chase &
Co., Ford Motor Company and Metaldyne Corporation.
Mary Ann Van Lokeren................... Ms. Van Lokeren, 57, joined Krey Distributing Company as
Chairman and Chief Executive Officer Secretary in 1978 and has served Krey Distributing Company
of Krey Distributing Company, a in her present positions since 1987. She also serves as a
beverage distribution firm. Director director of Commerce Bancshares, Inc., The Laclede Group,
since 1997. Inc. and D&K Healthcare Resources, Inc.
CORPORATE GOVERNANCE
Over the past several years, the Board of Directors has been engaged in an
ongoing review of the Company's corporate governance principles and procedures.
The Board added an independent director in 2004 and two independent directors in
2003. During 2003 the Board also implemented share ownership guidelines for
directors, adopted New York Stock Exchange ("NYSE") governance standards well
before the dates required, and approved the initiation of an internet-based
ethics and legal compliance training program for employees and the installation
of a toll-free employee hotline for reporting illegal or unethical conduct. The
Board is committed to maintaining high standards of corporate governance for the
Company.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board, pursuant to the recommendation of the Corporate Governance and
Nominating Committee, adopted categorical standards to assist it in making a
determination of independence for Directors. These standards are attached to
this Proxy Statement as Appendix A. The Board has made an affirmative
determination that all of the Company's continuing non-employee Directors
qualify under the independence requirements of applicable law and of the NYSE
and the Company's categorical standards. The independent directors are Messrs.
Archer, Denomme, Dow, Earley, Istock and Losh, Professor Johnston and Ms. Van
Lokeren.
Standing committees of the Board of Directors include the Audit Committee,
the Organization and Compensation Committee and the Corporate Governance and
Nominating Committee. Each member of these three committees qualifies under the
independence requirements of applicable law, the NYSE rules and the Company's
categorical standards. Each of these committees functions pursuant to written
charters adopted by the Board. The full text of the charters for these three
committees, the Corporate Governance Guidelines and the Code of Business Ethics
are posted on the Company's website at www.masco.com and are available in print
to stockholders upon request. Amendments to or waivers of the Code of Business
Ethics, if any, will be posted on the Company's website in accordance with
applicable requirements. The information on the Company's website is not a part
of this proxy statement or incorporated into any other filings the Company makes
with the Securities and Exchange Commission (the "SEC").
4
During 2004, the Board of Directors held five meetings and each Director
attended at least 75% of the Board meetings and applicable committee meetings
that were held while each such person was a Director. Directors generally attend
the Annual Meeting, and all Directors attended the 2004 Annual Meeting of
Stockholders.
The non-management Directors meet in executive session without management
at each regularly scheduled meeting of the Board of Directors. The
non-management Directors have selected Mr. Verne Istock to serve as the
presiding Director for these executive sessions.
Any interested party that wishes to communicate directly with the presiding
Director or the non-management Directors as a group may send such communication
to the following address: Presiding Director, Masco Board of Directors, Att:
Eugene A. Gargaro, Jr., Corporate Secretary, Masco Corporation, 21001 Van Born
Road, Taylor, MI 48180. Stockholders may send communications to the Board of
Directors at the following address: Masco Board of Directors, Att: Eugene A.
Gargaro, Jr., Corporate Secretary, Masco Corporation, 21001 Van Born Road,
Taylor, MI 48180.
The AUDIT COMMITTEE of the Board of Directors, currently consisting of
Messrs. Denomme, Dow, Earley, Istock and Losh, held eight meetings during 2004.
The Audit Committee assists Board oversight of the integrity of the Company's
financial statements, the effectiveness of the Company's internal control over
financial reporting, the qualifications, independence and performance of the
Company's independent public accountants, the performance of the Company's
internal audit function, and compliance by the Company with legal and regulatory
requirements, including employee compliance with the Company's Code of Business
Ethics.
In December, 2004 the Board of Directors approved a revised charter for the
Audit Committee that incorporates minor amendments clarifying that the Audit
Committee has sole authority to approve and pre-approve audit and non-audit
services. The revised charter is attached to this Proxy Statement as Appendix B.
The Board has determined that each member of the Audit Committee is financially
literate, and that at least three members of the Committee, Messrs. Earley,
Istock and Losh, qualify as "audit committee financial experts" as defined in
Item 401(h)(2) of Securities and Exchange Commission Regulation S-K. Although
Mr. Losh serves on the audit committee of more than three publicly traded
companies, the Board has determined that such simultaneous service does not
impair his ability to serve on the Company's Audit Committee.
Interested parties may send complaints relating to accounting, internal
accounting controls or auditing matters to the Chairman of the Masco Audit
Committee, Att: Eugene A. Gargaro, Jr., Corporate Secretary, Masco Corporation,
21001 Van Born Road, Taylor, MI 48180.
The ORGANIZATION AND COMPENSATION COMMITTEE of the Board of Directors,
currently consisting of Messrs. Dow and Istock, Professor Johnston and Ms. Van
Lokeren, held six meetings during 2004. The Organization and Compensation
Committee establishes and monitors executive compensation, evaluates the
Company's management, administers and determines awards and options granted
under the Company's stock incentive plan, and reviews the Company's succession
planning process.
The CORPORATE GOVERNANCE AND NOMINATING COMMITTEE of the Board of
Directors, currently consisting of Messrs. Archer, Denomme, Earley and Istock,
Professor Johnston and Ms. Van Lokeren, held five meetings during 2004. The
Corporate Governance and Nominating Committee serves in an advisory capacity to
the Board on the governance structure and conduct of the Board and has the
responsibility for developing and recommending to the Board appropriate
Corporate Governance Guidelines. In addition, the Committee identifies qualified
individuals for nomination to the Board, recommends Directors for appointment to
Board committees and evaluates current Directors for re-nomination to the Board
or re-appointment to Board committees.
The Committee periodically assesses Board composition, including whether
any vacancies are expected on the Board due to retirement or otherwise. The
Corporate Governance and Nominating Committee believes that Directors should
possess exemplary personal and professional reputations, reflecting high ethical
standards and values. The expertise and experience of Directors should provide a
source of advice and
5
guidance to the Company's management. A Director's judgment should demonstrate
an inquisitive and independent perspective with acute intelligence and practical
wisdom. Directors should be free of any significant business relationships which
would result in a potential conflict in judgment between the interests of the
Company and the interests of those with whom the Company does business. Each
Director should be committed to serving on the Board for an extended period of
time and to devoting sufficient time to carry out the Director's duties and
responsibilities in an effective manner for the benefit of the Company's
stockholders. The Committee also considers additional criteria adopted by the
Board for director nominees and the independence, financial literacy and
financial expertise standards required by applicable law and by the NYSE.
The Committee uses a number of sources to identify and evaluate nominees
for Directors, including referrals from current Directors. These candidates are
evaluated at regular or special meetings of the Committee. Stockholders wishing
to have the Committee consider a candidate should submit the candidate's name
and pertinent background information to Eugene A. Gargaro, Jr., Corporate
Secretary, Masco Corporation, 21001 Van Born Road, Taylor, MI 48180 in
accordance with the procedures set forth in the Company's charter for a
stockholder to nominate candidates for election as Directors and applicable SEC
rules regarding shareholder proposals. For a summary of the Company's
procedures, see "2006 Annual Meeting of Stockholders" below.
Dennis W. Archer was recommended for consideration as a Director by
non-management Directors.
COMPENSATION OF DIRECTORS
In recognition of the increasing amount of time required to prepare for and
attend Board of Directors' meetings, as well as the added responsibilities
related to Board service, and after reviewing Director compensation offered by
industrial peers and by other companies of comparable size, effective July 1,
2004, the Board of Directors increased the annual retainer for non-employee
Directors from $50,000 to $80,000. This is the first increase in non-employee
Directors' compensation since 1997. Commencing in 1997, one-half of the annual
retainer has been paid in cash. In order to more closely align the compensation
of non-employee Directors with long-term enhancement of stockholder value, the
other half of the retainer has been paid by means of restricted stock granted
under the 1997 Non-Employee Directors Stock Plan (the "Directors Stock Plan").
These grants of restricted stock vest in 20% equal annual installments over a
five-year period.
A new non-employee Director is given an initial grant of restricted stock
valued at one-half of the Director's total retainer for the initial five years
of service on the Board (subject to adjustment for partial years). After full
vesting of the grants having five years' value, each non-employee Director
thereafter receives an annual grant of restricted stock valued at one-half of
the annual retainer.
The Board has established stock ownership guidelines for non-employee
Directors such that even after shares of restricted stock vest, such Directors
must retain at least 50% of the shares received until the date of their
termination from service as a Director. The vesting arrangements and stock
retention requirement are intended to assure that non-employee Directors
maintain a financial interest in the Company over an extended period of time.
Each Director also receives $1,500 for every Board of Directors or
committee meeting attended in person or by telephone. The Chair of the Audit
Committee receives an additional $15,000 per year for chairing such committee,
and the Chairs of the Organization and Compensation Committee and of the
Corporate Governance and Nominating Committee receive an additional $7,500 per
year for chairing such committees.
The Directors Stock Plan also provides for the grant to each non-employee
Director on the date of each Annual Meeting of Stockholders of a non-qualified
option to purchase 8,000 shares of Company Common Stock at the then current
market price. In addition, each new non-employee Director also receives a
one-time stock option grant of 32,000 shares under the Company's 1991 Long Term
Stock Incentive Plan (or its successor). All of these options become exercisable
in equal annual installments on the first five anniversaries of the grant date.
Each option has a ten-year term for exercise from the date of grant, except that
options may generally be exercised for only a limited period of time upon death
or following termination of service as a
6
non-employee Director for any reason other than permanent and total disability
or retirement on or after the Company's normal retirement age for directors.
Upon termination of a Director's term for any reason other than death, permanent
and total disability or following a change in control, the Company may require
the participant to pay back to the Company any net gain realized upon the
exercise of any installment of an option that became exercisable within two
years prior to termination.
The Directors Stock Plan provides that a participant is generally
restricted from engaging in certain competitive activities while serving as a
Director and for one year following termination of the participant's term as a
Director. In the event of a breach of this noncompete agreement, the Company may
require the participant to pay back to the Company any net gain realized from an
award of restricted stock or upon the exercise of any portion of an option, but
only to the extent the gain is realized from restrictions on the award lapsing
or exercises occurring, as the case may be, on or after termination or within
two years prior to such termination.
Directors are eligible to participate in the Company's matching gifts
program (which is generally available to Company employees) pursuant to which
the Company will match gifts made to eligible educational and cultural
institutions up to an aggregate of $10,000 per year for each participant. In
addition, to facilitate Directors' attendance at Board and committee meetings,
the Company may provide transportation on Company aircraft. A Director's spouse
is permitted to accompany the Director on such trips if space is available. The
Company has permitted, on an infrequent basis, a Director to use a Company
aircraft for personal use. Directors are also eligible to participate in the
Company's employee purchase program, which enables employees to purchase Company
products for their personal use at discounted prices. The Company consults with
former Directors from time to time and has followed a practice of paying $50,000
per year to former Directors who make themselves available for consulting for
two years after ending their service on the Board.
7
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
Set forth below is information concerning beneficial ownership of Company
Common Stock as of March 15, 2005 by (i) each of the Directors, (ii) each of the
executive officers named in the "Summary Compensation Table," (iii) all
Directors and executive officers of the Company as a group, and (iv) all persons
known by the Company to be the beneficial owners of five percent or more of
Company Common Stock. Except as indicated below, each person exercises sole
voting and investment power with respect to the shares listed.
SHARES OF PERCENTAGE OF
COMMON STOCK VOTING POWER
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
---- ------------ -------------
Dennis W. Archer............................................ 4,600 *
Alan H. Barry............................................... 562,470 *
Thomas G. Denomme........................................... 54,830 *
Peter A. Dow................................................ 58,320 *
Anthony F. Earley, Jr.(2)................................... 38,920 *
Verne G. Istock............................................. 85,560 *
David L. Johnston........................................... 12,400 *
John R. Leekley............................................. 720,809 *
J. Michael Losh............................................. 15,400 *
Wayne B. Lyon(3)............................................ 141,993 *
Richard A. Manoogian(3)..................................... 11,293,789 2.6
Robert B. Rosowski.......................................... 404,897 *
Mary Ann Van Lokeren........................................ 82,060 *
Timothy Wadhams............................................. 258,428 *
All 17 Directors and executive officers of the Company as a
group(2)(3)............................................... 15,001,272 3.4
UBS AG(4)
Bahnhofstrasse 45
PO Box CH-8021
Zurich, Switzerland....................................... 30,042,090 6.7%
---------------
* Less than one percent
(1) Includes unvested restricted stock award shares held under the Company's
stock incentive plans (4,600 shares for Mr. Archer; 250,765 shares for Mr.
Barry; 3,668 shares for Mr. Denomme; 1,570 shares for each of Messrs. Dow
and Earley; 2,324 shares for each of Messrs. Istock and Lyon and Ms. Van
Lokeren; 3,155 shares for each of Professor Johnston and Mr. Losh; 132,044
shares for Mr. Leekley; 940,290 shares for Mr. Manoogian; 56,565 shares for
Mr. Rosowski; 118,395 shares for Mr. Wadhams; and 1,694,186 shares for all
Directors and executive officers of the Company as a group) and shares which
may be acquired before May 15, 2005 upon exercise of stock options issued
under the Company's stock incentive plans (251,101 shares for Mr. Barry;
28,800 shares for Mr. Denomme; 32,000 shares for each of Messrs. Dow and
Earley; 68,800 shares for each of Messrs. Istock and Lyon and Ms. Van
Lokeren; 8,000 for each of Messrs. Johnston and Losh; 520,046 shares for Mr.
Leekley; 4,053,111 shares for Mr. Manoogian; 280,400 shares for Mr.
Rosowski; 109,359 shares for Mr. Wadhams; and 6,136,953 shares for all
Directors and executive officers of the Company as a group). Holders have
sole voting but no investment power over unvested restricted shares and
exercise neither voting nor investment power over unexercised option shares.
(2) Includes 1,000 shares held in a trust for the benefit of Mr. Earley for
which Mr. Earley's wife serves as trustee.
8
(3) Shares owned by Mr. Manoogian and by all Directors and executive officers of
the Company as a group include in each case an aggregate of 1,968,100 shares
owned by charitable foundations for which Mr. Manoogian serves as a director
and 3,000 shares held by trusts for which he serves as a trustee. Shares
owned by Mr. Lyon and by all Directors and executive officers of the Company
as a group include in each case 15,000 shares owned by a charitable
foundation for which Mr. Lyon serves as a Director. Shares owned by all
Directors and executive officers of the Company as a group include 337,695
shares held by trusts for which an executive officer serves as a trustee.
The directors of the foundations and the trustees share voting and
investment power with respect to shares owned by the foundations and trusts,
but Messrs. Manoogian and Lyon and the executive officer who serves as a
trustee for certain trusts each disclaim beneficial ownership of such
shares.
(4) Based on a Schedule 13G dated February 14, 2005 and filed with the SEC, UBS
AG and its affiliates beneficially owned directly and indirectly 30,042,090
shares of Company Common Stock (or 6.7%) as of December 31, 2004.
Mr. Manoogian may be deemed a controlling person of the Company by reason
of his significant ownership of Company Common Stock and his positions as a
Director and an executive officer of the Company.
9
AUDIT COMMITTEE REPORT
The Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the integrity of the Company's financial
statements, the effectiveness of the Company's internal control over financial
reporting, the qualifications, independence and performance of the Company's
independent accountants, the performance of the Company's internal audit
function, and compliance by the Company with legal and regulatory requirements
and by employees and officers with the Company's Code of Business Ethics.
Management has the primary responsibility for the financial statements and the
reporting process, including the Company's system of internal control over
financial reporting. In discharging its oversight responsibility as to the audit
process, the Audit Committee reviewed and discussed with management the audited
financial statements of the Company as of and for the year ended December 31,
2004, including a discussion of the quality and the acceptability of the
Company's financial reporting and controls and internal control over financial
reporting, as well as the selection, application and disclosure of critical
accounting policies.
The Audit Committee obtained from the Company's independent accountants,
PricewaterhouseCoopers LLP, the letter required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and discussed
with the accountants any relationships that may impact their objectivity and
independence and satisfied itself as to the accountants' independence. The Audit
Committee considered and determined that such accountants' provision of
non-audit services to the Company is compatible with maintaining the
accountants' independence. The Committee reviewed various matters with the
accountants, who are responsible for expressing an opinion on the Company's
financial statements as of and for the year ended December 31, 2004, for
expressing an opinion on the Company's internal control over financial reporting
and for attesting to management's report on internal control over financial
reporting, based on their audit. The Committee met with the accountants, with
and without management present, and discussed the matters required to be
discussed by Statement on Auditing Standards No. 61 as amended, "Communication
with Audit Committees", including their judgment as to the quality and the
acceptability of the Company's financial reporting, internal control over
financial reporting and such other matters as are required to be discussed with
the Committee under generally accepted auditing standards. The Committee also
discussed with the accountants various control deficiencies including the
material weakness identified in the Company's internal control over financial
reporting and the remediation steps management has taken and proposes to take to
address them.
Based on the above-mentioned reviews and discussions with management and
the independent accountants, the Audit Committee recommended to the Board of
Directors that the Company's financial statements as of and for the year ended
December 31, 2004 be included in its Annual Report on Form 10-K for the year
ended December 31, 2004 for filing with the Securities and Exchange Commission.
The Audit Committee also reappointed, subject to stockholder approval,
PricewaterhouseCoopers LLP as the Company's independent accountants.
Thomas G. Denomme, Chairman
Peter A. Dow
Anthony F. Earley, Jr.
Verne G. Istock
J. Michael Losh
10
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
INTRODUCTION
The Organization and Compensation Committee is responsible for overseeing
the Company's executive compensation programs in order to ensure the attraction
and retention of talented senior corporate executives, to motivate their
performance in the achievement of the Company's business objectives, and to
align their interests with the long-term interests of the Company's
stockholders.
A critical objective is to assure that the compensation for the Company's
executive officers is competitive with the compensation offered by a peer group
of companies. The peer group generally reflects the Company's revenue size and
includes publicly traded companies with which the Company believes it competes
for executive talent. The peer companies are generally comprised of traditional
competitors, industrial peers, key home improvement retailers and major
homebuilders. Accordingly, current market practices and trends are considered in
evaluating and establishing compensation arrangements for the Company's
executive officers. Each major component of compensation is compared with the
peer group to assure overall competitiveness. Although the Committee reviews
peer group information for guidance, it does not exclusively target executive
compensation to specific compensation levels at other companies. The Company's
results, relative to the results of the peers, are considered when assessing
competitive pay levels. Also, compensation arrangements may vary in individual
cases based on subjective factors such as an individual's responsibilities and
contribution to the performance of the Company. The Committee uses a variety of
resources, including publicly available data and published compensation surveys,
in order to establish compensation levels in a highly competitive environment
for executive leadership. In addition, the Committee has retained Hewitt
Associates, an executive compensation consulting firm, to provide independent
advice on executive compensation matters.
Compensation arrangements for executive officers generally consist of a
combination of fixed base salary and performance-based annual cash bonus and
long-term incentives utilizing Company Common Stock. The Company's compensation
strategy has increasingly linked compensation to Company performance. The
Committee believes that this strategy more closely aligns executive officers'
interests with the long-term interests of stockholders, while maintaining the
Company's ability to attract, retain and motivate the highest quality executive
management team. In part, the Company has been implementing this strategy by
freezing base salaries for 2003 and 2004 while increasing the portion of total
compensation that is variable and contingent on Company performance. Executive
officers also participate in various retirement and other benefit arrangements.
The various components of compensation are discussed in more detail below.
In 2004, the Committee reviewed total compensation for the Company's Chief
Executive Officer, the four other named executive officers and other executives.
Total compensation includes base salary, annual cash bonus, long-term incentive
compensation (including accumulated realized and unrealized stock option and
restricted stock gains), the cost to the Company of the foregoing and
perquisites and other benefits, and the annual cost and projected payout
obligations under the Company's Supplemental Executive Retirement Plan. The
Committee also specifically considered that the Company does not maintain
employment contracts with, or any voluntary non-qualified deferred compensation
plans for, such individuals. Also, currently no executive officers have change
in control severance agreements entitling them to salary, bonus, or new equity
grants following termination of employment, although vesting and payment of
benefits under certain of the compensation arrangements will occur or be
accelerated in the event of a change in control. Furthermore, when the Committee
considers any component of the Chief Executive Officer's and other named
officers' compensation, total compensation (as defined above) is taken into
consideration in the Committee's decisions.
CASH COMPENSATION
Annual cash compensation consists of salary and bonus. Through 2002, base
salaries for executive officers historically had been adjusted annually if
warranted by economic conditions and by Company and individual performance. Base
salaries for executive officers were generally frozen for 2003 and 2004 (except
in the case
11
of promotions or where salaries were below the market competitive level), as
part of the strategy of increasing variable performance-based compensation
opportunities as a percentage of total compensation.
The method for granting annual cash bonuses was revised beginning with 2002
and is reflected in the 2002 Annual Incentive Compensation Plan. Under the
revised program, bonuses are directly tied to Company performance by linking
executive officers' annual cash bonus opportunity to earnings per share targets.
The Committee believes that placing more bonus compensation at risk further
aligns compensation with stockholders' interests. Potential payouts generally
range from 0% to 100% of an executive officer's base salary based on a graduated
schedule established annually by the Committee. Under this schedule, the bonus
opportunity increases as a percentage of salary as earnings per share increase.
In 2003, the Committee increased the potential target payouts under the schedule
for the Company's Chief Executive Officer to 200% of base salary and for the
President to 160% of base salary in order to make their compensation levels more
competitive with the opportunities for the most senior executives in the
Company's peer group. Based on the Company's strong performance, which
significantly exceeded the maximum earnings per share goal, for 2004 the
executive officers, including Mr. Manoogian, received cash bonuses at 100% of
the target bonus opportunity. Had the Company's performance not been as strong,
executive officers would have received lower bonuses, or no bonuses if
performance fell below the minimum earnings per share threshold. In order to
receive the maximum bonuses for 2005, the Company's performance must
significantly exceed its performance for 2004. This program will be incorporated
into the 2005 Long Term Stock Incentive Plan that is being submitted for
stockholder approval at this meeting.
STOCK-BASED COMPENSATION
Company Common Stock is a major part of long-term compensation for key
employees because of its inherent alignment with the interests of stockholders.
Over 2,000 of the Company's employees participate in the Company's long-term
incentive restricted stock award and stock option programs. The Committee's
long-term philosophy is reflected in the fact that full realization of the value
of stock incentives is generally subject to long-term vesting schedules. The two
principal components of the Company's stock-based compensation are annual grants
of restricted stock and non-qualified stock options.
Restricted stock awards and stock options have been granted under the Masco
Corporation 1991 Long Term Stock Incentive Plan (the "1991 Plan") and, subject
to stockholder approval, will be granted under the 2005 Long Term Stock
Incentive Plan. (Collectively, these two plans are referred to as the "Long Term
Incentive Plan.") These grants focus the participants on long-term enhancement
in stockholder value and also have the objective of retaining key employees. The
Committee believes that the level of restricted stock awards and stock option
grants should be sufficient in size and potential value to provide further
alignment of the recipient's and stockholders' interests, and to reinforce the
individual's commitment to the Company.
Restricted stock awards granted under the Long Term Incentive Plan
generally vest in ten percent annual installments over a period of ten years
from the date of grant. In general, vesting is contingent on continued
employment with the Company. The Long Term Incentive Plan provides, however,
that shares continue to vest upon retirement on or after normal retirement age,
and that all shares vest immediately upon death, permanent and total disability
or the occurrence of certain events constituting a change in control of the
Company. Further, the Committee recently adjusted the vesting schedule so that
outstanding awards for 2004 and prior years and all future awards held by or
made to participants age 66 or older will vest in not more than five annual
installments, except that at Mr. Manoogian's request, his outstanding awards
will continue to vest on their original longer-term schedule. It is the
Company's current practice to include a noncompetition agreement for a one-year
period following termination of employment in all restricted stock awards
granted under the Long Term Incentive Plan.
The Company has historically purchased shares of Company Common Stock in
the open market sufficient to provide for all restricted stock awards to avoid
any common share dilution resulting from these awards. The Company believes that
the extended vesting of stock awards with the opportunity for substantial stock
price appreciation promotes retention, and also spreads compensation expense
over a longer term, which
12
generally has resulted in a significant reduction in the Company's after-tax
cost of this stock-related compensation.
In 2002, the Company also revised its annual restricted stock award program
for key employees (including executive officers) to more closely link the value
of stock grants to Company performance. This program is now reflected in the
2004 Restricted Stock Award Program approved by stockholders last year and will
be incorporated into the 2005 Long Term Incentive Plan that is being submitted
for stockholder approval at this meeting. As noted above, base salaries for 2003
and 2004 were frozen as part of the strategy of increasing the portion of total
compensation that is variable. The Committee has also introduced improvement in
return on invested capital as a factor in determining the size of annual grants
of restricted stock, which have extended ten-year vesting. A graduated grant
schedule is approved annually based on earnings per share similar to the
methodology used for annual cash bonuses. Under the schedule, the Committee has
established the annual stock award opportunity level for executive officers at
up to approximately 200% of base salary. The Committee believes that this
opportunity level is competitive with the opportunity level for key executives
in the Company's peer group. After the Committee determines the level of the
annual stock grants attained based on the year's earnings per share performance,
the Committee then evaluates improvement in return on invested capital and may
reduce the level of grants that are awarded. Based on the Company's strong
performance, which significantly exceeded the maximum earnings per share goal,
for 2004 Mr. Manoogian received a grant of restricted stock valued at
approximately 200% of base salary and other named executive officers received
awards valued between 100% and 160% of their base salaries. In order to receive
the maximum grants for 2005, the Company's performance must significantly exceed
its performance for 2004.
Stock options also reflect the Committee's focus on long-term, equity-based
compensation that is aligned with the interests of stockholders. In 2003, the
Committee approved guidelines for granting stock options (including grants to
executive officers) under which annual option grants are made utilizing a
multiple of base salary. In accordance with these guidelines, in July 2004 the
Committee granted options to approximately 600 key employees (including all
executive officers and Mr. Manoogian) as part of the Committee's strategy to
utilize options as an important component of the Company's long-term
compensation for key employees. The annual number of options granted has
averaged approximately 1% of shares outstanding over the past five years, which
is less than the average number of options granted by companies in the peer
group and the Standard & Poor's 500 Index. During this same period, the
Company's options outstanding as a percentage of total shares outstanding has
also been less than the comparable percentage for companies in the peer group
and the Standard & Poor's 500 Index.
Options are granted at fair market value on the date of grant, and
therefore option holders only benefit from subsequent stock price appreciation.
Beginning with options granted in February 2000, the Company changed the option
terms to shorten the option vesting period so that subsequent option grants
become exercisable in 20 percent installments on the first five anniversaries of
the grant date. At the same time that the Company made this change, which is
favorable to participants, the Company introduced into the option terms a
noncompetition agreement for a one-year period following termination of
employment. Also under the new option terms, upon termination of employment the
recipient may be required to pay back to the Company the net gain realized upon
the exercise of any installment of the option that became exercisable within two
years prior to the termination, except in certain circumstances (including
normal retirement, death or disability). An additional payback provision may
also be triggered upon breach of the noncompetition agreement.
The Long Term Incentive Plan permits the Committee to accept the surrender
of an exercisable stock option and to authorize payment by the Company of an
amount equal to the difference between the option exercise price of stock and
its then fair market value. In addition, recipients of outstanding stock options
are eligible to receive restoration options. A restoration option is granted
when a participant exercises a stock option and pays the exercise price by
delivering shares of Company Common Stock or attests to the ownership of such
shares. The restoration option is equal to the number of shares delivered or
attested to by the participant and does not increase the number of shares
covered by the original stock option. The exercise price is 100 percent of the
fair market value of Company Common Stock on the date the restoration option is
granted so that the participant benefits only from subsequent increases in the
Company's stock price. The 2005
13
Long Term Incentive Plan being proposed for stockholder approval at this meeting
does not permit the granting of restoration options, other than restoration
options resulting from options granted under the 1991 Plan.
The cost related to restricted stock awards and options is fixed at the
time of grant. This expense is generally amortized for financial reporting
purposes over the applicable vesting period. Because the Company's tax deduction
is based on the fair market value of the stock at the time stock awards vest or
options are exercised, the after-tax cost of these programs can be favorable to
the Company due to the increased tax deduction that will result from any future
appreciation of Company common stock above the fixed cost after the time of
grant.
The 1991 Plan also provides that, upon the occurrence of certain events
constituting a change in control of the Company, all stock options previously
granted immediately become fully exercisable and all restricted stock awards
immediately vest. Generally, if a participant incurs an excise tax under Section
4999 of the Internal Revenue Code of 1986 in connection with a payment or
distribution following such a change in control, the Long Term Incentive Plan
provides that the participant will receive additional payments to make the
participant whole for such excise tax.
OTHER COMPENSATION CONSIDERATIONS
The Company maintains qualified defined benefit and defined contribution
retirement plans for most salaried employees. The Company also maintains
companion non-qualified plans in order to restore benefits for all employees
whose benefits under qualified plans are otherwise limited by the Internal
Revenue Code. All of the executive officers participate in these plans. In
addition, in order to be competitive, the Company has established a Supplemental
Executive Retirement Plan that provides supplemental retirement and certain
other benefits to certain officers and other key employees of the Company,
including the executive officers named in the "Summary Compensation Table."
In 2000, the Committee implemented an Executive Stock Purchase Program (the
"Program"). This voluntary Program was made available worldwide to key members
of the Company's management. Approximately 300 employees participated in the
Program and invested approximately $156 million in Company Common Stock. This
Program, which terminates in 2005, represented a major financial commitment on
the part of its participants, thus further aligning the interests of the
Company's key management with the interests of stockholders.
In order to formalize the Board's policy of encouraging stock ownership by
executive officers and to require executive officers to remain at risk by
maintaining a substantial interest in Company Common Stock, the Board has
established stock ownership guidelines for executive officers. The guidelines
require the Chief Executive Officer to own stock with a value of at least five
times base salary; the President to own stock with a value of at least four
times base salary; Senior Vice Presidents to own stock with a value of at least
three times base salary; and all other executive officers to own stock with a
value of at least two times base salary. Executive officers are required to
achieve the share ownership (including restricted stock awards) necessary to
meet the guidelines within three years of becoming subject to the guidelines.
Section 162(m) of the Internal Revenue Code limits deductibility of annual
compensation in excess of $1 million paid to the Company's Chief Executive
Officer and to each of the other four highest paid executive officers unless
this compensation qualifies as "performance-based." Stock options granted under
the Long Term Incentive Plan, annual cash bonuses paid under the 2002 Annual
Incentive Compensation Plan and annual long-term incentive restricted stock
awards under the 2004 Restricted Stock Award Program all qualify as
performance-based under Section 162(m) and are therefore fully deductible by the
Company. The Committee, however, continues to believe that it is in the
Company's interest to retain flexibility in its compensation programs, and
consequently in some circumstances has paid and may continue to pay compensation
that exceeds the limitation of Section 162(m).
14
CONCLUSION
To create long-term stockholder value, it is critical to attract, retain
and motivate key executive talent. Maintaining a competitive, performance-driven
compensation program, with strong emphasis on long-term incentives, aligns
executive management's interests with those of stockholders. The Organization
and Compensation Committee believes that the Company's executive compensation
programs meet these objectives.
Peter A. Dow, Chairman
Verne G. Istock
David L. Johnston
Mary Ann Van Lokeren
15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation of the
Company's Chief Executive Officer and the other four highest paid executive
officers (collectively, the "named executive officers") for 2004, 2003 and 2002.
LONG-TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION(1) RESTRICTED SECURITIES
------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) AWARDS(2) OPTIONS COMPENSATION(3)
--------------------------- ---- ---------- ---------- ---------- ---------- ---------------
Richard A. Manoogian...... 2004 $1,500,000 $3,000,000 $3,002,000 771,940(4) $105,000
Chairman of the 2003 1,500,000 2,400,000 1,218,000 480,000 105,000
Board and Chief 2002 1,350,000 1,680,000 718,000 742,858(4) 95,000
Executive Officer
Alan H. Barry(5).......... 2004 $ 950,000 $1,520,000 $1,520,000 270,030(4) $ 67,000
President and Chief 2003 815,000 1,216,000 4,248,000 530,000 57,000
Operating Officer
John R. Leekley........... 2004 $ 710,000 $ 710,000 $ 912,000 85,000 $ 50,000
Senior Vice President 2003 710,000 568,000 806,000 85,000 50,000
and General Counsel 2002 688,000 568,000 340,000 182,846(4) 48,000
Timothy Wadhams........... 2004 $ 620,000 $ 620,000 $ 836,000 148,959(4) $ 43,000
Senior Vice President and 2003 620,000 496,000 992,000 75,000 43,000
Chief Financial Officer 2002 577,000 496,000 297,000 72,000 40,000
Robert B. Rosowski........ 2004 $ 400,000 $ 410,000 $ 403,000 48,000 $ 28,000
Vice President and 2003 400,000 320,000 344,000 48,000 28,000
Treasurer 2002 390,000 320,000 191,000 47,000 27,000
---------------
(1) Salary information is disclosed in the table on a calendar year basis.
Annual salary increases, when granted, are normally effective in July.
Regular annual salary levels were frozen for 2003 and 2004, but the changes
from 2002 to 2003 reflected in the table are a result of increases
implemented in July 2002 that were effective for only part of 2002 but all
of 2003. Officers may receive certain perquisites and personal benefits, the
dollar amounts of which are below current SEC thresholds for reporting
requirements. Beginning in 2002, the Organization and Compensation Committee
revised the annual cash bonus program for executive officers in order to
directly link annual cash bonuses to earnings per share targets. The
performance of the Company in 2004 resulted in bonuses being earned for that
year that were larger than the bonuses earned in 2003. See the "Organization
and Compensation Committee Report on Executive Compensation" for information
concerning the salary freeze for executive officers and additional detail
regarding cash bonuses.
(2) The Restricted Stock Award column sets forth the dollar value, as of the
date of grant, of long-term incentive restricted stock awards. Although the
full grant date value of these awards is shown in the table, the named
executive officers only realize the value of the long-term incentive
restricted stock awards over an extended period of time because the awards
generally vest over ten years from the date of grant with ten percent of
each award vesting annually and with vesting generally contingent on a
continuing employment relationship with or normal retirement from the
Company. Regardless of the year in which such awards are granted or annual
cash bonuses are paid, these long-term incentive restricted stock awards and
cash bonus amounts are reported to correspond to the performance year that
is used to determine the amount of such awards and bonuses. The following
awards to the named executive officers were granted as part of the Company's
annual long-term incentive compensation program based on Company performance
in 2004, and are reflected in 2004 data in the above table: Mr. Manoogian --
79,000 shares; Mr. Barry -- 40,000 shares; Mr. Leekley -- 24,000 shares; Mr.
Wadhams -- 22,000 shares; and Mr. Rosowski -- 10,600 shares. Long-term
incentive restricted stock award data for 2003 for certain executive
officers does not correspond to data reported in the Company's 2004 proxy
16
statement due to subsequent grants made to such officers for superior
performance in 2003. As of December 31, 2004, the aggregate numbers and
market values of unvested restricted shares of Company Common Stock held by
each of the named executive officers under all vesting arrangements were:
Mr. Manoogian -- 913,376 shares valued at $33,366,000; Mr. Barry -- 222,964
shares valued at $8,145,000; Mr. Leekley -- 125,062 shares valued at
$4,569,000; Mr. Wadhams -- 109,101 shares valued at $3,985,000; and Mr.
Rosowski -- 53,909 shares valued at $1,969,000. Recipients of restricted
stock awards receive dividends on unvested shares.
(3) This column sets forth Company contributions and allocations under the
Company's defined contribution retirement plans for the accounts of the
named executive officers.
(4) Includes restoration options granted upon the exercise of previously held
stock options. As described in more detail under "Organization and
Compensation Committee Report on Executive Compensation," a restoration
option does not increase the number of shares covered by the original option
or extend the term of the original option.
(5) Mr. Barry became an executive officer in April, 2003. Consequently, the
information in the table does not set forth information for 2002, but
information for 2003 includes compensation data for the entire year.
OPTION GRANT TABLE
The following table sets forth information concerning options granted to
the named executive officers in 2004. In accordance with Securities and Exchange
Commission regulations, the Black-Scholes option pricing model was used to
estimate the grant date present value of the options set forth in this table.
Actual gains, if any, on stock option exercises and Company Common Stock
holdings will depend on overall market conditions and the future performance of
the Company and its Common Stock. There can be no assurance that the amounts
reflected in this table will be realized.
INDIVIDUAL GRANTS(1)
-----------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED IN 2004 PRICE DATE VALUE
---- ---------- ---------- -------- ---------- ----------
Richard A. Manoogian............ 480,000 8.51% $30.00 7/29/14 $5,289,600(2)
160,362(3) 2.84% 36.48 5/21/07 $1,523,440(4)
131,578(3) 2.33% 36.48 5/22/06 $1,249,990(4)
Alan H. Barry................... 230,000 4.08% 30.00 7/29/14 $2,534,600(2)
11,795(3) .21% 36.36 5/13/13 $ 111,700(4)
28,235(3) .50% 34.00 5/22/06 $ 250,160(4)
John R. Leekley................. 85,000 1.51% 30.00 7/29/14 $ 936,700(2)
Timothy Wadhams................. 75,000 1.33% 30.00 7/29/14 $ 826,500(2)
30,000 .53% 26.50 1/14/14 $ 291,900(2)
8,229(3) .15% 34.12 12/10/12 $ 73,160(4)
35,730(3) .63% 34.12 1/14/11 $ 317,640(4)
Robert B. Rosowski.............. 48,000 .85% 30.00 7/29/14 $ 528,960(2)
---------------
(1) For a description of additional terms of these options, see "Organization
and Compensation Committee Report on Executive Compensation."
(2) The following assumptions were made in calculating the grant date present
value of these options: volatility of 37.0%, dividend yield of 2.13%, risk
free rate of return of 4.43% based on a U.S. Treasury Strip with a maturity
date equal to the expected term of the options and an expected option life
of 7 years.
(3) These options are restoration options. The number of shares underlying
restoration options is equal to the number of shares delivered to exercise
the original option. The exercise price of a restoration option is equal to
the market value of Company Common Stock on the date the original option was
exercised. As
17
described in more detail under "Organization and Compensation Committee
Report on Executive Compensation," a restoration option does not increase
the number of shares covered by the original option or extend the term of
the original option.
(4) The following assumptions were made in calculating the grant date present
value of these options: volatility of 37.0%, dividend yield of 2.13%, risk
free rate of return of 4.43% based on a U.S. Treasury Strip with a maturity
date equal to the expected term of the options and an expected option life
of 3 years.
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
The following table sets forth information concerning each exercise of
stock options during 2004 by each named executive officer and the value at
December 31, 2004 of unexercised options held by such individuals. At December
31, 2004, when the closing price of Company Common Stock was $36.53 per share,
the value of unexercised options reflects an increase in market value of Company
Common Stock from the grant date (May 22, 1996 to December 22, 2004, with grant
date market prices ranging from $16 to $36.48). The value actually realized upon
future option exercises by the named executive officers will depend on the value
of Company Common Stock at the time of exercise.
AGGREGATED OPTION EXERCISES IN 2004, AND DECEMBER 31, 2004 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2004 DECEMBER 31, 2004
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- --------------- -------------- ------------- ----------- ------------- -----------
Richard A. Manoogian..... 600,000 $11,238,000 2,731,940 3,985,111 $31,343,000 $42,366,000
Alan H. Barry............ 209,400 $ 3,358,000 788,230 144,866 $ 8,084,000 $ 1,234,000
John R. Leekley.......... 0 $ 0 315,600 491,246 $ 3,931,000 $ 7,853,000
Timothy Wadhams.......... 104,400 $ 1,420,000 312,159 29,400 $ 3,121,000 $ 381,000
Robert B. Rosowski....... 0 $ 0 161,000 264,000 $ 1,927,000 $ 4,753,000
PENSION PLANS
The executive officers participate in pension plans maintained by the
Company for certain of its salaried employees. The following table shows
estimated annual retirement benefits payable for life at age 65 for various
levels of compensation and service under these plans.
PENSION PLAN TABLE
YEARS OF SERVICE(1)
---------------------------------------------------------------
REMUNERATION(2) 5 10 15 20 25 30
--------------- -------- -------- -------- -------- -------- --------
$ 200,000............ $ 11,290 $ 22,580 $ 33,870 $ 45,161 $ 56,451 $ 67,741
400,000............ 22,580 45,161 67,741 90,321 112,902 135,482
600,000............ 33,870 67,741 101,611 135,482 169,352 203,223
800,000............ 45,160 90,321 135,482 180,643 225,803 270,964
1,000,000............ 56,451 112,902 169,352 225,803 282,254 338,705
1,200,000............ 67,741 135,482 203,223 270,964 338,705 406,446
1,300,000............ 73,386 146,772 220,158 293,544 366,930 440,316
1,500,000............ 84,676 169,352 254,029 338,705 423,381 508,057
2,000,000............ 112,902 225,803 338,705 451,606 564,508 677,409
---------------
(1) The plans provide for credit for employment with any of the Company, its
subsidiaries or certain prior Company affiliates and their subsidiaries.
Vesting occurs after five full years of employment. The benefit amounts set
forth in the table above are not subject to reduction for social security
benefits or for other offsets, except to the extent that pension or
equivalent benefits are payable under a prior affiliate's plan. The table
does not reflect Internal Revenue Code limitations on tax-qualified plans
because one of the Company's plans is a non-qualified plan established to
restore for certain salaried employees (including
18
the named executive officers) benefits that are otherwise limited by the
Code. For each year of credited service prior to July 1, 1971 there is an
additional annual benefit equal to 0.2 percent of final average earnings in
excess of $9,000. Approximate years of credited service for the named
executive officers participating in the plans are: Messrs. Manoogian and
Rosowski -- 30 (the maximum credited service); Mr. Barry -- 21; Mr.
Leekley -- 29 and Mr. Wadhams -- 28.
(2) For purposes of determining benefits payable, remuneration in general is
equal to the average of the highest five consecutive January 1 annual base
salary rates paid by the Company prior to retirement.
Under the Company's Supplemental Executive Retirement Plan, certain
officers and other key employees of the Company, including the executive
officers named in the "Summary Compensation Table," may receive retirement
benefits in addition to those provided under the Company's other retirement
plans. Each participant is to receive annually upon retirement on or after age
65, an amount which, when combined with benefits from the Company's other
retirement plans (and, for most participants, any retirement benefits payable by
reason of employment by prior employers) equals up to 60% of the average of the
participant's highest three years' cash compensation received from the Company
(base salary and regular year-end cash bonus, not in excess of 60% of that
year's bonus opportunity). Generally, participants who terminate from the
Company with more than five years' service before age 65 become entitled to
receive a benefit adjusted by an age-and-service vesting schedule that provides
for no more than 50% vesting upon attainment of age 50 and 100% vesting no
earlier than age 60. Such vested benefit is not payable until age 65 and is
subject to offset for amounts earned from prior or future employers. A
disability benefit is payable to a participant who has been employed at least
two years and becomes disabled. A surviving spouse will receive reduced benefits
upon the participant's death, including a death while in service. A participant
and his or her surviving spouse may also receive supplemental medical benefits,
and a prior employer's medical benefits have been guaranteed for one of the
named executive officers. The plan is unfunded, except that accelerated payment
on a present value basis is mandatory following a change in control of the
Company. The named executive officers participate in this plan, and each is
eligible for a 60% benefit at age 65.
19
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on Company Common Stock with the cumulative total return of (i) the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"), (ii) the
Standard & Poor's Building Products Index ("S&P Building Products Index"), (iii)
the Standard & Poor's Industrials Index ("S&P Industrials Index"), and (iv) the
Standard & Poor's Consumer Durables & Apparel Index ("S&P Consumer Durables
Index"), for the period from January 1, 2000 through December 31, 2004, when the
closing price of Company Common Stock was $36.53 per share (on March 15, 2005
the closing price was $33.31 per share). The Company is a member of the S&P
Industrials Index, and the S&P Consumer Durables Index, which includes a number
of companies that manufacture products for the home. Since the Company is one of
only two companies included in the S&P Building Products Index, the Company
believes that comparison to the S&P Industrials Index and the S&P Consumer
Durables Index is more appropriate. The graph assumes investments of $100 on
December 31, 1999 in Company Common Stock and in each of these four indices and
the reinvestment of dividends.
[MASCO PERFORMANCE GRAPH]
The table below sets forth the value, as of December 31 of each of the
years indicated, of a $100 investment made on December 31, 1999 in each of
Company Common Stock, the S&P 500 Index, the S&P Building Products Index, the
S&P Industrials Index and the S&P Consumer Durables Index, and the reinvestment
of dividends.
----------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Masco Corporation $100.00 $103.16 $100.50 $ 88.59 $117.79 $159.82
S&P 500 Index $100.00 $ 90.97 $ 80.19 $ 62.57 $ 80.32 $ 88.94
S&P Building Products Index $100.00 $ 92.57 $ 89.56 $ 82.44 $112.09 $146.74
S&P Industrials Index $100.00 $105.80 $ 99.72 $ 73.59 $ 96.98 $114.27
S&P Consumer Durables Index $100.00 $ 89.47 $102.14 $101.79 $126.88 $156.80
ORGANIZATION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Organization and Compensation Committee of the Board of Directors
currently consists of Peter A. Dow, Verne G. Istock, David L. Johnston and Mary
Ann Van Lokeren. None of these individuals is or was a current or former officer
or employee of the Company or any of its subsidiaries. During 2004, no executive
officer of the Company served as a director or as a member of a compensation
committee of any company of
20
which any of the members of the Company's Organization and Compensation
Committee are executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
METALDYNE CORPORATION
In November 2000, the Company reduced its common equity ownership in
Metaldyne Corporation (formerly MascoTech, Inc.) ("Metaldyne") through a
recapitalization merger with an affiliate of Heartland Industrial Partners, L.P.
The Company currently holds approximately 6% of the common equity of Metaldyne.
The Company has also invested approximately $46.5 million in the Heartland
Industrial Partners, L.P. private equity fund, which represents less than 5% of
the fund. The Company, Richard Manoogian (who owns approximately 2% of Metaldyne
common stock), a charitable foundation for which Mr. Manoogian serves as a
director and officer (which owns approximately 1.6% of such stock), and certain
other stockholders (including Heartland Industrial Partners) who in the
aggregate own over 90% of Metaldyne common stock, are parties to a Shareholders
Agreement regarding their ownership of such stock. The Shareholders Agreement
governs the election of directors, the transferability of stock, access to
information and registration rights, among other things. Mr. Manoogian remains a
director of Metaldyne.
The Company also holds 361,001 shares of preferred stock of Metaldyne with
a liquidation value of $100 per share. During 2004 these preferred shares
accrued dividends at the rate of 15% per annum, totaling approximately $8.3
million. In November 2004, after consultation with certain independent Company
Directors, the Company purchased from Metaldyne shares of TriMas Corporation
common stock representing approximately 4.6% of the outstanding shares for
approximately $21.25 million in cash. The purchase price was negotiated based on
projected valuation in connection with a prospective public offering and after
considering the price paid by the Company for its initial investment. As a
result of this transaction, the Company now owns approximately 10.9% of the
outstanding shares of TriMas Corporation. Heartland Industrial Partners, L.P.
and Metaldyne are also stockholders of TriMas.
Under a 1984 Assumption and Indemnification Agreement, Metaldyne assumed
and agreed to indemnify the Company against all of the liabilities and
obligations of the businesses then transferred to Metaldyne by the Company,
including claims resulting from circumstances that existed prior to the
transfer, but excluding specified liabilities. The Company agreed to indemnify a
subsidiary of Metaldyne against certain liabilities of businesses acquired by
that subsidiary from the Company in 1990. Since August 2000, the Company has
reimbursed Metaldyne for certain litigation and settlement costs of
approximately $2.3 million and advanced $1.275 million in connection with the
settlement of this matter while the Company sought recovery from insurance
proceeds. In early 2004, the Company settled the claims in this litigation and
received back an aggregate of approximately $2.75 million. During 2004 the
Company also agreed to settle a number of outstanding matters, including the
$1.5 million of charges to Metaldyne that accrued in connection with management
services that the Company had provided or made available in prior years.
OTHER RELATED PARTY TRANSACTIONS
During the third quarter of 2000, approximately 300 of the Company's key
employees, including executive officers, purchased 8.4 million shares of Company
Common Stock from the Company for cash totaling $156 million under an Executive
Stock Purchase Program, which terminates in July 2005. The key employees were
given the opportunity to purchase a number of shares determined by a formula
based upon each employee's salary level and other factors. The stock was
purchased at $18.50 per share, the approximate market price of Company Common
Stock at the time of purchase. Participants in the Program financed their entire
purchase with five-year, full recourse personal loans at an interest rate of
9.2%, the market rate at that time, from a bank syndicate. Each participant is
fully responsible at all times for repaying the bank loan when it becomes due
and is personally responsible for 100 percent of any loss in the market value of
the purchased stock, except that, if the participant is in a loss position upon
the event of death, the participant's estate may transfer the purchased stock to
the Company and require the Company to assume responsibility for the loan.
21
The Company has guaranteed repayment of the loans only in the event of a default
by the participant. As a further inducement for continued employment beyond the
end of this five-year Program, each participant received, as part of the
Program, a restricted stock grant vesting over a ten-year period. Pursuant to
the terms of the Program, all participants are subject to a one-year
post-employment noncompetition agreement with the Company's businesses that
employ them. In addition to other members of the executive management team, the
following is a list of the executive officers who invested in the Program,
together with the amounts of their investments and the number of shares
purchased: Alan Barry -- $3 million (162,162); Lillian Bauder -- $2.7 million
(145,945 shares); Daniel Foley -- $1.5 million (81,081 shares); Eugene Gargaro,
Jr. -- $2.7 million (145,945 shares); John Leekley -- $4.7 million (254,054
shares); Richard Manoogian -- $26 million (1,405,405 shares); and Robert
Rosowski -- $1.3 million (72,972 shares).
For 2004, Mr. Manoogian personally reimbursed the Company an aggregate of
$295,000 in cash for the value of various financial, accounting and tax services
and administrative assistance provided to him by the Company. Two charitable
foundations established by Mr. Manoogian and by his father Mr. Alex Manoogian,
who founded the Company, also separately reimbursed the Company an aggregate of
$86,000 for accounting and administrative services provided by the Company
during 2004. These foundations also respond to requests similar to those
requested of the Masco Corporation Foundation. Mr. Manoogian has continued to
loan a significant number of his personal artworks to the Company at its
headquarters, but this arrangement is at no charge to the Company and with no
reimbursement to Mr. Manoogian for insurance, restoration and the other costs he
personally incurs with respect to the artworks on loan.
From time to time the Company has employed individuals who are related or
become related to other employees, officers or Directors. There are currently
four individuals employed by the Company or one of its divisions who are closely
related to current executive officers or to departing Director Wayne B. Lyon. No
current employee is related to any individual who serves as a Director of the
Company other than the one employee who is related to Mr. Lyon. Each of these
four employees received cash compensation for 2004 in excess of $60,000.
PROPOSAL TO APPROVE THE 2005 LONG TERM STOCK INCENTIVE PLAN
Company Common Stock has been a major part of annual and long-term
compensation for key employees because of its inherent alignment with the
interests of stockholders. Subject to approval by the stockholders, the Board of
Directors adopted the Masco Corporation 2005 Long Term Incentive Plan (the "2005
Plan") to replace the 1991 Long Term Stock Incentive Plan (the "1991 Plan"), the
Company's existing long-term share-based plan. If approved by the stockholders,
the 2005 Plan will become effective and no further awards will be granted under
the Company's 1991 Plan. The discussion below summarizes the 2005 Plan, although
it does not purport to be complete and is qualified in its entirety by reference
to the terms of the 2005 Plan, which is attached to this proxy statement as
Appendix C.
2005 PLAN HIGHLIGHTS
The 2005 Plan authorizes an independent committee of the Board of Directors
to award stock options, restricted stock, stock appreciation rights ("SARs"),
restricted stock units, dividend equivalents and performance awards (denominated
in cash or stock) to key employees and consultants for the purpose of
attracting, motivating, retaining and rewarding talented and experienced
employees and consultants. The 2005 Plan includes the following features, each
of which is described in more detail below under "Summary of the 2005 Long Term
Incentive Plan" and in Appendix C:
- Limit on Shares Authorized. The 2005 Plan authorizes the grant of
25,000,000 shares of Company Common Stock. In addition, shares that are
subject to awards that are cancelled or forfeited or that expire may be
re-granted. No further awards will be granted under the 1991 Plan.
- Limit on Shares Available For Restricted Stock Awards. Of the shares of
Company Common Stock available for grant under the 2005 Plan, only
9,000,000 shares may be used for grants of restricted stock or restricted
stock units. The 1991 Plan contained no such limit.
22
- Minimum Three-Year Vesting. Awards of stock options and restricted stock
will not fully vest before the third anniversary of the date of grant,
subject to certain exceptions for death and permanent and total
disability or upon a change in control as described below and except
under special circumstances as determined by the Committee. Options under
the 1991 Plan have historically vested over at least five years and
awards of restricted stock have vested over ten years, and the Company
expects these practices to continue.
- No Discount Stock Options. The 2005 Plan prohibits the grant of a stock
option with an exercise price less than the fair market value of Company
Common Stock on the date of grant. Under the 1991 Plan, the Company has
never granted a discounted stock option.
- No Repricing of Stock Options. The 2005 Plan prohibits the repricing of
stock options either by amendment of an award agreement or by
substitution of a new option award at a lower price. The Company has
never repriced stock options.
- Independent Committee Administration. The 2005 Plan will be administered
by a committee of the Board ("Committee") whose members satisfy the
disinterested administration requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, the applicable rules of the New York
Stock Exchange and the "outside director" requirement of Internal Revenue
Code Section 162(m). The 1991 Plan was administered by the Organization
and Compensation Committee, which satisfies these requirements and will
administer the 2005 Plan.
SUMMARY OF THE 2005 LONG TERM INCENTIVE PLAN
Eligibility. Awards under the 2005 Plan may be granted to key employees of
and consultants to the Company and its affiliates and to directors of the
Company. The number of key employees and consultants of the Company and its
affiliates eligible to receive awards in any given year is subject to the
discretion of the Committee and has not been determined at this time. In
addition, the employees or consultants who are to receive awards, the value of
awards that will be granted to any employee or consultant, and the amounts to be
payable with respect to awards, have not been determined at this time. The 2005
Plan will remain in existence as to all outstanding awards until all awards are
either exercised or terminated; however, no award can be made after May 10,
2015.
Types of Awards. The 2005 Plan authorizes awards in the form of stock
options, SARs, restricted stock, restricted stock units, performance awards and
dividend equivalents. Awards may be granted either alone or in addition to, in
tandem with or in substitution for any award granted under the 2005 Plan or
another plan of the Company or an affiliate.
Stock Options. Stock options are rights to purchase a specified number of
shares of Company Common Stock at an exercise price of not less than 100 percent
of the fair market value on the date of grant, except in the case of options
granted in substitution of options previously granted by a company acquired by
the Company. The maximum term of an option awarded under the 2005 Plan is ten
years after the initial date of grant. Stock options may be either incentive
stock options ("ISOs") or non-qualified stock options. Awards of ISOs will
include such additional terms as are necessary to satisfy the applicable
requirements of the tax law. The maximum number of ISOs that can be granted
under the 2005 Plan is 16,000,000.
The 2005 Plan does not authorize the grant of restoration options, other
than restoration options resulting from options granted under the 1991 Plan. A
restoration option is available when a participant pays the exercise price by
delivering shares of Company Common Stock or by attesting to the ownership of
such shares. The restoration option is equal to the number of shares delivered
or attested to by the participant and does not increase the number of shares
covered by the original stock option. The exercise price is 100 percent of the
fair market value of Company Common Stock on the date the restoration option is
granted, so the participant benefits only from subsequent increases in the
Company's stock price.
23
Stock Appreciation Rights. SARs entitle the recipients to receive, upon
surrender of the SAR, the excess of the fair market value of a specified number
of shares of Company Common Stock on the date the SAR is surrendered over the
fair market value of such shares on the date of grant.
Restricted Stock. A restricted stock award may provide the recipient with
all of the rights of a stockholder of the Company, including the right to vote
the shares and to receive dividends (which are taxed as compensation, not as
dividends until the shares vest). Restricted stock generally will be subject to
certain forfeiture conditions and may not be transferred by the recipient until
such restrictions lapse.
Restricted Stock Units. A restricted stock unit is the right to receive
cash, other securities, other awards or other property subject to the
termination of a restricted period specified by the Committee. Restricted stock
units generally will be subject to certain forfeiture conditions and may not be
transferred by the recipient until the restrictions lapse. Restricted stock
units are not outstanding shares of stock and do not entitle a participant to
voting or other rights; however, an award of restricted stock units may provide
for the crediting of additional stock units based on the value of dividends paid
on Company Common Stock while the award is outstanding.
Dividend Equivalents. Cash dividends are not paid on shares that have been
awarded under the 2005 Plan but not yet registered or delivered. However, the
Committee may provide for the payment of dividend equivalents with respect to
any option, SAR or other award pursuant to which shares of Company Common Stock
are or may become deliverable in the future, equal in value to the cash
dividends that would have been paid with respect to each share subject to the
award, if it had been outstanding from the date of the grant. Dividend
equivalents may be payable in cash or in shares of Company Common Stock.
Performance Awards. The 2005 Plan also provides for the grant of
performance awards that may be denominated in, or payable in cash, Company
Common Stock, other securities or awards under the 2005 Plan. Performance awards
confer rights valued as determined by the Committee and payable to (or
exercisable by) the recipient, in whole or in part, upon achievement of such
performance goals during the performance period established by the Committee.
Performance awards to executive officers under the 2005 Plan are intended to
satisfy the requirements for performance-based compensation under Section 162(m)
of the Internal Revenue Code. Under the federal tax laws, the Company may not
deduct certain compensation over $1,000,000 paid to the Chief Executive Officer
or to any of the four other most highly compensated executive officers in any
year unless, among other things, this compensation qualifies as
"performance-based compensation" under Section 162(m), and the material terms of
the plan for such compensation are approved by stockholders. Stockholder
approval of the 2005 Plan will satisfy the requirements for stockholder approval
under Section 162(m). The material terms of the 2005 Plan for performance awards
include the eligible class of participants, the performance goal or goals and
the maximum annual amount payable to any individual participant. The Company's
annual performance-based cash bonus and restricted stock grant program will be
incorporated into the 2005 Plan as performance awards.
The eligible class of persons for performance-based awards under the Plan
is all key employees, consultants and directors of the Company and its
affiliates.
The performance measures for performance awards under the 2005 Plan are any
one or more of the following: net income, return on assets, revenue, total
shareholder return, earnings per share, return on invested capital and cash flow
(each as determined in accordance with generally accepted accounting
principles). Unless the Committee determines otherwise, these goals will be
applied over a performance period of at least one calendar year, except in the
event of a change in control of the Company. Specific performance periods,
weightings of more than one performance goal and target levels of performance
upon which actual payments will be based, as well as the award levels payable
upon achievement of specified levels of performance, will be determined by the
Committee not later than the applicable deadline under Section 162(m) and in any
event at a time when achievement of such targets is substantially uncertain. In
determining whether any performance goal has been attained, the Committee shall
exclude losses resulting from discontinued operations, extraordinary losses, the
cumulative effect of changes in accounting principles and other unusual,
non-recurring items of loss that are separately identified and quantified in the
Company's audited financial statement.
24
As required by the Internal Revenue Code, after the Company's financial
results for the year have been determined, the Committee will certify the
attainment of the performance criteria and will determine the value of the
awards to be made. The Committee may reduce or eliminate (but not increase) for
any reason any grant that would otherwise be made to a participant. Performance
awards will be accelerated in the event of a change in control of the Company,
as described below.
The maximum annual amounts payable to any one participant as
performance-based awards are as follows:
- Cash Maximum: The aggregate amount payable to any participant under all
cash-denominated performance awards granted to such participant under the
2005 Plan in any year is $10,000,000. There is no maximum aggregate
dollar amount of cash-based performance awards under the 2005 Plan.
- Share Maximum: The aggregate number of shares of Company Common Stock
deliverable to any participant upon settlement under all
share-denominated performance awards granted to such participant under
the 2005 Plan in any year is 2,000,000 shares.
- Options and SARs: The maximum number of options and SARs under the 2005
Plan that may be granted during any calendar year to any participant is
4,000,000 shares plus any unused carryover from a prior year.
Authorized Shares. The stock that may be issued pursuant to an award under
the 2005 Plan will be shares of the Company Common Stock, par value $1.00. Stock
may be authorized but unissued shares of the Company or treasury shares held by
the Company. The Company Common Stock that may be issued in respect of awards
under the 2005 Plan may not exceed 25,000,000 shares. Notwithstanding the
foregoing, any unexercised or undistributed portion of any expired, cancelled or
forfeited award under the 1991 Plan or the 2005 Plan will again be available for
award under the 2005 Plan, whether or not the participant has received benefits
of ownership (such as dividends, dividend equivalents or voting rights) during
the period in which the participant's ownership was restricted or otherwise not
vested; provided that the maximum number of shares of stock that may be issued
and delivered upon vesting of restricted stock or restricted stock units under
the 2005 Plan is limited to 9,000,000 shares.
Terms of Awards. Each award under the 2005 Plan will be evidenced by an
award agreement in a form approved by the Committee setting forth, in the case
of share-based awards, the number of shares of stock or share units, as
applicable, subject to the award, and the price (if any) and term of the award
and, in the case of performance awards, the applicable performance goals. Award
agreements for SARs will also include the method of exercise and settlement. The
terms of restricted stock awards and options granted under the 2005 Plan are
expected to be comparable to the terms of awards and options most recently
granted under the 1991 Plan. (See discussion contained in "Organization and
Compensation Committee Report on Executive Compensation -- Stock-Based
Compensation.") Awards under the 2005 Plan that are not vested or exercised
generally will be nontransferable by a holder (other than by will or the laws of
descent and distribution).
Options under the 2005 Plan will also be subject to the following
provisions unless the Committee determines otherwise. Options will not become
fully exercisable prior to the third anniversary of the date of grant, subject
to certain exceptions. Options will continue to vest as long as the
participant's employment continues or if an employee retires on or after the
normal retirement date. Options become immediately exercisable upon the
participant's death or following termination of employment due to permanent and
total disability. Options may be exercised for only a limited period of time
following termination of employment or for one year following death.
Notwithstanding the foregoing, all options vest immediately in the event of a
change in control as described below.
Unless the Committee determines otherwise, awards of restricted stock and
restricted stock units will be subject to the terms described below. Awards of
restricted stock and restricted stock units will not fully vest prior to the
third anniversary of the date of grant, subject to certain exceptions.
Restrictions on restricted stock and restricted stock units will lapse as long
as the participant's employment continues or after the normal retirement date,
except that all restrictions lapse immediately upon death or upon termination of
employment
25
due to permanent and total disability. Notwithstanding the foregoing, all
restrictions lapse in the event of a change in control.
Award agreements may contain any other terms, consistent with the 2005
Plan, as the Committee may determine, including any requirements for continued
employment and any other restrictions or conditions (including performance
requirements and holding periods). Consistent with current practice, it is
anticipated that award agreements for options and restricted stock will continue
to contain a non-competition provision and a provision for forfeiture of an
award on account of activities that may be detrimental to the interests of the
Company following termination of employment.
Withholding. The Company returns the right to deduct or withhold or to
take any action as may be necessary to satisfy any tax required to be withheld
with respect to any taxable event relating to an award under the 2005 Plan.
Adjustments to Stock; Corporate Reorganizations. The Committee is
authorized to adjust the number and type of shares (securities or other
property) available for awards and subject to outstanding awards and the grant,
purchase or exercise price with respect to outstanding awards and, if
appropriate, make provision for cash payments to holders of awards (as well as
individual share and share unit limits on awards, performance targets and
exercise prices of awards) upon the occurrence of unusual or nonrecurring events
affecting the Company or its financial statements or of changes in applicable
laws, regulations or accounting principles.
Change in Control. The 2005 Plan provides that all awards will vest and
any restrictions and other conditions applicable to awards will lapse upon a
change in control. A change in control under the 2005 Plan is defined generally
to include a change, during any twenty-four month period, in a majority of the
incumbent Directors, defined as Directors whose election by the Board or
nomination for election by stockholders was approved by a vote of at least
two-thirds of the members of such Board. An incumbent Director does not include
Directors who are elected within one year after a person, without Board
approval, commences a tender offer or acquires at least 25 percent of the
combined voting power of the Company or, who assumes office as a result of an
election contest or proxy solicitation other than on behalf of the Board.
Administration. The 2005 Plan provides that it shall be administered by a
committee of the Board of Directors that satisfies the applicable rules of the
New York Stock Exchange, the "non-employee director" provisions of Rule 16b-3
under the Exchange Act, and the "outside director" requirements of Section
162(m) of the Internal Revenue Code.
The Committee has the authority, subject to the express limitations in the
2005 Plan, to designate recipients of awards, determine or modify the form,
amount, terms, conditions, restrictions, and limitations of awards, including
vesting provisions, terms of exercise of an award, expiration dates and the
treatment of an award in the event of the retirement, disability, death or other
termination of a participant's employment with the Company, and to construe and
interpret the 2005 Plan. The Committee also has the authority to grant awards
under the 2005 Plan in substitution for or as the result of the assumption of
stock incentive awards held by employees of other entities who become employees
of the Company or a subsidiary as a result of a merger or acquisition of the
entity.
Amendment and Termination. The Board has the authority to terminate,
suspend or discontinue the 2005 Plan at any time. The Board or the Committee may
amend the Plan or any outstanding award at any time; provided, however,
- no Plan amendment shall be effective until approved by stockholders, if
such approval would be required in order for the 2005 Plan to continue to
satisfy the conditions of the applicable rules and regulations with which
the Committee has determined to be necessary to comply;
- no option may be amended to reduce its initial exercise price other than
in connection with certain events specified in the Plan or the granting
of a substitute stock option to participants of another entity's option
plan in connection with a merger with, or acquisition of, such other
entity; and
26
- without the participant's consent, no amendment shall impair the rights
of a participant under an outstanding award.
Because the Committee retains the discretion to set and change the specific
targets for each performance period under a performance award intended to be
exempt from Section 162(m), stockholder ratification of the performance criteria
will be required, in any event, at five-year intervals in the future to exempt
such awards from the limitations on deductibility.
Exclusivity. The 2005 Plan is not exclusive and does not limit the
authority of the Company's Board or its committees to grant awards or authorize
any other compensation, with or without reference to Company Common Stock, under
any other plan or authority.
Federal Income Tax Consequences. The following is a general description of
Federal income tax consequences to participants and the Company relating to
nonqualified and incentive stock options and certain other awards that may be
granted under the 2005 Plan. This discussion does not purport to cover all tax
consequences relating to stock options and other awards.
An optionee will not recognize income upon the grant of a nonqualified
stock option. Upon exercise of the option, the optionee will recognize ordinary
compensation income equal to the excess of the fair market value of the Company
Common Stock on the date the option is exercised over the option price. The tax
basis of the option stock in the hands of the optionee will equal the option
price plus the amount of ordinary compensation income the optionee recognizes
upon exercise of the option, and the holding period for the stock will commence
on the day the option is exercised. A participant who exercises and holds option
stock and sells at a later date, will recognize capital gain or loss measured by
the difference between the tax basis of the stock and the amount realized on the
sale. Such gain or loss will be long-term if the stock is held for more than one
year after exercise, and short-term if held for one year or less. The employer
will be entitled to a deduction equal to the amount of ordinary compensation
income recognized by the optionee. The deduction will be allowed at the same
time the optionee recognizes the income.
An optionee will not recognize taxable income upon the grant of an ISO, and
generally will not recognize income upon exercise of the option provided such
optionee was an employee of the Company or a subsidiary at all times from the
date of grant until three months prior to exercise. For alternative minimum tax
purposes, however, the amount by which the fair market value of Company Common
Stock on the date of exercise exceeds the option price will be includible in
alternative minimum taxable income. An optionee who exercises an ISO and sells
the shares more than two years after the grant date and more than one year after
exercise, will recognize long-term capital gain or loss equal to the difference
between the sales proceeds and the option price. An optionee who sells such
shares within two years after the grant date or within one year after exercise
will recognize ordinary compensation income in an amount equal to the lesser of
(a) the difference between the fair market value of such shares on the date of
exercise and the option price or (b) the difference between the sales proceeds
and the option price. Any remaining gain or loss will be treated as a capital
gain or loss. The employer will be entitled to a deduction with respect to an
ISO only in the amount of ordinary compensation income recognized by the
optionee. The deduction will be allowable at the same time the optionee
recognizes the income.
The Federal income tax consequences of other awards authorized under the
2005 Plan generally follow certain basic patterns: SARs are taxed and deductible
in substantially the same manner as nonqualified stock options; nontransferable
restricted stock and stock units subject to a substantial risk of forfeiture
result in income recognition equal to the excess of the fair market value of the
stock over the purchase price (if any) only at the time the restrictions lapse;
performance bonuses are generally subject to tax on the payment received; and
cash-based awards generally are subject to tax at the time of payment. In each
of the foregoing cases, when the participant recognizes income the Company will
generally have a corresponding deduction.
If, as a result of a change in control event, a participant's options, SARs
or other rights become immediately exercisable, or restrictions immediately
lapse on an award, or cash, shares or other benefits covered by another type of
award are immediately vested or issued, the additional economic value, if any,
attributable to the acceleration or issuance may be deemed a "parachute payment"
under Section 280G of the
27
Code. In such case, the participant may be subject to a 20 percent
non-deductible excise tax as to all or a portion of such economic value, in
addition to any income tax payable. If so, the participant would be entitled to
additional payments to make him or her whole for such excise tax. The Company
will not be entitled to a deduction for that portion of any parachute payment
that is subject to the excise tax or any additional payment intended to make the
participant whole.
Notwithstanding any of the foregoing discussion with respect to the
deductibility of compensation under the 2005 Plan, Section 162(m) of the Code
would render non-deductible to the Company certain compensation in excess of
$1,000,000 in any year to certain executive officers of the Company, unless such
excess compensation is "performance-based" (as defined) or is otherwise exempt
from Section 162(m). The applicable conditions of an exemption for a
performance-based compensation plan include, among others, a requirement that
the stockholders approve the material terms of the plan. Stock options, SARs and
certain (but not all) other types of awards that may be granted to executive
officers as contemplated by the 2005 Plan are intended to qualify for the
exemption for performance-based compensation under Section 162(m).
VOTE REQUIRED
The approval of the 2005 Long Term Stock Incentive Plan requires the
affirmative vote of a majority of the votes cast by shares entitled to vote
thereon. Abstentions and broker non-votes are not counted as votes cast, and
therefore do not affect the approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 2005 LONG TERM
STOCK INCENTIVE PLAN.
EQUITY COMPENSATION PLAN INFORMATION
The Company currently has two equity compensation plans, the 1991 Long Term
Stock Incentive Plan and the 1997 Non-Employee Directors Stock Plan. The
following table sets forth information as of December 31, 2004 concerning these
two plans, both of which were approved by stockholders. The Company does not
have any equity compensation plans that were not approved by stockholders.
NUMBER OF WEIGHTED NUMBER OF SECURITIES
SECURITIES TO BE AVERAGE PER REMAINING AVAILABLE FOR
ISSUED UPON SHARE EXERCISE FUTURE ISSUANCE UNDER
EXERCISE OF PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING SECURITIES
OPTIONS, WARRANTS OPTIONS, WARRANTS REFLECTED IN THE
PLAN CATEGORY AND RIGHTS AND RIGHTS FIRST COLUMN)
------------- ----------------- ----------------- -------------------------
Equity compensation plans approved by
stockholders.......................... 25,824,000 $24.51 7,623,000
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Audit Committee has selected the independent public accounting firm of
PricewaterhouseCoopers LLP to audit the Company's financial statements for the
year 2005, and believes it appropriate to submit its selection for ratification
by stockholders.
PricewaterhouseCoopers LLP has acted as the Company's independent certified
public accounting firm for over 43 years. It has performed services of an
accounting and auditing nature and, from time to time, has provided other
consulting services for the Company. Representatives of PricewaterhouseCoopers
LLP are expected to be present at the meeting and will have the opportunity to
make a statement and are expected to be available to respond to appropriate
questions. If the selection is not ratified, the Audit Committee will consider
selecting another public accounting firm as the Company's independent auditors.
28
The affirmative vote of a majority of the votes cast by shares entitled to
vote thereon is required for the ratification of the selection of independent
auditors. Abstentions and broker non-votes are not counted as votes cast, and
therefore do not affect the ratification of the selection of auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE COMPANY
FOR THE YEAR 2005.
PRICEWATERHOUSECOOPERS LLP FEES
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees for professional services rendered for the Company by
PricewaterhouseCoopers LLP as of or for the years ended December 31, 2004 and
2003, were (in millions):
2004 2003
----- -----
Audit....................................................... $23.3 $ 9.5
Audit Related............................................... 0.5 1.7
Tax......................................................... 1.9 1.4
All Other................................................... * 0.1
----- -----
Total....................................................... $25.7 $12.7
---------------
* Aggregate amount was less than $50,000
The Audit fees for the years ended December 31, 2004 and 2003 were for
professional services rendered for the audits of the consolidated financial
statements of the Company, statutory audits, attestation of controls, issuance
of comfort letters, consents, income tax provision procedures, and assistance
with review of documents filed with the SEC. The increase in audit fees in 2004
is principally due to additional audit procedures associated with the new
Section 404 requirements of the Sarbanes-Oxley Act.
The Audit Related fees for services rendered during the years ended
December 31, 2004 and 2003 were for professional services rendered for employee
benefit plan audits, due diligence related to acquisitions and divestitures,
audits in connection with acquisitions and divestitures, and consultations
concerning the assessment of internal accounting controls.
Tax fees for services rendered during the years ended December 31, 2004 and
2003 were for services related to tax return preparation, tax planning, and tax
advice related to acquisitions.
All Other fees for services rendered during the years ended December 31,
2004 and 2003 were for miscellaneous services rendered.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee established a policy effective May 5, 2003 requiring
its annual review and pre-approval of all audit services and permitted non-audit
services to be performed by the Company's independent auditors
PricewaterhouseCoopers LLP. The Audit Committee will, as necessary, consider
and, if appropriate, approve the provision of additional audit and non-audit
services by PricewaterhouseCoopers LLP that are not encompassed by the Audit
Committee's annual pre-approval and not prohibited by law. The Audit Committee
has delegated to the Chair of the Audit Committee the authority to pre-approve,
on a case-by-case basis, services outside or in excess of the Audit Committee's
pre-approval and not prohibited by law, provided that the Chair shall report any
decisions to pre-approve such services to the Audit Committee at its next
regular meeting. All of the services referred to above in the table for 2004
were pre-approved by the Audit Committee and none of the services approved by
the Audit Committee during 2004 were under the de minimus exception to
pre-approval contained in the applicable rules of the SEC.
29
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and Directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, Directors and greater than ten
percent stockholders are required by regulations of the Securities and Exchange
Commission to furnish the Company copies of all Section 16(a) forms they file.
Based solely on the Company's review of copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
are required for those persons, the Company believes that its Directors,
officers and greater than ten percent beneficial owners met all applicable
filing requirements during the last fiscal year.
2006 ANNUAL MEETING OF STOCKHOLDERS
Stockholders who intend to present a proposal for inclusion in the
Company's proxy statement and proxy relating to the 2006 Annual Meeting of
Stockholders must provide written notice of such intent to the Secretary of the
Company at its address stated in the Notice of Annual Meeting of Stockholders by
December 15, 2005.
If a stockholder intends to bring a matter before next year's meeting,
other than by timely submitting a proposal to be included in the proxy
statement, timely notice must be given in accordance with the Company's bylaws.
The bylaws provide that, to be timely, notice must be received by the Company's
Corporate Secretary at 21001 Van Born Road, Taylor, Michigan 48180 no earlier
than January 10, 2006 and no later than February 9, 2006. For each matter a
stockholder intends to bring before the meeting, the notice must include a brief
description of the business to be brought before the meeting; the text of the
proposal or business (including the text of any resolutions proposed for
consideration); the reasons for conducting the business at the meeting and any
material interest the stockholder may have in such business; the stockholder's
name and address as it appears in the records of the Company; the number of
shares of Company Common Stock owned by the stockholder; and a representation as
to whether the stockholder is a part of a group that intends to deliver a proxy
statement or form of proxy to holders of at least the percentage of the
outstanding Company Common Stock required to approve or adopt such proposal or
if the stockholder intends to otherwise solicit proxies from stockholders in
support of the proposal.
Stockholders wishing to nominate a candidate or candidates as a Director at
the 2006 Annual Meeting of Stockholders must submit the following information no
later than February 28, 2006 to: Eugene A. Gargaro Jr., Corporate Secretary,
Masco Corporation, 21001 Van Born Road, Taylor, MI 48180: (a) the name and
address of the stockholder who intends to make the nomination or nominations and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
the Annual Meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations is or are to be made by the stockholder; (d) such
other information regarding each nominee proposed by the stockholder as would
have been required to be included in a proxy statement filed pursuant to the
proxy rules of the SEC if the nominee had been nominated by the Board of
Directors; and (e) the written consent of each nominee to serve as a Director of
the Company if elected.
DELIVERY OF PROXY MATERIALS AND ANNUAL REPORTS
The SEC's proxy rules permit companies and intermediaries, such as brokers
and banks, to satisfy delivery requirements for proxy statements with respect to
two or more stockholders sharing an address by delivering a single proxy
statement to those stockholders. This procedure, known as "householding,"
reduces
30
the amount of duplicate information that stockholders receive and lowers
printing and mailing costs for companies.
The Company has been notified that certain intermediaries will utilize this
procedure for the Company's 2004 Annual Report and proxy materials. Therefore,
only one Annual Report and Proxy Statement may have been delivered to multiple
stockholders sharing a single address. Stockholders who wish to opt out of this
procedure and receive separate copies of the Annual Report and Proxy Statement
in the future, or stockholders who are receiving multiple copies and would like
to receive only one copy, should contact their bank, broker or other nominee or
the Company at the address and telephone number below.
The Company will promptly deliver a separate copy of the 2004 Annual Report
or Proxy Statement for the 2005 Annual Meeting upon oral request to the
Company's Investor Relations Department at (313) 274-7400, written request to
Investor Relations, Masco Corporation, 21001 Van Born Road, Taylor, Michigan
48180 or e-mail request to webmaster@mascohq.com
OTHER MATTERS
The Board of Directors knows of no other matters to be voted upon at the
meeting. If any other matters properly come before the meeting, it is the
intention of the proxies named in the enclosed Proxy to vote the shares
represented thereby with respect to such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Eugene A. Gargaro, Jr.
EUGENE A. GARGARO, JR.
Secretary
Taylor, Michigan
April 14, 2005
31
APPENDIX A
MASCO CORPORATION DIRECTOR INDEPENDENCE STANDARDS
As specified in Masco's Corporate Governance Guidelines, a majority of the
Board shall qualify under the independence and experience requirements of
applicable law and the New York Stock Exchange (NYSE). The Board will make a
determination regarding the independence of each director annually based on all
relevant facts and circumstances at the time the determination is made. The
Board, pursuant to the recommendation of the Corporate Governance and Nominating
Committee, has also adopted the following categorical standards to assist it in
making a determination of independence.
a) A director who is an employee, or whose immediate family member is an
executive officer, of the Company is not independent until three years after the
end of such employment relationship.
b) A director who received, or whose immediate family member received,
during any twelve-month period within the last three years, more than $100,000
in direct compensation from the Company, other than director and committee fees
and pension or other forms of deferred compensation for prior service (provided
such compensation is not contingent in any way on continued service) is not
independent.
c) (i) A director who is, or whose immediate family member is, a current
partner of a firm that is the Company's internal or external auditor; (ii) a
director who is a current employee of such firm; (iii) a director who has an
immediate family member who is a current employee of such a firm and who
participates in the firm's audit, assurance or tax compliance (but not tax
planning) practice; or (iv) a director who was or whose immediate family member
was within the last three years (but is no longer) a partner or employee of such
a firm and personally worked on the Company's audit within that time, is not
independent.
d) A director who is, or whose immediate family member is, employed as an
executive officer of another company where any of the Company's present
executive officers at the same time serves or served on the other company's
compensation committee, is not independent until three years after the end of
the employment relationship.
e) A director who is a current employee, or who beneficially owns more than
a 10% equity interest in, or whose immediate family member is a current
executive officer, of a corporation, partnership or other business entity, that
has made payments to, or received payments from, the Company for property or
services in an amount which, in any of the last three fiscal years, exceeds the
greater of $1 million, or 2% of the other company's consolidated gross revenues,
is not independent.
f) A director who is, or whose immediate family member is, an executive
officer of and is active in the day to day operations of a non-profit
organization that has received contributions from the Company (cash, in-kind or
in the form of product discounts), that exceed the greater of $1 million or 2%
of the organization's consolidated gross revenues in any of the last three
fiscal years is not independent.
"Immediate family member" includes a person's spouse, parents, children,
siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and
sisters-in-law, and anyone (other than domestic employees) who shares such
person's home.
A-1
APPENDIX B
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
MASCO CORPORATION
DECEMBER 7, 2004
I. MISSION
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Masco Corporation (the "Company") shall assist the Board in
fulfilling its independent and objective oversight responsibilities. The
Committee will assist Board oversight of (1) the integrity of the Company's
financial statements, (2) the qualifications, independence and performance of
the Company's independent accountants, (3) the performance of the Company's
internal audit function, and (4) compliance by the Company with legal and
regulatory requirements and by employees and officers with the Company's Code of
Business Ethics. The Committee strives to maintain open communications and has
an effective working relationship with the Board of Directors, the independent
accountants, the internal auditors and the management of the Company.
II. MEMBERSHIP
The Committee shall consist of at least three Directors of the Company. The
membership of the Committee shall qualify under the independence and experience
requirements of applicable law and the New York Stock Exchange. The Corporate
Governance and Nominating Committee shall recommend nominees for appointment to
the Committee annually and as vacancies or newly created positions occur.
Committee members shall be appointed by the Board and may be removed by the
Board at any time, and the Board will appoint a Committee Chairperson.
The Committee will meet as often as required to discharge its
responsibilities, no less than four times a year. The Committee will meet from
time to time in executive sessions without management participation. A majority
of the members of the Committee shall constitute a quorum for the transaction of
business. The Committee may delegate its authority to subcommittees or the
Chairperson of the Committee when it deems it appropriate and in the best
interests of the Company.
III. RESPONSIBILITIES
FINANCIAL STATEMENTS; DISCLOSURE AND OTHER RISK MANAGEMENT MATTERS
The Committee shall review with management, the internal auditors and the
independent accountants, as required by the New York Stock Exchange or as the
Committee deems appropriate, in separate meetings if the Committee deems it
appropriate:
- the annual audited financial statements, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and management's certifications with
respect to these financial statements, prior to the filing of the
Company's Form 10-K;
- the quarterly financial statements, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and management's certifications with respect to
these financial statements, prior to the filing of the Company's Form
10-Q;
- any analyses or other written communications prepared by management, the
internal auditors or the independent accountants setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of
the effects of alternative GAAP methods on the financial statements;
- the critical accounting policies and practices of the Company;
B-1
- the effect of off-balance sheet transactions and structures on the
financial statements;
- any major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles; and
- the effect of regulatory and accounting initiatives on the financial
statements.
The Committee shall review, in conjunction with management, the Company's
policies with respect to the Company's earnings press releases, financial
information and earnings guidance provided to analysts and rating agencies,
including the types of information to be disclosed and the types of presentation
to be made, paying particular attention to the use of "pro forma" or "adjusted"
non-GAAP information.
The Committee shall discuss with the Chief Executive Officer and Chief
Financial Officer of the Company their review of the Company's internal controls
related to financial reporting and disclosure controls and procedures, including
whether there are any significant deficiencies in the design or operation of
such controls and procedures, material weaknesses in such controls and
procedures, any corrective actions taken with regard to such deficiencies and
weaknesses and any fraud involving management or other employees with a
significant role in such controls and procedures.
The Committee shall discuss with management and the independent accountants
any correspondence with regulators or governmental agencies and any published
reports which raise material issues regarding the Company's financial statements
or accounting policies.
The Committee shall review and discuss with the independent accountants any
audit problems or difficulties and management's response thereto, including
those matters required to be discussed with the Committee by the independent
accountants pursuant to applicable Statements on Auditing Standards:
- any restrictions on the scope of the independent accountants' activities
or access to requested information;
- any accounting adjustments that were noted or proposed by the independent
accountants but were not effected (as immaterial or otherwise);
- any communications involving matters of potential significance between
the independent accountants for the Company and the independent
accountants' national office regarding auditing or accounting issues
presented by the engagement;
- any management or internal control letter issued, or proposed to be
issued, by the independent accountants; and
- any significant disagreements between the Company's management and the
independent accountants.
The Committee shall have the sole authority over the resolution of any
disagreements between management and the independent accountants regarding the
Company's financial reporting.
The Committee shall review the Company's guidelines and policies with
respect to risk assessment and risk management, including discussing with
management the Company's major financial risk exposures and the steps that have
been taken to monitor and control such exposures.
INDEPENDENT ACCOUNTANTS
The Committee has the sole authority to appoint, compensate, retain,
oversee and terminate the independent accountants of the Company (subject to any
required shareholder ratification), including sole authority to approve all
audit and non-audit services to be provided by the independent accountants and
all engagement fees and terms. The Committee shall pre-approve each such audit
and non-audit service to be provided by the Company's independent accountants.
The independent accountants must report directly to the Committee. The Committee
may consult with management in the decision-making process, but may not delegate
this authority to management. The Committee may, from time to time, delegate its
authority to pre-approve audit and non-audit services on a preliminary basis to
one or more Committee members, provided that such designee(s) present any such
approvals to the full Committee at the next Committee meeting.
B-2
The Committee shall review and approve the scope and staffing of the
independent accountants' annual audit plan.
The Committee shall evaluate the independent accountants' qualifications,
performance and independence, and shall present its conclusions with respect to
the independent accountants to the full Board on at least an annual basis. As
part of such evaluation, at least annually, the Committee shall:
- obtain and review a report or reports from the Company's independent
accountants describing:
- the independent accountants' internal quality-control procedures;
- any material issues raised by (i) the most recent internal
quality-control review or peer review of the independent accountants'
firm, or (ii) any inquiry or investigation by governmental or
professional authorities, within the preceding five years, regarding one
or more independent audits carried out by the independent accountants'
firm; and any steps taken to deal with any such issues;
- all relationships between the independent accountants and the Company;
and
- such other matters as to which the independent accountants are required
to report.
- review and evaluate the lead audit partner of the independent
accountants' team(s), and assure the regular rotation of the lead audit
partner as required by law;
- consider whether the independent accountants should be rotated, so as to
assure continuing auditor independence; and
- obtain the opinion of management and the internal auditors of the
independent accountants' performance.
The Committee shall establish policies for the Company's hiring of current
or former employees of the independent accountants.
INTERNAL AUDITORS
The head of the Company's internal audit department shall report to the
Audit Committee, in addition to all other reporting obligations such individual
may have within the Company.
At least annually, the Committee shall evaluate the performance,
responsibilities, budget and staffing of the Company's internal audit function
and review the internal audit plan. Such evaluation shall include a review of
the responsibilities, budget and staffing of the Company's internal audit
function with the independent accountants. The Committee shall review the
significant reports to management prepared by the internal audit department and
management's responses thereto. The Committee shall also review the department's
Charter (Statement of Responsibility and Activity of the Internal Audit
Department), the independence and authority of the department's reporting
obligations and its qualifications to perform its duties.
OTHER MATTERS
The Committee shall meet separately, periodically, with appropriate members
of management, with internal auditors or other personnel responsible for the
internal audit function and with the independent accountants. The Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent accountants to meet with any members of, or advisors to, the
Committee. The Committee has the authority to retain and terminate, and shall
have sole authority over any independent legal, financial or other advisors as
it may consider necessary to carry out its responsibilities under this charter,
without conferring with or obtaining the approval of management or the full
Board.
B-3
The Committee shall have available appropriate funding from the Company as
determined by the Committee for payment of:
- compensation to any accounting firm engaged for the purpose of preparing
or issuing an audit report or performing other audit, review or attest
services for the Company;
- compensation to any advisors employed by the Committee; and
- ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
CODE OF BUSINESS ETHICS
The Committee shall develop and recommend to the Board the Company's Code
of Business Ethics as it relates to employees and officers. The Committee shall
periodically review and reassess the adequacy of the Company's Code of Business
Ethics. The Committee shall periodically obtain updates from management,
internal audit and the General Counsel of the Company, as the Committee deems
appropriate, regarding compliance by employees and officers with legal, tax and
other regulatory agency rules and the Company's Code of Business Ethics, and
updates on any other antifraud or compliance programs instituted by the Company.
Any waiver of the Code of Business Ethics for executive officers or senior
financial officers may only be authorized by the Board or the Audit Committee,
and will be promptly disclosed to the Company's shareholders. The Committee will
also oversee the process by which employees may report illegal or unethical
behavior including cases alleging "insider trading", sexual harassment and
breach of non-discrimination laws.
The Committee shall establish procedures for:
- the receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or auditing
matters, and
- the confidential, anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.
The Committee shall report on any of the matters mentioned above as they
relate to compliance by Directors to the Corporate Governance and Nominating
Committee, as the Committee deems appropriate.
COMMITTEE CHARTER
The Committee shall annually review and assess the adequacy of the
Committee's Charter and recommend any proposed changes to the Board for
approval.
---------------------
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountants. Furthermore, while
the Committee is responsible for reviewing the Company's policies and practices
with respect to risk assessment and management, it is the responsibility of the
Chief Executive Officer and senior management to determine the appropriate level
of the Company's exposure to risk.
IV. REPORTING
The Committee will regularly report to the Board of Directors. This report
shall include a review of any issues that arise with respect to: the quality or
integrity of the Company's financial statements; the Company's compliance with
legal and regulatory requirements; the qualifications, independence and
performance of the Company's independent accountants; the performance of the
internal audit function; the administration of the Company's Code of Business
Ethics as it relates to employees and officers; and any other matters that the
Committee deems appropriate or is requested to be included by the Board. At
least annually, the Committee shall evaluate its own performance and report to
the Board on such evaluation. When presenting any
B-4
recommendation or advice to the Board, the Committee will provide such
background and supporting information as may be necessary for the Board to make
an informed decision. In addition, the Committee shall prepare the audit
committee report that the Securities and Exchange Commission rules require to be
included in the Company's annual proxy statement.
B-5
APPENDIX C
MASCO CORPORATION
2005 LONG TERM STOCK INCENTIVE PLAN
SECTION 1. PURPOSES.
The purposes of the 2005 Long Term Stock Incentive Plan (the "PLAN") are to
encourage selected employees of and consultants to Masco Corporation (the
"COMPANY") and its Affiliates to acquire a proprietary interest in the Company
in order to create an increased incentive to contribute to the Company's future
success and prosperity, and enhance the ability of the Company and its
Affiliates to attract and retain exceptionally qualified individuals upon whom
the sustained progress, growth and profitability of the Company depend, thus
enhancing the value of the Company for the benefit of its stockholders.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "AFFILIATE" shall mean any entity in which the Company's direct or
indirect equity interest is at least twenty percent, and any other entity
in which the Company has a significant direct or indirect equity interest,
whether more or less than twenty percent, as determined by the Committee.
(b) "AWARD" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, or Dividend
Equivalent granted under the Plan.
(c) "AWARD AGREEMENT" shall mean any agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "BOARD" shall mean the Board of Directors of the Company.
(e) "CHANGE IN CONTROL" shall mean at any time during a period of
twenty-four consecutive calendar months, the individuals who at the
beginning of such period constitute the Company's Board, and any new
directors (other than Excluded Directors, as hereinafter defined), whose
election by such Board or nomination for election by stockholders was
approved by a vote of at least two-thirds of the members of such Board who
were either directors on such Board at the beginning of the period or whose
election or nomination for election as directors was previously so
approved, for any reason ceasing to constitute at least a majority of the
members thereof. For purposes hereof, "EXCLUDED DIRECTORS" are directors
whose (i) election by the Board or approval by the Board for stockholder
election occurred within one year after any "person" or "group of persons,"
as such terms are used in Sections 13(d) and 14(d) of the Exchange Act,
commencing a tender offer for, or becoming the beneficial owner of, voting
securities representing 25 percent or more of the combined voting power of
all outstanding voting securities of the Company, other than pursuant to a
tender offer approved by the Board prior to its commencement or pursuant to
stock acquisitions approved by the Board prior to their representing 25
percent or more of such combined voting power or (ii) initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 or Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an individual,
corporation, partnership, group, associate or other entity or "person"
other than the Board.
(f) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(g) "COMMITTEE" shall mean a committee of the Company's directors
designated by the Board to administer the Plan and composed of not less
than two directors, each of whom is a "non-employee director," an
"independent director" and an "outside director," within the meaning of and
to the extent required respectively by Rule 16b-3, the applicable rules of
the NYSE and Section 162(m) of the Code, and any regulations issued
thereunder.
(h) "DIVIDEND EQUIVALENT" shall mean any right granted under Section
6(g) of the Plan.
C-1
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "EXECUTIVE GROUP" shall mean every person who the Committee
believes may be both (i) a "covered employee" as defined in Section 162(m)
of the Code as of the end of the taxable year in which the Company expects
to take a deduction of the Award, and (ii) the recipient of compensation of
more than $1,000,000 (as such amount appearing in Section 162(m) of the
Code may be adjusted by any subsequent legislation) for that taxable year.
(k) "INCENTIVE STOCK OPTION" shall mean an Option granted under
Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code, or any successor provision thereto.
(l) "NON-QUALIFIED STOCK OPTION" shall mean an Option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(m) "NYSE" shall mean the New York Stock Exchange.
(n) "OPTION" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(o) "PARTICIPANT" shall mean an employee of or consultant to the
Company or any Affiliate or a director of the Company designated to be
granted an Award under the Plan or, for the purpose of granting Substitute
Awards, a holder of options or other equity based awards relating to the
shares of a company acquired by the Company or with which the Company
combines.
(p) "PERFORMANCE AWARD" shall mean any right granted under Section
6(e) of the Plan.
(q) "PRIOR PLAN" shall mean the Company's 1991 Long Term Stock
Incentive Plan.
(r) "RESTRICTED PERIOD" shall mean the period of time during which
Awards of Restricted Stock or Restricted Stock Units are subject to
restrictions.
(s) "RESTRICTED STOCK" shall mean any Share granted under Section 6(d)
of the Plan.
(t) "RESTRICTED STOCK UNIT" shall mean any right granted under Section
6(d) of the Plan that is denominated in Shares.
(u) "RULE 16B-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act, or any successor rule or
regulation.
(v) "SECTION 16" shall mean Section 16 of the Exchange Act, the rules
and regulations promulgated by the Securities and Exchange Commission
thereunder, or any successor provision, rule or regulation.
(w) "SHARES" shall mean the Company's common stock, par value $1.00
per share, and such other securities or property as may become the subject
of Awards, or become subject to Awards, pursuant to an adjustment made
under Section 4(c) of the Plan.
(x) "STOCK APPRECIATION RIGHT" shall mean any right granted under
Section 6(c) of the Plan.
(y) "SUBSTITUTE AWARDS" shall mean Awards granted in assumption of, or
in substitution for, outstanding awards previously granted by a company
acquired by a Company or with which the Company combines.
SECTION 3. ADMINISTRATION.
The Committee shall administer the Plan, and subject to the terms of the
Plan and applicable law, the Committee's authority shall include without
limitation the power to:
(i) designate Participants;
(ii) determine the types of Awards to be granted;
(iii) determine the number of Shares to be covered by Awards and any
payments, rights or other matters to be calculated in connection therewith;
C-2
(iv) determine the terms and conditions of Awards and amend the terms
and conditions of outstanding Awards;
(v) determine how, whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited or
suspended;
(vi) determine how, whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property
and other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) determine the methods or procedures for establishing the fair
market value of any property (including, without limitation, any Shares or
other securities) transferred, exchanged, given or received with respect to
the Plan or any Award;
(viii) prescribe and amend the forms of Award Agreements and other
instruments required under or advisable with respect to the Plan;
(ix) designate Options granted to key employees of the Company or its
subsidiaries as Incentive Stock Options;
(x) interpret and administer the Plan, Award Agreements, Awards and
any contract, document, instrument or agreement relating thereto;
(xi) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the administration of
the Plan;
(xii) decide all questions and settle all controversies and disputes
which may arise in connection with the Plan, Award Agreements and Awards;
(xiii) delegate to a committee of at least two directors of the
Company the authority to designate Participants and grant Awards, and to
amend Awards granted to Participants;
(xiv) delegate to one or more officers or managers of the Company, or
a committee of such officers and managers, the authority, subject to such
terms and limitations as the Committee shall determine, to cancel, modify,
waive rights with respect to, alter, discontinue, suspend or terminate
Awards held by employees who are not officers or directors of the Company
for purposes of Section 16 of the Exchange Act; provided, however, that any
delegation to management shall conform with the requirements of the NYSE
applicable to the Company and Delaware corporate law; and
(xv) make any other determination and take any other action that the
Committee deems necessary or desirable for the interpretation, application
and administration of the Plan, Award Agreements and Awards.
All designations, determinations, interpretations and other decisions under
or with respect to the Plan, Award Agreements or any Award shall be within the
sole discretion of the Committee, may be made at any time and shall be final,
conclusive and binding upon all persons, including the Company, Affiliates,
Participants, beneficiaries of Awards and stockholders of the Company.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. Subject to adjustment as provided in Section
4(c):
The maximum number of Shares available for issuance in respect of Awards
made under the Plan shall be 25,000,000 Shares, provided, however, that if for
any reason any Award under the Plan or under the Prior Plan is cancelled,
forfeited or expires without the delivery of Shares, the number of Shares
available for issuance in respect of Awards under the Plan shall be increased by
the number of Shares that were so cancelled, forfeited or subject to expiration.
The maximum number of Shares that may be issued and delivered upon vesting of
Restricted Stock or Restricted Stock Units is 9,000,000. Subject to the
foregoing, Shares may
C-3
be made available from the authorized but unissued Shares of the Company or from
Shares reacquired by the Company.
(b) Individual Stock-Based Awards. Subject to adjustment as provided in
Section 4(c), no Participant may receive Options or Stock Appreciation Rights
under the Plan in any calendar year that relate to more than 4,000,000 Shares in
the aggregate; provided, however, that such number may be increased with respect
to any Participant by any Shares available for grant to such Participant in
accordance with this Section 4(b)in any prior years that were not granted in
such prior year. No provision of this Section 4(b) shall be construed as
limiting the amount of any other stock-based or cash-based award which may be
granted to any Participant.
(c) Adjustments. Upon the occurrence of any dividend or other distribution
(whether in the form of cash, Shares, other securities or other property),
change in the capital or shares of capital stock, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or extraordinary transaction or event which affects
the Shares, then the Committee shall have the authority to make such adjustment,
if any, in such manner as it deems appropriate, in (i) the number and type of
Shares (or other securities or property) which thereafter may be made the
subject of Awards, (ii) outstanding Awards including without limitation the
number and type of Shares (or other securities or property) subject thereto, and
(iii) the grant, purchase or exercise price with respect to outstanding Awards
and, if deemed appropriate, make provision for cash payments to the holders of
outstanding Awards; provided, however, that the number of Shares subject to any
Award denominated in Shares shall always be a whole number.
(d) Substitute Awards. Shares underlying Substitute Awards shall not reduce
the number of shares remaining available for issuance under the Plan for any
purpose.
SECTION 5. ELIGIBILITY.
Any employee of or consultant to the Company or any Affiliate, or any
director of the Company, is eligible to be designated a Participant.
SECTION 6. AWARDS.
(a) Options. (i) The Committee is authorized to grant Options to
Participants with the following terms and conditions and with such other terms
and conditions, in either case not inconsistent with the provisions of the Plan,
as the Committee shall determine:
(A) the purchase price per Share under each Option, provided, however,
that such price shall be not less than 100% of the fair market value of the
Shares underlying such Option on the date of grant (except in the case of
Substitute Awards);
(B) the term of each Option (not to exceed ten years);
(C) the time or times at which an Option may be exercised, in whole or
in part, the method or methods by which and the form or forms (including,
without limitation, cash, Shares, other Awards or other property, or any
combination thereof, having a fair market value on the exercise date equal
to the relevant exercise price) in which payment of the exercise price with
respect thereto may be made or deemed to have been made; and
(D) The terms of any Incentive Stock Option granted under the Plan
shall comply in all respects with the provisions of Section 422 of the
Code, or any successor provision thereto, and any regulations promulgated
thereunder. The maximum number of Shares that may be awarded as Incentive
Stock Options is 16,000,000.
C-4
(ii) Other Terms. Notwithstanding the following terms, the Committee may
impose other terms that may be more or less favorable to the Company as it deems
fit. Unless the Committee shall impose such other terms, the following
conditions shall apply:
(A) Exercise. A Participant electing to exercise an Option shall give
written notice to the Company, as may be specified by the Committee, of
exercise of the Option and the number of Shares elected for exercise, such
notice to be accompanied by such instruments or documents as may be
required by the Committee, and shall tender the purchase price of the
Shares elected for exercise.
(B) Payment. At the time of exercise of an Option payment in full in
cash or in Shares or any combination thereof, at the option of the
Participant, shall be made for all Shares then being purchased.
(C) Issuance. The Company shall not be obligated to issue any Shares
unless and until:
(1) if the class of Shares at the time is listed upon any stock
exchange, the Shares to be issued have been listed, or authorized to be
added to the list upon official notice of issuance, upon such exchange,
and
(2) in the opinion of the Company's counsel there has been
compliance with applicable law in connection with the issuance and
delivery of Shares and such issuance shall have been approved by the
Company's counsel.
Without limiting the generality of the foregoing, the Company may require
from the Participant such investment representation or such agreement, if any,
as the Company's counsel may consider necessary in order to comply with the
Securities Act of 1933 as then in effect, and may require that the Participant
agree that any sale of the Shares will be made only in such manner as shall be
in accordance with law and that the Participant will notify the Company of any
intent to make any disposition of the Shares whether by sale, gift or otherwise.
The Participant shall take any action reasonably requested by the Company in
such connection. A Participant shall have the rights of a stockholder only as
and when Shares have been actually issued to the Participant pursuant to the
Plan.
(D) Minimum Vesting. Options may not become fully exercisable prior to
the third anniversary of the date of grant, except as provided in Section
6(a)(ii)(E) and Section 7(f) below.
(E) Termination of Employment; Death. If the employment of a
Participant terminates for any reason or if a Participant dies (whether
before or after the normal retirement date), Options shall be or become
exercisable only as provided in (1) through (5) below:
(1) If such termination is voluntary on the part of the
Participant, such Option may be exercised only if and to the extent such
Option was exercisable at the date of termination and only within thirty
days after the date of termination. Except as so exercised such Option
shall expire at the end of such period.
(2) If such termination is involuntary on the part of the
Participant, such Option may be exercised only if and to the extent such
Option was exercisable at the date of termination and only within three
months after the date of termination. Except as so exercised such Option
shall expire at the end of such period.
(3) If an employee retires on or after the normal retirement date,
such Option shall continue to be and become exercisable in accordance
with its terms and the provisions of this Plan.
(4) If a Participant's employment is terminated by reason of
permanent and total disability, all unexercisable installments of such
Option shall thereupon become exercisable and shall remain exercisable
for the remainder of the Option term.
(5) If a Participant dies, all unexercisable installments of such
Option shall thereupon become exercisable and, at any time or times
within one year after such death, the Option may be exercised, as to all
or any unexercised portion of the Option. The Company may decline to
deliver Shares to a
C-5
designated beneficiary until it receives indemnity against claims of
third parties satisfactory to the Company. Except as so exercised such
Option shall expire at the end of such period.
(b) Restoration Options. The Committee may grant a Participant a
restoration Option under this Plan with respect to an option granted by the
Company under the Prior Plan, or with respect to a restoration option resulting
from such an option, when the Participant pays the exercise price by delivering
Shares or by attesting to the ownership of such Shares. The restoration option
is equal to the number of Shares delivered or attested to by the Participant,
and the exercise price shall not be less than 100 percent of the fair market
value of the Shares on the date the restoration option is granted. A restoration
option otherwise will have the same terms as the original option. Unless the
Committee shall otherwise determine, (i) no restoration option shall be granted
unless the recipient is an active employee at the time of grant and (ii) the
number of Shares which are subject to a restoration Option shall not exceed the
number of whole Shares exchanged in payment for the exercise of the underlying
Option. No restoration Options shall otherwise be granted under this Plan.
(c) Stock Appreciation Rights. The Committee is authorized to grant Stock
Appreciation Rights to Participants. Subject to the terms of the Plan, a Stock
Appreciation Right granted under the Plan shall confer on the holder thereof a
right to receive, upon exercise thereof, the excess of (i) the fair market value
of one Share on the date of exercise or, if the Committee shall so determine in
the case of any such right other than one related to any Incentive Stock Option,
at any time during a specified period before or after the date of exercise over
(ii) the fair market value on the date of grant. Subject to the terms of the
Plan, the Committee shall determine the grant price, term, methods of exercise
and settlement and any other terms and conditions of any Stock Appreciation
Right and may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate.
(d) Restricted Stock and Restricted Stock Units.
(i) Issuance. The Committee is authorized to grant to Participants
Awards of Restricted Stock, which shall consist of Shares, and Restricted
Stock Units which shall give the Participant the right to receive cash,
other securities, other Awards or other property, in each case subject to
the termination of the Restricted Period determined by the Committee.
Notwithstanding the following terms, the Committee may impose other terms
that may be more or less favorable to the Company as it deems fit. In the
absence of any such differing provisions, Awards of Restricted Stock and
Restricted Stock Units shall have the provisions described below.
(ii) Restrictions. The Restricted Period may differ among Participants
and may have different expiration dates with respect to portions of Shares
covered by the same Award. Subject to the terms of the Plan, Awards of
Restricted Stock and Restricted Stock Units shall have such restrictions as
the Committee may impose (including, without limitation, limitations on the
right to vote Restricted Stock or the right to receive any dividend or
other right or property), which restrictions may lapse separately or in
combination at such time or times, in installments or otherwise (including
the achievement of performance measures as set forth in Section 6(e)
hereof), as the Committee may deem appropriate. Any Shares or other
securities distributed with respect to Restricted Stock or which a
Participant is otherwise entitled to receive by reason of such Shares shall
be subject to the restrictions contained in the applicable Award Agreement.
Restricted Stock Awards and Restricted Stock Units may not fully vest prior
to the third anniversary of the date of grant, except as provided in
Sections 6(d)(iv)(B) and 7(f) below. Subject to the aforementioned
restrictions and the provisions of the Plan, a Participant shall have all
of the rights of a stockholder with respect to Restricted Stock.
(iii) Registration. Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee may deem appropriate, including,
without limitation, book-entry registration or issuance of stock
certificates.
(iv) Termination; Death. If a Participant's employment terminates for
any reason, all Shares of Restricted Stock or Restricted Stock Units
theretofore awarded to the Participant which are still subject to
restrictions shall upon such termination be forfeited and transferred back
to the Company, except as provided in clauses (A) and (B) below.
C-6
(A) If an employee ceases to be employed by reason of retirement on
or after normal retirement date, the restrictions contained in the Award
of Restricted Stock or the Restricted Stock Unit shall continue to lapse
in the same manner as though employment had not terminated, subject to
clause (B) below and Sections 6(d)(v) and 7(f).
(B) If a Participant ceases to be employed by reason of permanent
and total disability or if a Participant dies, whether before or after
the normal retirement date, the restrictions contained in such
Participant's Award of Restricted Stock or Restricted Stock Unit shall
lapse.
(C) At the expiration of the Restricted Period, the Company shall
deliver Shares in the case of an Award of Restricted Stock or Shares,
cash, securities or other property, in the case of a Restricted Stock
Unit, as follows:
(1) if an assignment to a trust has been made in accordance with
Section 7(d)(ii)(B), to such trust; or
(2) if the Restricted Period has expired by reason of death and
a beneficiary has been designated in form approved by the Company, to
the beneficiary so designated; or
(3) in all other cases, to the Participant or the legal
representative of the Participant's estate.
(v) Acceleration. New Awards granted to a Participant in or after the
calendar year in which such Participant attains age 65 will vest in five
equal annual installments or such earlier vesting as may be specified in
the Award Agreement. With respect to an Award granted to a Participant
prior to the calendar year in which the Participant attains age 65, if in
the calendar year in which the Participant attains age 65 the Restricted
Period then remaining thereunder is longer than five years, the Restricted
Period shall be shortened so that commencing in the calendar year that a
Participant attains age 66, the restrictions contained in the Award shall
lapse in equal annual installments such that the Participant shall be fully
vested not later than the end of the calendar year in which the Participant
attains age 70.
(e) Performance Awards.
(i) The Committee is hereby authorized to grant Performance Awards to
Participants.
(ii) Subject to the terms of the Plan, a Performance Award granted
under the Plan (A) may be denominated or payable in cash, Shares
(including, without limitation, Restricted Stock or Restricted Stock
Units), other securities or other Awards, and (B) shall confer on the
holder thereof rights valued as determined by the Committee and payable to,
or exercisable by, the holder of the Performance Award, in whole or in
part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish. Subject to the terms
of the Plan, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any Performance
Award granted and the amount of any payment or transfer to be made pursuant
to any Performance Award shall be determined by the Committee. Unless the
Committee determines otherwise, the performance period relating to any
Performance Award shall be at least one calendar year commencing January 1
and ending December 31 (except in circumstances in connection with a Change
in Control, in which event the performance period may be shorter than one
year).
(iii) Every Performance Award to a member of the Executive Group
shall, if the Committee intends that such Award should constitute
"qualified performance-based compensation" for purposes of Section 162(m)
of the Code, include a pre-established formula, such that payment,
retention or vesting of the Award is subject to the achievement during a
performance period or periods, as determined by the Committee, of a level
or levels, as determined by the Committee, of one or more performance
measures with respect to the Company or any of its Affiliates, including
without limitation the following: (A) net income, (B) return on assets, (C)
revenues, (D) total shareholder return, (E) earnings per share; (F) return
on invested capital, or (G) cash flow; each as determined in accordance
with generally accepted accounting principles, where applicable, as
consistently applied by the Company. The following shall be excluded in
determining whether any performance criterion has been attained: losses
resulting
C-7
from discontinued operations, extraordinary losses (in accordance with
generally accepted accounting principles, as currently in effect), the
cumulative effect of changes in accounting principles and other unusual,
non-recurring items of loss that are separately identified and quantified
in the Company's audited financial statements. Performance measures may
vary from Performance Award to Performance Award and from Participant to
Participant and may be established on a stand-alone basis, in tandem or in
the alternative. For any Performance Award, the maximum amount that may be
delivered or earned in settlement of all such Awards granted in any year
shall be (x) if and to the extent that such Awards are denominated in
Shares, 2,000,000 Shares (subject to adjustment as provided in Section
4(c)) and (y) if and to the extent that such Awards are denominated in
cash, $10,000,000. Notwithstanding any provision of the Plan to the
contrary, the Committee shall not be authorized to increase the amount
payable under any Award to which this Section 6(e)(iii) applies upon
attainment of such pre-established formula.
(f) Dividend Equivalents. The Committee is authorized to grant to
Participants Awards under which the holders thereof shall be entitled to receive
payments equivalent to dividends or interest with respect to a number of Shares
determined by the Committee, and the Committee may provide that such amounts (if
any) shall be deemed to have been reinvested in additional Shares or otherwise
reinvested. Subject to the terms of the Plan, such Awards may have such terms
and conditions as the Committee shall determine.
(g) Termination of Employment. Except as otherwise provided in the Plan or
determined by the Committee,
(i) Awards granted to, or otherwise held by, employees will terminate,
expire and be forfeited upon termination of employment, which shall include
a change in status from employee to consultant and termination by reason of
the fact that an entity is no longer an Affiliate, and
(ii) a Participant's employment shall not be considered to be
terminated (A) in the case of approved sick leave or other approved leave
of absence (not to exceed one year or such other period as the Committee
may determine), or (B) in the case of a transfer among the Company and its
Affiliates.
(h) Termination of Awards. Notwithstanding any of the provisions of this
Plan or instruments evidencing Awards granted hereunder, other than the
provisions of Section 7(f), the Committee may terminate any Award (including the
unexercised portion of any Option and any Award of Restricted Stock or
Restricted Stock Units which remains subject to restrictions) concurrently with
or at any time following termination of employment regardless of the reason for
such termination of employment if the Committee shall determine that the
Participant has engaged in any activity detrimental to the interests of the
Company or an Affiliate.
SECTION 7. GENERAL.
(a) No Cash Consideration for Awards. Awards may be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.
(b) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted under
any other plan of the Company or any Affiliate. Awards granted in addition to or
in tandem with other Awards or in addition to or in tandem with awards granted
under another plan of the Company or an Affiliate, may be granted either at the
same time as or at a different time from the grant of such other Awards or
awards.
(c) Forms of Payment Under Awards. Subject to the terms of the Plan and of
any applicable Award Agreement, payments or transfers to be made by the Company
or an Affiliate upon the grant, exercise, or
C-8
payment of an Award may be made in such form or forms as the Committee shall
determine, including, without limitation, cash, Shares, other securities, other
Awards, or other property, or any combination thereof, and may be made in a
single payment or transfer, in installments, or on a deferred basis, in each
case in accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents in respect of installment or deferred
payments.
(d) Limits on Transfer of Awards. Awards can not be transferred, except the
Committee is hereby authorized to permit the transfer of Awards with the
following terms and conditions and with such additional terms and conditions, in
either case not inconsistent with the provisions of the Plan, as the Committee
shall determine:
(i) No Award or right under any Award may be sold, encumbered,
pledged, alienated, attached, assigned or transferred in any manner and any
attempt to do any of the foregoing shall be void and unenforceable against
the Company.
(ii) Notwithstanding the provisions of Section 7(d)(i) above:
(A) An Option may be transferred:
(1) to a beneficiary designated by the Participant in writing on
a form approved by the Committee;
(2) by will or the applicable laws of descent and distribution
to the personal representative, executor or administrator of the
Participant's estate; or
(3) to a revocable grantor trust established by the Participant
for the sole benefit of the Participant during the Participant's
life, and under the terms of which the Participant is and remains the
sole trustee until death or physical or mental incapacity. Such
assignment shall be effected by a written instrument in form and
content satisfactory to the Committee, and the Participant shall
deliver to the Committee a true copy of the agreement or other
document evidencing such trust. If in the judgment of the Committee
the trust to which a Participant may attempt to assign rights under
such an Award does not meet the criteria of a trust to which an
assignment is permitted by the terms hereof, or if after assignment,
because of amendment, by force of law or any other reason such trust
no longer meets such criteria, such attempted assignment shall be
void and may be disregarded by the Committee and the Company and all
rights to any such Options shall revert to and remain solely with the
Participant. Notwithstanding a qualified assignment, for the purpose
of determining compensation arising by reason of the Option, the
Participant, and not the trust to which rights under such an Option
may be assigned, shall continue to be considered an employee or
consultant, as the case may be, of the Company or an Affiliate, but
such trust and the Participant shall be bound by all of the terms and
conditions of the Award Agreement and this Plan. Shares issued in the
name of and delivered to such trust shall be conclusively considered
issuance and delivery to the Participant.
(B) A Participant may assign or transfer rights under an Award of
Restricted Stock or Restricted Stock Units:
(1) to a beneficiary designated by the Participant in writing on
a form approved by the Committee;
(2) by will or the applicable laws of descent and distribution
to the personal representative, executor or administrator of the
Participant's estate; or
(3) to a revocable grantor trust established by the Participant
for the sole benefit of the Participant during the Participant's
life, and under the terms of which the Participant is and remains the
sole trustee until death or physical or mental incapacity. Such
assignment shall be effected by a written instrument in form and
content satisfactory to the Committee, and the Participant shall
deliver to the Committee a true copy of the agreement or other
document
C-9
evidencing such trust. If in the judgment of the Committee the trust
to which a Participant may attempt to assign rights under such an
Award does not meet the criteria of a trust to which an assignment is
permitted by the terms hereof, or if after assignment, because of
amendment, by force of law or any other reason such trust no longer
meets such criteria, such attempted assignment shall be void and may
be disregarded by the Committee and the Company and all rights to any
such Awards shall revert to and remain solely with the Participant.
Notwithstanding a qualified assignment, for the purpose of
determining compensation arising by reason of the Award, the
Participant, and not the trust to which rights under such an Award
may be assigned, shall continue to be considered an employee or
consultant, as the case may be, of the Company or an Affiliate, but
such trust and the Participant shall be bound by all of the terms and
conditions of the Award Agreement and this Plan. Shares issued in the
name of and delivered to such trust shall be conclusively considered
issuance and delivery to the Participant.
(C) The Committee shall not permit directors or officers of the
Company for purposes of Section 16 to transfer or assign Awards except
as permitted under Rule 16b-3.
(iii) The Committee, the Company and its officers, agents and
employees may rely upon any beneficiary designation, assignment or other
instrument of transfer, copies of trust agreements and any other documents
delivered to them by or on behalf of the Participant which they believe
genuine and any action taken by them in reliance thereon shall be
conclusive and binding upon the Participant, the personal representatives
of the Participant's estate and all persons asserting a claim based on an
Award. The delivery by a Participant of a beneficiary designation, or an
assignment of rights under an Award as permitted hereunder, shall
constitute the Participant's irrevocable undertaking to hold the Committee,
the Company and its officers, agents and employees harmless against claims,
including any cost or expense incurred in defending against claims, of any
person (including the Participant) which may be asserted or alleged to be
based on an Award subject to a beneficiary designation or an assignment. In
addition, the Company may decline to deliver Shares to a beneficiary until
it receives indemnity against claims of third parties satisfactory to the
Company.
(e) Share Certificates. All certificates for Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan or the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which such
Shares or other securities are then listed and any applicable Federal or state
securities laws, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
(f) Change in Control.
(i) Notwithstanding any of the provisions of this Plan or instruments
evidencing Awards granted hereunder, upon a Change in Control of the
Company the vesting of all rights of Participants under outstanding Awards
shall be accelerated and all restrictions thereon shall terminate in order
that Participants may fully realize the benefits thereunder. Such
acceleration shall include, without limitation, the immediate
exercisability in full of all Options and the termination of restrictions
on Restricted Stock and Restricted Stock Units. Further, in addition to the
Committee's authority set forth in Section 4(c), the Committee, as
constituted before such Change in Control, is authorized, and has sole
discretion, as to any Award, either at the time such Award is made
hereunder or any time thereafter, to take any one or more of the following
actions: (A) provide for the purchase of any such Award, upon the
Participant's request, for an amount of cash equal to the amount that could
have been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable;
(B) make such adjustment to any such Award then outstanding as the
Committee deems appropriate to reflect such Change in Control; and (C)
cause any such Award then outstanding to be assumed, or new rights
substituted therefor, by the acquiring or surviving corporation after such
Change in Control.
(ii) (A) In the event that subsequent to a Change in Control it is
determined that any payment or distribution by the Company to or for the
benefit of a Participant, whether paid or payable or
C-10
distributed or distributable pursuant to the terms of this Plan or
otherwise, other than any payment pursuant to this Section 7(f)(ii)(A)
(a "PAYMENT"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "EXCISE
TAX"), then such Participant shall be entitled to receive from the
Company, within 15 days following the determination described in (2)
below, an additional payment ("EXCISE TAX ADJUSTMENT PAYMENT") in an
amount such that after payment by such Participant of all applicable
Federal, state and local taxes (computed at the maximum marginal rates
and including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment
Payment, such Participant retains an amount of the Excise Tax Adjustment
Payment equal to the Excise Tax imposed upon the Payments.
(B) All determinations required to be made under this Section
7(f)(ii), including whether an Excise Tax Adjustment Payment is required
and the amount of such Excise Tax Adjustment Payment, shall be made by
PricewaterhouseCoopers LLP, or such other national accounting firm as
the Company, or, subsequent to a Change in Control, the Company and the
Participant jointly, may designate, for purposes of the Excise Tax,
which shall provide detailed supporting calculations to the Company and
the affected Participant within 15 business days of the date of the
applicable Payment. Except as hereinafter provided, any determination by
PricewaterhouseCoopers LLP, or such other national accounting firm,
shall be binding upon the Company and the Participant. As a result of
the uncertainty in the application of Section 4999 of the Code that may
exist at the time of the initial determination hereunder, it is possible
that (x) certain Excise Tax Adjustment Payments will not have been made
by the Company which should have been made (an "UNDERPAYMENT"), or (y)
certain Excise Tax Adjustment Payments will have been made which should
not have been made (an "OVERPAYMENT"), consistent with the calculations
required to be made hereunder. In the event of an Underpayment, such
Underpayment shall be promptly paid by the Company to or for the benefit
of the affected Participant. In the event that the Participant discovers
that an Overpayment shall have occurred, the amount thereof shall be
promptly restored to the Company.
(g) Cash Settlement. Notwithstanding any provision of this Plan or of any
Award Agreement to the contrary, any Award outstanding hereunder may at any time
be cancelled in the Committee's sole discretion upon payment of the value of
such Award to the holder thereof in cash or in another Award hereunder, such
value to be determined by the Committee in its sole discretion.
(h) Option Repricing. Except as provided in Section 4(c) and in connection
with the granting of a Substitute Award, no outstanding Option may be cancelled
and replaced with an Option having a lower exercise price.
SECTION 8. AMENDMENT AND TERMINATION.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend the Plan and the Board
or the Committee may amend any outstanding Award; provided, however, that
(i) no Plan amendment shall be effective until approved by stockholders of
the Company if any stockholder approval thereof is required in order for
the Plan to continue to satisfy the conditions of the applicable rules and
regulations that the Committee has determined to be necessary to comply
with, and (ii) without the consent of affected Participants no amendment of
the Plan or of any Award may impair the rights of Participants under
outstanding Awards, and (iii) no Option may be amended to reduce its
initial exercise price other than in connection with an event described in
Section 4(c) hereof or the granting of a Substitute Award.
(b) Waivers. The Committee may waive any conditions to the Company's
obligations or rights of the Company under any Award theretofore granted,
prospectively or retroactively, without the consent of any Participant.
C-11
(c) Adjustments of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(c) hereof) affecting the
Company, any Affiliate, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits to be made available under the Plan; provided, however,
no such adjustment shall be made to an Award granted under Section
6(e)(iii) if the Committee intends such Award to constitute "qualified
performance-based compensation" unless such adjustment is permitted under
Section 162(m) of the Code.
SECTION 9. Correction of Defects, Omissions, and Inconsistencies The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to effectuate the Plan.
SECTION 10. General Provisions.
(a) No Rights to Awards. No Participant or other person shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Participants or holders or beneficiaries of Awards
under the Plan. The terms and conditions of Awards of the same type and the
determination of the Committee to grant a waiver or modification of any Award
and the terms and conditions thereof need not be the same with respect to each
Participant.
(b) Withholding. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made under any
Award or under the Plan the amount (in cash, Shares, other securities, other
Awards or other property) of withholding taxes due in respect of an Award, its
exercise or any payment or transfer under such Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company or
Affiliate to satisfy all obligations for the payment of such taxes.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, including the grant of
options and other stock-based awards, and such arrangements may be either
generally applicable or applicable only in specific cases.
(d) No Right to Employment or Service. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ or
service of the Company or any Affiliate. Further, the Company or an Affiliate
may at any time dismiss a Participant from employment or service, free from any
liability, or any claim under the Plan, unless otherwise expressly provided in
the Plan or in any Award Agreement or in any other agreement binding the
parties.
(e) Governing Law. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Michigan and applicable Federal law.
(f) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as
to any person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, person or Award, and the remainder of the Plan and any such Award
shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
person. To the extent that any person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
C-12
(h) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares, or whether such fractional Shares or any rights
thereto shall be cancelled, terminated or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 11. TERM.
The Plan shall be effective as of the date of its approval by the Company's
stockholders and no Awards shall be made under the Plan after May 10, 2015.
C-13
MASCO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
AT MASCO CORPORATE HEADQUARTERS
21001 VAN BORN ROAD
TAYLOR, MICHIGAN 48180
[MAP]
FROM DOWNTOWN DETROIT (EAST)
- Take I-94 west to the Pelham Road exit.
- Turn right onto Pelham Road and travel to Van Born Road.
- Turn left onto Van Born Road and proceed to the corporate headquarters.
FROM METRO AIRPORT (WEST)
- Take I-94 east to the Pelham Road exit.
- Turn left onto Pelham and travel to Van Born Road.
- Turn left onto Van Born Road and proceed to the corporate headquarters.
FROM SOUTHFIELD/BIRMINGHAM (NORTH)
- Take the Southfield Freeway to the Outer Drive/ Van Born Road exit.
- Stay on the service drive and proceed to Van Born Road.
- Bear right onto Van Born Road and travel to the corporate headquarters.
FROM TOLEDO (SOUTH)
- Take I-75 north to the Telegraph Road north exit.
- Proceed on Telegraph Road north to Van Born Road.
- Turn right on Van Born Road and proceed to the corporate headquarters.
[RECYCLE LOGO]
MASCO CORPORATION VOTE BY TELEPHONE OR INTERNET 24 HOURS A DAY,
7 DAYS A WEEK UNTIL 5:00 P.M. ON MAY 9, 2005
------------------- -------------------------------- -------------------
TELEPHONE INTERNET MAIL
1-866-564-2331 OR https://www.proxyvotenow.com/mas OR
------------------- -------------------------------- -------------------
- Use any touch-tone telephone - Go to the website address - Mark, sign and date your Proxy Card.
- HAVE YOUR PROXY CARD READY. listed above. - Detach your Proxy Card.
- Follow the simple recorded - HAVE YOUR PROXY CARD READY. - Return your Proxy Card in the
instructions. - Follow the simple instructions Postage-paid envelope provided.
that appear on your computer
screen.
------------------------------------------
Your telephone or internet vote authorizes
the named proxies to vote your shares in
the same manner as if you marked, signed
and returned the Proxy Card.
------------------------------------------
------------------------------------------
If you have submitted your Proxy by tele-
phone or the Internet there is no need for
you to mail back your Proxy Card.
------------------------------------------
------------------------------------------
If you have chosen to view the Proxy State
-ment and Annual Report over the Internet
instead of receiving paper copies in the
mail, you can access the Proxy Statement
and 2004 Annual Report electronically at
the Company's website, www.masco.com.
------------------------------------------
1-866-564-2331
CALL TOLL-FREE TO VOTE
DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET
--------------------------------------------------------------------------------
IF VOTING BY MAIL, PLEASE
SIGN, DATE AND RETURN THIS |X|
PROXY CARD PROMPTLY IN THE VOTES MUST BE INDICATED
ENCLOSED ENVELOPE. (x) IN BLACK OR BLUE INK.
(1) Election of Directors
FOR AGAINST ABSTAIN
FOR all nominees WITHHOLD AUTHORITY to vote EXCEPTIONS (2) Proposal to approve the [ ] [ ] [ ]
listed below [ ] for all nominees listed below [ ] [ ] Masco Corporation 2005
Long Term Stock Incentive
Plan.
Class II Directors to hold office until the Annual Meeting of Stockholders in (3) Ratification of the [ ] [ ] [ ]
2008 or until their respective successors are elected and qualified. selection of Pricewater-
houseCoopers LLP as
Nominees: 01 VERNE G. ISTOCK, 02 DAVID L. JOHNSTON, 03 J. MICHAEL LOSH independent auditors for
the Company for the year
2005.
Class I Director to hold office until the Annual Meeting of Stockholders in (4) In the proxie's discretion
2007 or until his successor is elected and qualified. upon such other business as
may properly come before the
meeting.
Nominee: 01 DENNIS W. ARCHER The shares represented by this Proxy will be voted
in accordance with the specifications above. IF
SPECIFICATIONS ARE NOT MADE, THE PROXY WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES, FOR THE APPROVAL
OF THE MASCO CORPORATION 2005 LONG TERM STOCK
* INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL INCENTIVE PLAN, FOR RATIFICATION OF INDEPENDENT
NOMINEE, MARK THE "EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT AUDITORS AND IN THE PROXIE'S DISCRETION ON ANY OTHER
NOMINEE'S NAME. MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
--------------------------------------------
--------------------------------------------
Please sign exactly as name appears above. Executors, adminstrators, trustees,
et al. should so indicate when signing. If the signature is for a corporation,
please sign the full corporate name by an authorized officer. If the signature
is for a partnership or a limited liability company, please sign the full
partnership or limited liability company name by an authorized person. --------------------------- ------------------
If shares are registered in more than one name, all holders must sign. Date Share Owner sign here Co-Owner sign here
IF YOU HAVE CHOSEN TO VIEW THE PROXY STATEMENT AND ANNUAL REPORT OVER THE
INTERNET INSTEAD OF RECEIVING PAPER COPIES IN THE MAIL, YOU CAN ACCESS THE PROXY
STATEMENT AND 2004 ANNUAL REPORT ELECTRONICALLY AT THE COMPANY'S WEBSITE,
WWW.MASCO.COM.
--------------------------------------------------------------------------------
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 10, 2005
MASCO CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby revoking any Proxy heretofore given, appoints
RICHARD A. MANOOGIAN and EUGUENE A. GARGARO, JR. and each of them attorneys and
proxies for the undersigned, each with full power of substitution, to vote the
shares of Company Common Stock registered in the name of the undersigned to the
same extent the undersigned would be entitled to vote if then personally present
at the Annual Meeting of Stockholders of Masco Corporation to be held at the
offices of the Company at 21001 Van Born Road, Taylor, Michigan 48180, on
Tuesday, May 10, 2005, at 10:00 A.M. and at any adjournment thereof.
The undersigned hereby acknowledges receipt of the accompanying Notice
of Annual Meeting of Stockholders and Proxy Statement.
(Continued and to be signed and dated on the reverse side.)
MARK HERE IF YOU WISH TO ACCESS THE ANNUAL
REPORT AND PROXY STATEMENT ELECTRONICALLY [ ]
IN THE FUTURE INSTEAD OF BY MAIL.
MASCO CORPORATION
To change your address, please mark this box. [ ] P.O. BOX 11261
NEW YORK, N.Y. 10203-0261
To include any comments, please mark this box. [ ]