-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E7IW/qdGWmXA+JgXPwJEoLt63f7fbXqBAUqTqldDGMl55eRMdt6bXIeXvsc6qheH mlRtrLJU2nuo/fqWCFhfXA== 0000062418-99-000005.txt : 19990624 0000062418-99-000005.hdr.sgml : 19990624 ACCESSION NUMBER: 0000062418-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK IV INDUSTRIES INC CENTRAL INDEX KEY: 0000062418 STANDARD INDUSTRIAL CLASSIFICATION: GASKETS, PACKAGING AND SEALING DEVICES & RUBBER & PLASTIC HOSE [3050] IRS NUMBER: 231733979 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08862 FILM NUMBER: 99637653 BUSINESS ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PKWY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14266-0810 BUSINESS PHONE: 7166894972 MAIL ADDRESS: STREET 1: 501 JOHN JAMES AUDUBON PARKWAY STREET 2: P O BOX 810 CITY: AMHERST STATE: NY ZIP: 14266-0810 FORMER COMPANY: FORMER CONFORMED NAME: MARK FOUR HOMES INC DATE OF NAME CHANGE: 19770921 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended February 28, 1999 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________________ to _____________________ Commission File No. 1-8862 MARK IV INDUSTRIES, INC. - --------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 23-1733979 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS employer Identification number) incorporation or organization) 501 John James Audubon Pkwy., P.O. Box 810, Amherst, NY 14226-0810 - ------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 689-4972 --------------- Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of Class which registered -------------- ------------------- Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant based on the closing price of the Common Stock on May 20, 1999 on the New York Stock Exchange was approximately $723.5 million. As of May 20, 1999, the number of outstanding shares of Registrant's Common Stock, $.01 par value, was 49,133,624 shares. Documents Incorporated By Reference ----------------------------------- Portions of the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year are incorporated by reference into Part III. 2 MARK IV INDUSTRIES, INC. INDEX TO ANNUAL REPORT ON FORM 10-K PART I Page Item 1: Business....................................................3 Item 2: Properties.................................................22 Item 3: Legal Proceedings..........................................23 Item 4: Submission of Matters to a Vote of Security Holders.......................................23 PART II Item 5: Market for the Company's Common Stock and Related Security Holder Matters...........................24 Item 6: Selected Financial Data....................................25 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................27 Item 8: Financial Statements and Supplementary Data......................................................40 Item 9: Disagreement on Accounting and Financial Disclosure................................................67 PART III Item 10: Directors and Executive Officers of the Registrant................................................67 Item 11: Executive Compensation.....................................67 Item 12: Security Ownership of Certain Beneficial Owners and Management.....................................67 Item 13: Certain Relationships and Related Transactions..............................................67 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K ......................................68 Signatures.................................................75 Exhibit Index..............................................76 3 PART I ITEM 1. BUSINESS - ----------------- General Mark IV Industries, Inc. ("Mark IV" or "the Company") is a diversified manufacturer of a broad range of proprietary and other power and fluid transfer products and systems which serve primarily industrial and automotive markets. Many of Mark IV's product groups have a significant, and in certain instances the leading share of their respective markets. Products manufactured by Mark IV principally serve specialized needs in markets in which relatively few manufacturers compete. These products are sold primarily directly, but also through independent distributors, to other manufacturers and commercial users in the United States and Europe and, to a lesser extent, in Canada, Latin America and the Far East. Mark IV operates 75 manufacturing facilities and 45 distribution and sales locations and employs approximately 17,000 people in 19 countries. Mark IV's business strategy is focused on building its worldwide Automotive and Industrial business segments through internal growth and selective strategic acquisitions, and the continuation of cost control and quality improvement programs. The Company's operating strategy emphasizes establishing cooperative programs with customers to engineer, design and develop higher value-added systems in addition to individual products, and the introduction of new, more cost effective and durable products and systems. In furtherance of these strategies, over its last five fiscal years, Mark IV has: (i) increased its emphasis on cash-flow and asset utilization by selling its non-core businesses and emphasizing cash-flow in its new management incentive plans; (ii) expanded its product make-up and increased its new business opportunities to supply power systems to the emerging city car market through its $148 million acquisition of Lombardini FIM SpA ("Lombardini") in April 1999; (iii) initiated during fiscal 1997 a restructuring of the Company's manufacturing and distribution facilities to make them more focused and cost effective; (iv) completed its restructuring plan in fiscal 1999, and began to reposition its automotive aftermarket business and make certain other strategic decisions relative its personnel requirements and inventory management practices; (v) expanded its international presence and capabilities and complemented its existing automotive power transmission business through its $60 million acquisition of LPI Systemes Moteurs S.A. ("LPI") in October 1997; (vi) expanded LPI's products and technology from Europe to North America; (vii) increased its industrial hose and couplings production capacity and strengthened its position in the related marketplace through its $78 million acquisition of Imperial Eastman in fiscal 1997; (viii) established manufacturing facilities in Argentina and Brazil; (ix) established distribution centers to serve markets in Latin America and the Pacific Rim, and acquired manufacturing and distribution facilities in Australia and Mexico; and (x) emphasized continuous product development. 4 Recent Developments - - In February 1999, as part of the Company's strategy to improve its return on assets employed, the Company sold its Automotive Filter Business for $276 million. Near the end of fiscal 1999 the Company also sold several smaller stand-alone business units for net cash consideration of approximately $16 million. - - In April 1999, the Company acquired the net assets of Lombardini, an Italian-based manufacturer of small gasoline and diesel engines, for $148 million. Lombardini produces small engines of up to 50kw in power(65 horsepower), and competes in various markets, including supplying engines to agricultural, marine, automotive, electrical generation and home and lawn care markets, primarily in Europe. The Company believes an additional growth opportunity resulting from the Lombardini acquisition is in providing a power system (diesel engine and continuously variable transmission) for application in the emerging market for city cars (ultra-compact, economical and environmentally friendly) in Europe and other regions throughout the world where automotive congestion and pollution is a significant issue. - - During the latter part of fiscal 1997, the Company began to realign and refocus its operations, including the closure of certain facilities and the termination of approximately 1,700 employees, with a net reduction of approximately 1,000 employee positions. In that regard, the Company recognized a restructuring charge of $112.5 million in fiscal 1997 (including $60.7 million of non-cash charges). During fiscal 1999, the Company began to reposition its automotive aftermarket business, and made certain other strategic decisions relative to its personnel requirements, inventory management practices, facility utilization and non-core lines of business. During this period the Company also completed the remaining facility rationalization related to its fiscal 1997 restructuring plan. As a result of these activities, the Company recognized a repositioning charge in fiscal 1999 in the amount of $66 million. Approximately $25 million of the charge related to non-cash items, including $12.1 million related to inventory, and the balance related primarily to the impairment of the value of certain fixed assets. - - In May 1998, the Company announced the completion of its 7.3 million share repurchase program approved by the Board of Directors in March 1997. The stock was purchased at an average price of $22.00 per share, for a total cost of $160.8 million. Upon completion of that program, the Board of Directors approved the purchase of an additional ten million shares. In May 1999, the Company completed the ten million share repurchase program. Such shares were acquired over the preceding twelve-month period at an average cost of $16.55 per share, or a total cost of approximately $165.5 million. Upon completion of the May 1998 program, the Company's Board of Directors approved the purchase of an additional ten million shares. 5 - - During fiscal 1998, the Company acquired the net assets of LPI for a net cash purchase price of approximately $60 million. LPI, based in France, manufactures plastic air admission systems which include air intake manifolds and cooling modules produced by injection molding, welding and blow molding technologies. Certain of LPI's technology and products in place in Europe are being replicated in North America. - - During fiscal 1997, as part of the Company's strategy to become more focused within its Industrial business segment, the Company sold its Professional Audio, Vapor Corporation, Interstate Highway Signs and Eagle Signal businesses and certain other non-operating assets. In fiscal 1998, the Company sold its Gulton Data Systems and LFE Industrial Systems businesses. The total of all of these divestitures generated gross proceeds of approximately $313 million. - - At the beginning of fiscal 1997, the Company acquired the net assets of Imperial Eastman for a cash purchase price of approximately $78 million. Imperial Eastman is a manufacturer and marketer of a broad range of thermoplastic hydraulic and pneumatic hose assemblies, and steel and brass couplings, adapters and fittings for high and low pressure applications. Imperial Eastman is included in the Company's Industrial Business Segment. - - During fiscal 1998, the Company completed the sale of $275 million principal amount of its 4-3/4% Convertible Subordinated Notes due 2004, and $250 million principal amount of its 7-1/2% Senior Subordinated Notes due 2007. - - The Company used a portion of the net proceeds from its fiscal 1998 financing transactions and the divestiture transactions completed during fiscal 1997 to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines, and to refinance its $258 million principal amount of 8-3/4% Senior Subordinated Notes due April 1, 2003. - - In March 1996, the Company entered into a $500 million, five-year non- amortizing revolving credit facility (the "Credit Agreement") with various financial institutions. The proceeds of the initial borrowings under the Credit Agreement were used to repay amounts outstanding under the Company's previously existing credit agreements. - - In March 1996, the Company also completed the sale of $250 million principal amount of its 7-3/4% Senior Subordinated Notes due 2006. The net proceeds from the sale of the 7-3/4% Notes were used to reduce outstanding indebtedness under the Credit Agreement. 6 Segment Information The Company classifies its operations into the following two business segments: (i) Mark IV Automotive, which includes the design, manufacture and distribution of power transmission, fuel and fluid handling, and air-intake systems and components for the global automotive aftermarket and OEM (original equipment manufacturers) market; and (ii) Mark IV Industrial, which includes the design, manufacture and distribution of power transmission and fluid management systems and components for industrial OEM and distribution markets worldwide, specialty filtration products and systems, and transportation and other products and systems. Financial information regarding the business segments is presented in Note 13 to the Company's audited consolidated financial statements included elsewhere herein. A more detailed discussion concerning the make-up of the Company's two business segments follows. MARK IV AUTOMOTIVE Mark IV Automotive designs, manufactures and sells a variety of high quality automotive systems and components to the global automotive industry. Sales in this segment were approximately $991 million in fiscal 1999, representing 51% of Mark IV's total revenue during the year. Approximately 79% of the segment's sales were to OEM/OES customers, with the balance of the Company's automotive products sold to the aftermarket. Mark IV Automotive is focused on expanding its business to become a more global supplier of safety, environmental and comfort related products to the automotive industry. During fiscal 1999, Mark IV Automotive's sales increased 6%, after adjusting for the effects of acquired and discontinued operations. This growth was driven by improvements in both its European and North American markets, coupled with the start-up of operations in Brazil and Argentina. Domestic growth was hampered somewhat by the General Motors strike earlier in the fiscal year; however, new products, including the air-intake manifold line (acquired with the October 1997 purchase of LPI) helped drive growth over the full year. In addition to adding to sales, the acquisition of LPI also provided the Company with new products and technology to be leveraged in its North American OEM market. Significant changes have been occurring in both the OEM and aftermarket sectors of the Automotive business, and Mark IV Automotive has been changing along with them. The industry's ongoing globalization and the consolidation of suppliers in the marketplace are two of the most important factors impacting the business. The introduction of LPI's air-intake technology products to customers in North America, and the acquisition of Lombardini, completed after the close of fiscal 1999, represent two new growth opportunities for Mark IV Automotive. Research and development activities, including an increasing number of simulation studies, are helping Mark IV shorten its time required to develop new products, which helps increase customer service and satisfaction. Continued internal growth, together with additional acquisitions to help round-out product lines and geography, will provide Mark IV with new products, technology and capacity going forward. 7 Mark IV Automotive is OEM driven and aftermarket leveraged. The Company views its OEM business as the primary driver for growth in the automotive business segment, and that its long-term success in the aftermarket is dependent on providing OEM-approved products to its aftermarket customers. Therefore, the Company's primary focus continues to be on supplying products and systems designed, manufactured and sold to global automotive manufacturers. It is anticipated that this will, in turn, enhance the Company's ability to sell components into the aftermarket. After the sale of Purolator's Automotive Filter Business, the Company is concentrating its efforts on strengthening the position of its Dayco belts and hose line. Automotive OEM/OES Mark IV Automotive designs and supplies engineered systems and components for the majority of automotive engine and platform manufacturers in the world today, primarily serving OEMs in North America and Europe, and to a lesser extent, in South America and Asia/Pacific. In the automotive OEM market, the Company's emphasis is on providing complete systems or subsystems to meet the needs of its customers. Management believes Mark IV Automotive is recognized as an innovator in its "systems" orientation, which helps OEM customers to decrease the amount of time in the development stage, and minimize their fixed expenses, and allows the Company to increase its sales dollars per vehicle. The Company's efforts in this area over the past several years have been focused on expanding its technological and engineering capabilities. Today, Mark IV Automotive is one of the world's leading automotive systems manufacturers in the areas of power transmission, air-intake and fuel and fluid handling. Technical Centers Mark IV Automotive has ten technical centers located in the U.S. and Europe, each of which is dedicated to the development of products in its core product areas. Research and development activities and resources are coordinated throughout these centers. As a result, the Company is able to avoid duplication and can capitalize on developments and improvements made in its core technologies. Customer Orientation Mark IV Automotive is customer-oriented. Its research and development efforts, which include an increased use of simulation studies, are shortening the time required to develop new products and helping to satisfy its customers' needs more quickly. The systems and components it provides have been concentrated in several key areas of its Engine and Platform Divisions. Following the recent acquisition of Lombardini, it is anticipated that the Company's product and systems offerings during fiscal 2000 will include products in the newly formed Power Train Division. Engine Division The Engine Division includes systems and components which address customers' Power Transmission, and Air-Intake and Cooling needs. 9 Power Transmission Systems Mark IV Automotive is a leading manufacturer of accessory drive and camshaft drive systems consisting of components such as timing and poly-rib belts, automatic tensioning devices, pulleys, idlers, brackets, dampers and starter drives for the global automotive market. The power transmission group is focused on providing fully designed front-end accessory drive systems which offer customers increased value and improved performance. Engines fitted with Mark IV's systems are top performers in terms of economy, minimization of power loss, and the reduction of vibration and noise. In addition, developments in the materials field have helped to increase the durability of the Company's products while reducing important parameters such as weight and size. Mark IV expects to remain in the forefront of the industry by continuing to provide customers with innovative power transmission systems with performance characteristics that meet or exceed the changing needs of the marketplace. Its systems engineering capabilities are employed at state-of-the-art technical centers in Rochester Hills, Michigan; Springfield, Missouri; and Chieti, Valperga and Airasca, Italy, to serve customers around the world. During fiscal 1999, the Company's North American power transmission group increased business 10%, and secured significant front-end accessory drive business for future model years with its North American customers. Mark IV Automotive's rigid components products, such as tensioners, pulleys, and idlers, experienced significant growth during fiscal 1999. In the current year, several new product programs will be introduced, including a high performance serpentine drive belt. Significant investments in new equipment and technology have been made in the Power Transmission Division to ensure the unit maintains its leadership position in the industry. Additional investments will also occur in the coming year in the areas of belt and automated tensioner manufacturing equipment. In fiscal 1999, the Company's Power Transmission Division received numerous top quality awards from customers, both domestic and abroad. In addition, all of the Division's manufacturing facilities have now received QS- 9000 registration, and are pursuing further improvement in the areas of environmental and shop floor control. In Europe,"Virtual Testing Simulation" was a new engine technology development introduced to Mark IV Automotive's customers during the fiscal year. This predictive modeling tool allows Mark IV Automotive to test its power transmission systems on an engine transmission during the design stage, to predict performance before the engine is actually built. Prior to this, engines had to be designed, built, and then tested. Today, using the customer's specifications, virtual testing can be used to create a full picture of the engine, and predict how different component designs will affect engine performance before the system is built. This process enables the Company to advise its customers how the transmission will work, saving them time and money in the process. Virtual testing is also used to improve or resolve problems in existing engine designs. 9 Air-Intake and Cooling Systems Also included in the Engine Division are air-intake and cooling systems, which include a variety of high quality air intake manifolds, engine cooling systems and components, ducts, thermostat housings, brake fluid, surge and power steering tanks, and water pumps. This group's plastic air admissions systems, including air-intake manifolds and cooling modules, are produced by patented injection molding, welding and blow molding processes, making Mark IV a recognized world leader in these technology areas. Mark IV Automotive entered this market primarily through the October 1997 acquisition of LPI, headquartered in France. LPI has three manufacturing facilities and a technical center, all located in France. In December 1998, after completing technical development and testing, the Chateauroux, France LPI facility started production of a new synthetic water-pump. The benefits of this new product are derived from the synthetic materials used in manufacturing resulting in a lighter weight, lower price and a better performing water-pump. To date, the air-intake products have been sold primarily in Europe to leading automotive companies, including Peugeot, Citroen, Renault, Ford, BMW, Porsche and Volkswagen. In the second half of fiscal 2000, the Company's new 175,000 square foot manufacturing facility and technical center in Montreal, Quebec, Canada, is expected to be fully operational. This facility will initially employ 150-200 people and provide injection molded and welded nylon air intake manifolds for North American automotive OEM customers, where a substantial amount of new business has already been secured with Ford and General Motors. The formula used in France to provide air intake and cooling systems to the Company's European customers is being duplicated in Montreal, including utilization of the same manufacturing equipment and tooling, materials and work cell manufacturing processes. In addition, new employees in Montreal are being trained by experienced personnel from the Company's LPI operations in France. Platform Division Mark IV Automotive's Platform Division provides systems and components to meet its customers' fluid handling and fuel systems needs. Fluid Handling Systems Management believes Mark IV Automotive is an established leader in the design and manufacture of fluid handling systems. The Company's fluid handling products consist of hose and hose assemblies for power steering, air conditioning, oil cooling and other high-pressure applications, as well as radiator hose, heater hose and other related hose, couplings and assemblies. Only 50% of vehicles produced in Europe today include both air conditioning and power steering, while in the U.S., over 95% of all new vehicles are comparably equipped. The number of European cars which feature these products is growing at a faster rate than the overall market, representing a continuing growth opportunity for Mark IV Automotive in Europe. 10 The Company's fluid handling unit is recognized as one of the few suppliers in North America with vertically integrated hose and metal tubing assembly operations. This integrated capability results in optimal product solutions for customers, enabling them to depend on a single supplier for complete design and manufacturing responsibility. The focus of the fluid handling group is to provide cost effective system solutions that solve a variety of problems. Mark IV Automotive's products are expected to operate in extreme conditions, including a wide range of temperatures, pressures, and corrosive environments, and to be able to handle fluids ranging from gases to liquids. These system requirements drive the need for innovative research and development of new generation materials and components, which are provided by the Company's technical centers in Ocala, Florida, and Torino, Italy. Mark IV Automotive has also been successful in integrating innovative NVH (noise and vibration) solutions into its fluid handling assemblies, generating several new NVH patents each year. Fuel Systems Mark IV Automotive's fuel products include all systems and components required for the safe transport of fuel--from the gas tank inlet into a vehicle's gas tank, and from the tank into the engine. Mark IV Automotive's products vary from completed systems to individual components, including tubes, hose, couplings, fuel fillers, fuel pumps, fittings, valves, canisters, filters, quick connectors and other assemblies. These products are currently manufactured in North America, Europe and South America, and are sold to major OEM customers around the world. As automotive manufacturers continue to reduce their supply base, they are placing increased responsibility for engineering and testing on their suppliers, and sourcing complete systems rather than components. In response, Mark IV Automotive's fuel unit is focused on gaining competitive advantage by expanding its global presence, remaining market driven, and establishing alliances with customers, as well as other members of the automotive supply community. The Company's research and development efforts led to three significant breakthroughs during the year which include low permeation plastic barrier hose constructions, coatings, and plastic fuel filler assemblies. Three years in development, the low permeation fuel hose provides excellent performance to automotive customers, minimizing the transfer of gasoline through the hose and out into the environment. Another addition to the fuel line products is coating enhancements. The silver coating applied over zinc-nickel extends the life of the fuel filler systems from 10 to 15 years. The Company succeeded in developing a new fuel filler assembly made of plastic. The fill tube maintains the same dimensions all the way through the bends and circular-cross section by the use of a patent-pending forming process. This value-added feature gives the customer a product that is lower in weight and price, with excellent performance properties. 11 Power Train Division With the April 1999 acquisition of Lombardini, Mark IV has formed the Power Train Division as a dedicated business unit. Lombardini, an Italian based company, is a leading European manufacturer of small diesel engines with manufacturing plants in Italy and France, and sales and distribution offices throughout Europe and North America. In a growing number of cities, vehicle congestion has caused increasing problems with traffic, parking, emissions, noise and other environmental issues. As a result, laws are being changed to restrict city traffic in many countries. Consequently, in Europe, as in other continents, the "City Car and City Van" (specially designed, ultra compact, economical and environmentally friendly vehicles) market is emerging as a rapidly growing segment in a mature automotive market. The Power Train unit will develop and market Power Pac modules consisting of a diesel engine integrated with a continuously variable transmission (CVT) currently under development by the Company. Management believes Lombardini, along with LPI's air-intake business, provides new growth opportunities for the Company, allowing Mark IV Automotive to enter a brand new growing segment of the automotive market. Automotive Aftermarket In the automotive aftermarket, Mark IV Automotive provides a vast array of automotive belts, hose and accessories to automotive warehouse distributors, oil companies, original equipment service centers, retail and auto parts chains, mass merchandisers, farm and fleet stores, and hardware distributors. The belts and hose manufactured and marketed primarily under the Company's Dayco(R) brand name are widely recognized. Through its restructuring activities, these two core product lines have streamlined the Company's sales and marketing operations. In fiscal 1999, the pilot program for Dayco's "Preferred Parts" stocking program won praise and acceptance from Dayco's automotive aftermarket customer test base. Preferred Parts utilizes information from R.L. Polk's vehicle registration database. Their data is used to prepare a customized stocking list of the Dayco products that fit the vehicles that are actually located in a warehouse distributor's or jobber's market area. Although primarily designed for these distribution channels, the Preferred Parts program is also extremely beneficial to the installer, since it provides him with a reliable source of supply. In response to the suggestions of the customers in its pilot group, Dayco has obtained the hardware and software to keep the database current, and also to reduce the time from a customer's request to the delivery of the Preferred Parts report. With these technical advances, a full roll-out of the Preferred Parts program is planned during fiscal 2000. In an effort to help its customers streamline their inventories, as well as giving them more products to sell, our Dayco and Dayco Eastman (formerly Imperial Eastman) engineers combined their expertise to introduce a brand new coupling style called the "HY" series, which will replace multiple coupling series from both the old Dayco and old Imperial Eastman lines. The expanded product offering is projected to increase Dayco's hydraulic sales significantly during fiscal 2000. 12 The Company's Fayetteville, NC distribution center experienced its first year of full operation in fiscal 1999. The warehouse management software interfaces with the Dayco Aftermarket's Customer Order Inventory Network ("COIN") order processing system. Unlike some warehousing operations that work in a "batch" mode that updates nightly, the Dayco system updates every five minutes. With the sale of the Purolator Automotive Filter Business, the Fayetteville facility will be dedicating 188,000 square feet to the Dayco distribution business beginning in Fiscal 2000. Outlook Internal growth in the Company's automotive business will be achieved through research and development and the resulting introduction of new products to the market, and experiencing the benefits of having completed the restructuring efforts which began in fiscal 1997 and were completed during fiscal 1999. External growth will be achieved through entree into new markets due to acquisitions to date, and those to occur going forward. The Company will continue to provide its customers with quality products and service, while improving efficiencies and reducing costs. Mark IV Automotive's strength lies in its focus on the design, development and manufacture of new or improved safety, environmental and comfort related automotive products, predominantly for the OEM market. The Company's technological capabilities, combined with increased investments in research and development, will allow it to continue working with its customers to provide solutions to today's automotive problems, and meet the needs of tomorrow. MARK IV INDUSTRIAL Mark IV Industrial provides Power Transmission and Fluid Management, Specialty Filtration, and Transportation products and systems to customers around the world. Representing 49% of Mark IV's total revenue base, Mark IV Industrial's sales were approximately $960 million in fiscal 1999. The Company's focus in this segment includes serving its customers better by expanding product offerings and improving quality and delivery, while at the same time enhancing the utilization of its resources. The Company's efforts in these areas are geared to position it as a significant supplier of industrial products in key markets. Combining the strengths of its brands, which include Dayco(R), Purolator(R), Swan(R), Imperial Eastman(R), Facet(R), Mark IV IVHS, Luminator, F-P Electronics and Caplugs(R), Mark IV Industrial is organized into three primary operating units: Dayco Industrial, Specialty Filtration and Transportation and Other. Dayco Industrial Dayco Industrial Transmission is focused on two primary areas: Power Transmission and Fluid Management. Its Power Transmission systems and components are used in the transmission of power - either mechanically or through the use of hydraulics or fluid power. Its Fluid Management products are used in the movement containment, processing, treatment or control of fluids. The systems and components in these areas primarily consist of a variety of belts, tensioners and pulleys and hose, couplings and assemblies, which are specially designed for a variety of industrial applications. 13 Dayco Industrial's products are specially designed for a variety of applications in markets which include petroleum, mining, forest products, lawn & garden, construction, agriculture, and other niche markets. In these markets, its products are supplied either directly to industrial original equipment manufacturers (OEM's), and/or through established distribution and retail networks. During fiscal 1999, the Company acquired COG, a German company, adding about $6 million to its annual revenue base in Europe. COG manufacturers and distributes industrial power transmission belts. The addition of this company will have a positive impact on the Company's power-transmission business in Europe by increasing its product line, customer base and distribution channels and allowing Dayco to increase its business with customers in the German market. During fiscal 1998, the Company acquired Imperial Eastman Australia, Australian Hose Manufacturing and Rubicon Industrial, adding about $21 million to its annual revenue base. The addition of these companies expanded the Company's industrial product lines, and increased the group's penetration in Australia. Power Transmission Dayco's power transmission products include a specific line of hydraulic hose and couplings for use in the global mining industry, encompassing both underground and above-ground processes, with each using different products and standards. Its power transmission product line also supplies synchronous drive belts which have been enhanced through advances in rubber compounding, construction and design, resulting in the belt's improved performance and design flexibility, while saving space, weight, energy and cost. In most instances, Dayco's RPP Plus synchronous drive belts will replace old-fashioned timing belts, roller chain and gear-driven drives, in addition to providing high-torque, high-efficiency performance. Dayco provides power transmission management solutions for its key markets. In Dayco's lawn and garden equipment market, Dayco is a supplier to the top names in the industry. As manufacturers have explored the use of fluid power for more precision and control in their top-of-the-line units, Dayco has responded with hydraulic hose and coupling solutions to meet their demanding application needs. The Company's revenue derived from fluid power sales in this market has doubled over the last three years. Synergies experienced between the Company's Industrial and Automotive groups have proven to be beneficial. Dayco Industrial's line of hydraulic hose, couplings, and crimpers also serves the automotive and light-duty and heavy-duty truck aftermarkets through Mark IV Automotive. Over the past year, Dayco Industrial introduced a brand new coupling style called the "HY" series, which replaced multiple coupling series from the combined Dayco and Eastman product lines, enabling its industrial customers to streamline their inventories. The Dayco Eastman hydraulic product offering, including the "HY" coupling, has been introduced to the Company's automotive aftermarket customers. The launch of a new industrial and hydraulic filtration product line by Purolator Filter Products has allowed the Company to take advantage of Dayco Industrial's relationship with top fluid power distributors in North America. Many distributors of hydraulic hose and couplings also sell products used to filter the hydraulic fluid used in the system. 14 Fluid Management Dayco Industrial continues to enhance and develop new fluid management products, such as GST II, a general purpose air and water hose. This product line now offers new sizes, brighter colors for safety, and higher working pressures for demanding applications such as those found in the construction industry. In the motor fuel-dispensing segment of the petroleum market, Dayco introduced the Flex-Ever(TM) Ultimate II Vapor Recovery Hose, which features a DuPont Dow Elastomers cover compound called Hypalon(R). This material produces a rugged, abrasion resistant curb pump hose that performs equally well in the hot summer weather of Yuma, Arizona or during the cold winter months in Upstate New York. Dayco's expertise with vapor recovery and gasoline dispensing hose provides additional leverage in global markets, as more stringent vapor recovery regulations have come into effect in Europe and Asia. Rubicon Industrial, one of the Australian acquisitions completed at the end of fiscal 1998, provides a more complete offering of thermoplastic hose for the Company's industrial hose product line, with specific products targeted at the mining, manufacturing equipment, and construction markets, along with other products designed for special fluid handling applications. Dayco Swan helped add to its Martha Stewart everyday garden (TM) line of products offered by K-Mart, with the creation of a special garden hose. Soft, flexible, and extra-tough, this rubber/vinyl hose was a featured item when Martha Stewart and K-Mart launched their spring/summer line of products for the home. Dayco Swan was recently awarded with a "Partners In Progress" award from Sears for their performance in supplying garden hose to their stores nationwide during 1998. This highly prestigious honor was bestowed upon only 150 of Sears' 10,000 suppliers. Dayco's facilities in McCook, Nebraska and Bucyrus, Ohio were awarded the Canadian Tire of Canada's highest honor, the "Award of Excellence" in the leisure products category. This award is given to suppliers who provide the highest quality and service to Canadian Tire. Manufacturing Update Dayco Industrial's manufacturing performance and efficiency were significantly enhanced during the year by establishing the "cell" production concept in Bucyrus, Ohio for the manufacture of Dayco Swan garden hose. The "cell" concept provides efficiency throughout the grouping of continuous processes, which minimizes hand-offs, and allows a cross-functional work team to see a product through from raw material to its finished state. Productivity increased to match the unit's business growth, while overall manufacturing square footage was reduced. Dayco's expanded Alliance, Nebraska plant became fully operational during fiscal 1999. The Alliance facility produces braided wire and spiral wire reinforced high-pressure hydraulic hose for agricultural, construction, mining, and manufacturing equipment. On the quality front, the Company's hose manufacturing facilities have completed the ISO 9000 registration process over the past year. Along with its power transmission facilities, which completed their registration as a group in fiscal 1998, all of Dayco Industrial's key manufacturing facilities are now ISO 9000 registered, an increasingly important factor when global industrial customers are choosing suppliers. 15 Technology Dayco Industrial's focus has been on servicing its customers by bringing simplicity to ordering through the internet, utilizing its Dayco Direct system, and implementing a new Enterprise Reserve Planning (ERP) system. Dayco Direct is a significant new improvement in customer communications. This successful integration of the internet into daily operations has been well received by the Company's customer base, bringing simplicity and up-to-the minute information right to their fingertips. The system allows users to place orders, change orders, check the availability of stock, price an order, and track an order's status, in real time, via the internet. Users can even link with carriers, such as UPS and Consolidated Freightways, to check the status of their shipments. This is not only a benefit to the Company's customers, it frees up the Company's highly trained, professional sales force to meet with distributors to provide technical support information and trouble-shoot tough applications. Another successful innovation this year was the implementation of the Enterprise Resource Planning system. This new system makes the business more efficient and better connected by linking all important functions within the company: manufacturing, inventory, finance, order entry, sales and marketing information on one central system. Specialty Filtration The Company's Specialty Filtration products include specialized industrial fluid filters; heating and air conditioning filters for residential, commercial and industrial users; and highly technical filters and filtration systems. These products are provided by the Company's Purolator Filter Products, Facet International, and Purolator Products Air Filtration operations. Purolator Filter Products The Filter Products Group (FPG) of Mark IV Industrial manufactures and markets a variety of advanced filtration products and devices used in the aeropower, fluid processing and industrial markets. In the Aeropower market, FPG manufactures fuel, lube and hydraulic filters, indicators and switches for the commercial, military and general aviation market segments. The fluid processing market includes the Poroplus(R) Sand Control Screen for the oil and gas market, and porous metal media filters for the Chemical Processing Pharmaceutical market segment. The Industrial market consists of a recently introduced hydraulic filter line for the Industrial and Mobil Equipment markets, and a spin-on fuel and lube product line for the Marine market. An array of specialty filter products are designed and sold for OEM and end-user customers in the utilities, paper and general industrial markets. 16 Facet International Facet International designs, manufactures and distributes filters, oil and water separators, refueling, filtration, anti-pollution and water recycling systems, and bilge separators, for all types of liquids, gases, or liquid gases. The Company supplies a variety of customers in the aviation fuel handling, marine, refining, power generation, petrochemical, mobile equipment and military markets. Many of its products help protect the environment, reducing contamination and making it possible to recover and reuse valuable industrial resources. Facet is a worldwide provider of aviation refueling filtration and separation systems with direct operations in ten countries. The company has a significant number of technical approvals throughout the world for its commercial and military aviation products. In addition, Facet International recently developed a new type of bilge water separator to add to its already wide range of marine products. During fiscal 1999, Facet acquired Cosema International, located in Torino, Italy. Cosema, with annual sales of $10.6 million, markets coolant filtration and swarf (metal-turnings) handling systems directly to end-users and manufacturers of machine tools. The addition of Cosema expands Facet's industrial filtration lines, as well as provides its customers clear solutions to a host of filtration and separation problems. Purolator Products Air Filtration Company (PPAFC) Through PPAFC, Mark IV Industrial manufactures and distributes a broad range of heating, ventilation and air conditioning (HVAC) filters and filtration products for residential, commercial and industrial uses. Sold under the brand names Purolator(R) Facet(R) and Purolator Filtration Systems, these filter products range from basic efficiency panel filters used in homes, to medium and high efficiency products or equipment used in office buildings, hospitals, manufacturing facilities and new construction projects. New EPA Method 319 regulations for paint emissions led to the development of two new filtration systems for paint spray booth applications. This spurred sales of Purolator's Mark 80-D pleated filter and Prebond Pad products which meet EPA Method 319 filtration requirements. As industry becomes more technologically advanced, the demand for Purolator's High Efficiency Particulate Air (HEPA) filter and equipment to the cleanroom market is expected to increase. Fiscal 1999 brought the introduction of Purolator's ASHRAE V-cell and Ducted Ceiling Modules. Both are used in the strict environments of telecommunications, semiconductors, and pharmaceutical testing. Purolator also expanded its ULTRA-cell(R) line of HEPAs, offering more capacities and construction options for the most sensitive applications. Transportation and Other Transportation The Company's Transportation Group includes Luminator Aircraft, Luminator Mass Transit, F-P Electronics and Mark IV IVHS in North America, with LLE and SLE in Europe. Transportation products include rail and bus destination signs, electronic toll equipment, rail car lighting, automatic vehicle location systems and information display components, as well as lighting and passenger service units for commercial aircraft. These products are sold to bus, rail, aircraft OEM and aftermarket, transit and transportation authorities and industrial manufacturers. 17 Electronic Toll Markets Since its inception five years ago, Mark IV IVHS has now shipped 4.5 million electronic toll transponders. Mark IV transponders are used in toll road systems collecting over $3.0 billion in annual revenue. With the addition of the Massachusetts Turnpike Authority, E-ZPass has grown to twelve transportation authorities in New York, New Jersey, Pennsylvania, Delaware, Maryland and Massachusetts. Now that the E-Pass system is maturing in New York State, installation is underway in New Jersey, Delaware and Massachusetts, and Pennsylvania soon after. At completion, E-ZPass will stretch from Baltimore to Buffalo. It will be the largest electronic toll road system in the world. Another contract was awarded to Mark IV IVHS by the State of Illinois. The first phase of I-Pass(R) operated by ISHTA, the major toll road authority, has been implemented in fiscal 1999, including a new feature - express lanes. The Company's equipment has been demonstrated to operate successfully at highway speeds on Highway 407 in Toronto, as that highway is an open road with no toll plazas. In Orlando, Florida, the Company's first major customer for electronic toll collection, Osceola County, continues to expand with the large tourist traffic to the Disney site. Express lanes will be part of a new toll plaza design along SR429 separating E-Pass(TM) and cash toll lanes. Express lanes will allow E-Pass customers to pass through plazas safely up to the posted speed levels for the highway. Information Display Market Mark IV is a leading supplier in both Europe and North America of bus and rail destination signs. In the United States, Congress has approved the Transportation Equity Act for the 21st Century (TEA 21), which replaces the landmark ISTEA Reauthorization Act for fiscal years 1998-2003. TEA 21 constitutes the funding authorized to the Department of Transportation for mass transit and highway programs for the next four years. What makes the reauthorization unique is it includes unprecedented provisions designed to guarantee funding for transit programs at significant levels through fiscal year 2003. TEA 21's transit program authorized $41 billion with a guaranteed funding level of $36 billion, representing at least a 50% increase and - if fully funded - as much as a 70% increase over appropriated funding in the preceding six years of ISTEA. TEA 21 is expected to generate many opportunities for Luminator, IVHS, and F-P Electronics. In early 1999, F-P Electronics introduced the Ultra line, a hybrid LED magnetic disc display. The Ultra product is assembled in destination signs by Luminator Mass Transit, LLE and SLE. The low weight and thin profile offer significant maintenance and fuel saving advantages to a transit authority over the operating life of the bus or rail car. 18 Mass Transit Products The Luminator Mass Transit Bus Products Unit introduced MAX 3000(TM) with Ultra Display in January 1999. MAX 3000 is the sequel to MEGA MAX(TM) (2000), which was introduced in 1996. MAX 3000 is lighter, slimmer and easier to maintain since there are fewer parts. The New York City Transit Authority (among others), is installing MAX 3000 on hundreds of new buses they are putting into service in fiscal 2000. In addition to the advancements made to the sign, the Operator Display Keyboard (ODK - the sign's control console), now contains the system processor board and a plug-in port for a flash card. Using the plug-in card method to download message listings dramatically reduces the process from minutes to seconds. Another new product that will be introduced during fiscal 2000, that will significantly impact visually impaired riders, is the Talking Sign. Luminator's destination signs on a bus or train will house a transmitter. The visually impaired person will have a hand held receiver. When the receiver is pointed at the vehicle, the person will receive an audible message advising the destination of the bus or train. The Talking Sign will be a great asset to visually impaired people, enabling them to use public transit with more confidence and independence. Lighting Products Market The Rail Products business unit is looking forward to the inauguration of Amtrak's high speed service in December 1999, between Washington D.C. and Boston. As Luminator is the major lighting supplier for the high-speed trains, it will be an outstanding showcase for its products. Lights were specifically designed to complement the fashionable interiors of the sleek high-speed trains. Another high profile exposure for Luminator will be on New York City's new subway trains, the R142/R142A, which will commence service in the latter part of fiscal 2000. Luminator is expanding its lighting products scope of sales by selling directly to interior design companies in addition to the car builders. Luminator will also be selling its sign systems to communication system suppliers and system integrators. Aircraft Products Markets Luminator Aircraft Products has begun delivery of Passenger Service Units (PSU) and several other interior lighting products for the Boeing B-717 commercial airliner, scheduled to enter service in mid 1999. This is part of a joint business venture between Luminator and Drager Aerospace of Germany, Fischer Aerospace of Austria, and Boeing's Douglas Products Division. Aftermarket support of the Company's existing products, along with seat marker light retrofit programs at several major airlines, continues to be a significant part of the business. 19 Manufacturing Update Luminator Mass Transit has undergone a major revamping of its plant as part of an ongoing program to improve productivity without compromising the quality standards expected by its customers. The layout of the production floor, stock acquisition process, and implementation of Design for Manufacturability (DFM) processes have made tremendous inroads, improving productivity and the work environment, and reducing manufacturing costs. New products are being designed utilizing DFM methods and existing products are being redesigned incorporating elements of DFM wherever possible. Luminator's premier sign, MAX 3000, was the first product resulting from the successful implementation of the DFM methods. In addition, LLE has moved into a new facility in Rastatt, Germany with expanded manufacturing capabilities. This new facility will manufacture bus and rail destination signs for both LLE and SLE, as well as other display products. Other Industrial Products Included in this sector of the Industrial Business Segment are the Company's Protective Closures' and NRD business units. Protective Closures is made up of its Caplugs Division, which manufactures plastic, metal, and vinyl caps, plugs, edge liners and protective netting sold to a broad base of industrial and automotive OEM customers; and the Mokon Division, which produces circulating oil and water temperature control systems. NRD is a leading supplier of ionization elements used in smoke detectors, and also manufactures self-energized, luminous exit signs, and static control devices used mainly in the electronics and printing industries. Outlook Certain depressed market and geographic conditions negatively affected Mark IV Industrial's revenue opportunities throughout fiscal 1999. Such conditions are believed to be temporary in nature. Mark IV Industrial expects to achieve growth in the coming decade by focusing on research and development programs, and supplying new products to its targeted markets. Acquisitions and strategic alliances created through collaborative engineering with customers and specific product expertise, are also expected to provide additional areas of opportunity. In the global marketplace, demand is increasing for the systems and components that Mark IV Industrial is strategically positioned to provide. By focusing on specific market segments where it has leadership positions, and expanding its product offerings within these areas, as well as in the geographic regions in which it participates, it expects to continue to generate new growth opportunities. 20 Mark IV Industrial is committed to satisfying the needs of its customers by continuing to design, manufacture and distribute its products in an efficient and cost effective manner. In addition, it is committed to expanding its product offerings--through product line extensions, acquisitions and/or joint ventures--in order to expand its array of power transmission and fluid management, transportation systems and components and specialty filtration products and systems. Marketing and Competition Mark IV's products are marketed primarily in the United States and Europe, and to a lesser extent in Canada, Latin America and the Far East. The Company uses its own sales engineers and other sales personnel, independent distributors and sales representatives to market its products. A majority of the Company's products have a significant and in many instances a leading market share in their respective markets. Most of the markets for the Company's products are characterized by a limited number of competitors; however, competition in certain of those markets is intense. Some of the Company's competitors are substantially larger than Mark IV and have greater financial resources. The Company competes on the basis of price, quality, technical innovation and its ability to fill orders promptly, with the relative importance of each factor depending on the market for the particular product. Backlog The Company does not believe that the backlog of orders for any of its products is material to the Company as a whole. Patents and Trademarks Although a number of patents and trademarks have been issued to the Company and its subsidiaries, the Company believes its competitive position is more dependent on its technical knowledge and processes than on patent or trademark protection. The Company believes, however, that its trademarks and tradenames used in connection with certain products may be significant to its business. Research and Development The Company is engaged in ongoing research and development in connection with new and existing products and systems. Research and development expenditures are expensed as incurred, and amounted to $53.3 million; $47.4 million and $39.9 million for the Company's continuing operations in fiscal 1999, 1998 and 1997, respectively. It is anticipated that such costs will increase as a percentage of sales in fiscal 2000 as a result of a number of new product and systems initiatives which the Company is pursuing. 21 Raw Materials and Supplies The materials and supplies used to produce the Company's products are generally obtained from a wide variety of suppliers, and the Company has not experienced any shortages. Although certain materials are readily available from only a few suppliers, the Company does not anticipate any significant difficulties in obtaining any of these raw materials in the foreseeable future. Government Regulation Certain of the Company's electrostatic control devices, smoke-detector ionization elements and self-illuminating lights have radioactive components, the production, storage and transportation of which are subject to federal, state and local laws and regulations. Federal and state regulations also limit the amount of exposure the Company's employees may have to such radioactive materials. The Company has obtained the necessary licenses and approvals required for its businesses and believes it is in material compliance with all applicable regulations concerning radioactive materials and employee safety. Certain federal and state environmental superfund statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties, regardless of fault. The Company has been designated as a potentially responsible party under these statutes at a number of sites. Based on the facts currently known to the Company, management expects that the costs to the Company of remedial actions at the sites where it has been named a potentially responsible party, will not have a material adverse effect on the Company's results of operations or financial condition. The Company's facilities are also subject to many other federal, state and local requirements relating to the protection of the environment, and the Company has made, and will continue to make, expenditures to comply with such provisions. The Company believes that its facilities are in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse affect on its results of operations or financial condition. The Company's operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally the "Occupational Safety and Health Act" and regulations thereunder which, among other requirements, establish noise and dust standards. The Company believes that it is in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse affect on its results of operations or financial condition. 22 Employees The Company currently employs approximately 17,000 persons, of whom approximately 13,000 are production employees, with the remainder serving in executive, administrative, engineering or sales capacities. The Company currently has approximately 2,100 North American production employees that are covered by 9 collective bargaining agreements which expire at various times through the year 2004. The Company believes its relationship with its employees is good. Other Mark IV was incorporated in Delaware in 1970 and its executive offices are at 501 John James Audubon Parkway, Amherst, New York 14226-0810. Its telephone number is (716) 689-4972. Information on Mark IV can be obtained on the Company's website at http://www.mark-iv.com. ITEM 2. PROPERTIES The table below summarizes the approximate floor space of the Company's corporate office and principal manufacturing facilities by business segment. Approximate Floor Space --------------------------- (In Thousands of Square Feet) Owned Leased Total ----- ------ ----- Corporate Office - 32,400 32,400 Industrial (1) 4,249,400 645,300 4,894,700 Automotive (2) 3,342,200 398,100 3,740,300 (1) Consisting of the following forty-one facilities: North American facilities (approximately 4,066,900 square feet): Springfield, MO; Fort Scott, KS; Alliance, NE; Eldora, IA; McCook, NE; Davenport, IA (2); Bucyrus, OH; Buffalo, NY; Elmira, NY; Vero Beach, FL; Stillwell, OK; Tulsa, OK; Henderson, NC; Kenly, NC; Sacramento, CA; Newark, NJ; Greensboro, NC; Mexico City, Mexico; Plano, TX; Mississauga, Ontario, Canada (2); Cobourg, Ontario, Canada; Grand Island, NY; Costa Mesa, CA; Manitowoc, WI (2); Barrie, Ontario, Canada; Red Wing, MN and El Paso, TX. International Facilities (approximately 827,800 square feet): Halesowen, U.K.; Torino, Italy (2); Barcelona, Spain; Treforest, Wales, UK; Lacoruna, Spain; Rastatt, Germany; Pinneberg, Germany; Nice, France; Perth, Australia; Sydney, Australia; and Adelaide, Australia. 23 (2) Consisting of the following thirty-four facilities: North American facilities (approximately 1,666,700 square feet): Walterboro, SC; Williston, SC; Ocala, FL; Ft. Worth, TX; Springdale, AR; Weston, Ontario, Canada; Easley, SC; Lexington, TN; Tulsa, OK; Mississauga, Ontario, Canada; Detroit, MI and Big Rapids, MI. International facilities (approximately 2,073,600 square feet): Torino, Italy (2); Baudour, Belgium; Chieti, Italy; Manopello, Italy; Varberg, Sweden; Ulricehamn, Sweden; Blidsberg, Sweden: Valperga, Italy; Follonica, Italy; Melbourne, Australia; Juatuba, Brazil; Sao Paulo, Brazil; Cordoba, Argentina; Orbey, France; Fraize, France; Chateauroux, France; Scarperio, Italy; Reggio Emilia, Italy; Rieti, Itally; Villefranche Sor Saone, France; Valdobbiadene, Italy. The Company also owns or leases various small production facilities, sales offices, distribution and research centers which are not included in the above list of properties. The Company believes that its existing facilities have sufficient capacity to meet its anticipated needs in each of its industry segments for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS - -------------------------- One of the Company's subsidiaries has been named as a defendant in a number of litigation actions related to product supplied to one of the subsidiary's customers. The parties seek damages related to alleged defects in certain hose products manufactured by the subsidiary and included by the customer in its retail gasoline fuel delivery systems. The Company believes it has good and valid defenses against the claims, and has submitted a counter-claim against the customer. The Company is also involved in various other legal issues. In the opinion of the Company's management, the ultimate cost to resolve these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ Not applicable. 24 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER - -------------------------------------------------------------------------- MATTERS ------- The Company's Common Stock is listed on the New York Stock Exchange (Symbol: IV). The following table sets forth, for the fiscal periods indicated, the high and low closing sale prices per share of the Company's Common Stock as reported by the New York Stock Exchange. Fiscal 1999 Fiscal 1998 ---------------- ---------------- Low High Low High --- ---- --- ---- 1st Quarter $20.438 $24.063 $22.143 $25.000 2nd Quarter $14.188 $22.000 $23.250 $25.438 3rd Quarter $13.250 $16.875 $22.000 $28.000 4th Quarter $12.688 $16.875 $20.250 $23.500 As of February 28, 1999, the approximate number of holders of record of the Company's Common Stock was 1,900. The Company declared total cash dividends of $.21 and $.17 per share during fiscal 1999 and 1998, respectively. 25
ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- FIVE YEAR SUMMARY OF OPERATIONS (Amounts in thousands, except per share data) Fiscal Year Ended the Last Day of February, ------------------------------------------------------ 1999 1998(a) 1997(a) 1996(a) 1995(a) ------ -------- -------- ------ ------- Income Statement Data: Net sales from continuing operations $1,948,600 $1,844,300 $1,717,900 $1,422,500 $1,168,300 ========== ========== ========== ========== ========== Operating income (b) $ 196,200 $ 207,900 $ 191,000 $ 156,300 $ 124,500 ========== ========== ========== ========== ========== Repositioning and restructuring charges $ 63,800 $ - $ 112,500 $ - $ - ========== ========== ========== ========== ========== Interest expense $ 53,900 $ 49,700 $ 45,800 $ 42,500 $ 42,500 ========== ========== ========== ========== ========== Income from continuing operations (c): Before repositioning and restructuring charges $ 91,100 $ 97,800 $ 88,600 $ 69,400 $ 50,500 Repositioning and restructuring charges (38,700) - (67,500) - - ---------- --------- --------- --------- ---------- Total continuing 52,400 97,800 21,100 69,400 50,500 ---------- --------- --------- --------- ---------- Income from discontinued operations (c): Before divestitures 4,100 11,400 17,500 23,000 17,400 Gain (loss) on divestitures (6,300) - 17,500 - - ---------- --------- --------- --------- ---------- Total discontinued (2,200) 11,400 35,000 23,000 17,400 ---------- --------- --------- --------- ---------- Extraordinary loss (c) (2,600) (10,600) - - (1,100) ---------- --------- --------- --------- ---------- NET INCOME $ 47,600 $ 98,600 $ 56,100 $ 92,400 $ 66,800 ========== ========= ========= ========= ========== Basic earnings per share: Continuing operations: Before repositioning and restructuring charges $ 1.60 $ 1.52 $ 1.34 $ 1.05 $ .94 Repositioning and restructuring charges (.68) - (1.02) - - --------- --------- --------- -------- --------- Total continuing .92 1.52 .32 1.05 .94 --------- --------- --------- -------- --------- Discontinued operations: Before divestitures .07 .18 .26 .35 .33 Gain (loss) on divestitures (.11) - .26 - - --------- --------- --------- -------- --------- Total discontinued (.04) .18 .52 .35 .33 --------- --------- --------- -------- --------- Extraordinary loss (.04) (.16) - - (.02) --------- --------- --------- -------- --------- NET INCOME $ .84 $ 1.54 $ .84 $ 1.40 $ 1.25 ========= ========= ========= ======== =========
26
Fiscal Year Ended the Last Day of February, -------------------------------------------------------- 1999 1998(a) 1997(a) 1996(a) 1995(a) ---- ------ ------ ------- ------ Diluted earnings per share: Continuing operations: Before repositioning and restructuring charges $ 1.51 $ 1.49 $ 1.33 $ 1.04 $ .89 Repositioning and restructuring charges (.59) - (1.01) - - -------- --------- -------- -------- ------- Total continuing .92 1.49 .32 1.04 .89 -------- --------- -------- -------- ------- Discontinued operations: Before divestitures .06 .17 .26 .35 .28 Gain (loss) on divestitures (.09) - .26 - - -------- --------- -------- -------- ------- Total discontinued (.03) .17 .52 .35 .28 -------- --------- -------- -------- ------- Extraordinary items (.04) (.16) - - (.02) -------- --------- -------- -------- ------- NET INCOME $ .85 $ 1.50 $ .84 $ 1.39 $ 1.15 ======== ========= ======== ======== ======= Cash dividends paid per share $ .21 $ .17 $ .14 $ .11 $ .10 ======== ========= ======== ======== ======= Weighted average number of shares outstanding: Basic 56,900 64,100 66,300 66,200 53,600 Diluted 65,500 67,400 66,700 66,600 60,700 As of the Last Day of February, 1999 1998 1997 1996 1995 Balance Sheet Data: Working capital $ 490,600 $ 458,400 $ 364,600 $ 404,900 $ 379,700 Total assets $2,079,700 $2,420,500 $1,974,600 $2,013,100 $1,846,400 Long-term debt $ 797,500 $ 793,900 $ 528,500 $ 642,500 $ 610,700 Stockholders' equity $ 596,700 $ 752,000 $ 758,400 $ 725,500 $ 635,500
[FN] ____________________________ (a) Restated to reflect discontinued operations. (b) Income from continuing operations before repositioning and restructuring charges, interest expense and taxes. (c) Net of related tax effects. 27 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - --------------------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Liquidity and Capital Resources The Company's short-term capital needs are met by cash generated through operations, and supplemented by borrowings under various credit facilities to the extent required. During fiscal 1999, the Company's operating performance (income from continuing operations before repositioning charge and non-cash items, plus operating working capital changes) generated cash of $219.5 million, a 39% increase over the $157.8 million generated in fiscal 1998. The fiscal 1998 amount represents an increase of $51.5 million (48%) over the $106.3 million generated in fiscal 1997. Excluding cash and current financial indebtedness, the Company's working capital investment was $422.7 million at February 28, 1999, a net decrease of $121.7 million (22%) in comparison to $544.4 million at February 28, 1998. The decrease is primarily attributable to the elimination of the working capital investment of divested operations of $92.5 million. The remaining $29.2 million decrease in the Company's working capital investment is attributable to the Company-wide emphasis on cash flow generation and maximizing the Company's return on assets employed. Management anticipates its working capital investment will be reduced further during fiscal 2000 as a result of the completion of its repositioning program and continuing positive effects of its emphasis on cash flow generation and return on assets employed. The working capital investment at February 28, 1998 represents an increase of $91.8 million (20%) in comparison to the total at February 28, 1997. Capital expenditures related to continuing operations in fiscal 1999 were $77.3 million, which was lower than depreciation and amortization expense of $80.5 million for the year, and reflects a decrease of $59.1 million in comparison to the level of fiscal 1998's capital expenditures. The reduced level of expenditures relates primarily to the Company's return to more normal levels as the Company completed its restructuring plan and its European and South American expansion efforts. Capital expenditures related to continuing operations in fiscal 1998 were $136.4 million, which exceeded depreciation and amortization expense of $66.3 million for the year, and reflects an increase of $42.9 million over fiscal 1997's expenditures of $93.5 million. The increased level of expenditures in fiscal 1998 and 1997 relate primarily to the Company's restructuring efforts, and secondarily to new facilities and equipment required to support new products and markets, including increased business opportunities in Europe and South America. Management anticipates the Company's capital expenditure requirements will continue at the current levels in fiscal 2000. 28 Cash provided by earnings in fiscal 1999 was sufficient to fund the Company's capital expenditure investments, as well as the cash requirements of its repositioning and restructuring efforts during the fiscal year. Management believes that cash generated from earnings will be more than sufficient to fund such needs for the foreseeable future. Management intends to utilize such excess, plus funds generated as a result of the Company's anticipated further reduction in its working capital investment, as well as its existing cash and short-term investments, to help fund the repurchase of its Common Stock, to make further debt reductions and/or to help fund future strategic acquisitions. In addition to the activity identified above, other investment activities of the Company during the past few years include the following: - - In February 1999, as part of the Company's strategy to improve its return on assets employed, the Company sold its Automotive Filter Business for $276.0 million. The purchase price was paid in cash, less the assumption of approximately $6.4 million of debt, and is subject to adjustment based upon an audit of the closing balance sheet in accordance with provisions of the related purchase agreement. Near the end of fiscal 1999 the Company also sold several smaller stand-alone business units for net cash consideration of approximately $16.0 million. - - During the latter part of fiscal 1997, the Company began to realign and refocus its operations, including the closure of certain facilities and the termination of approximately 1,700 employees, with a net reduction of approximately 1,000 employee positions. In that regard, the Company recognized a restructuring charge of $112.5 million in fiscal 1997 (including $60.7 million of non-cash charges). During fiscal 1999, the Company began to reposition its automotive aftermarket business, and made certain other strategic decisions relative to its personnel requirements, inventory management practices, facility utilization and non-core lines of business. During this period the Company also completed the remaining facility rationalization related to its fiscal 1997 restructuring plan. As a result of these activities, the Company recognized a repositioning charge in fiscal 1999 in the amount of $66.0 million, with $63.8 million related to continuing operations, and the balance related to discontinued operations. Approximately $25.0 million of the charge relates to non-cash items, including $12.1 million related to inventory, and the balance related primarily to the impairment of the value of certain fixed assets. As of February 28, 1999, approximately $28.0 million of these charges remain to be expended, the substantial part of which will be expended over the next 18 months. 29 - - In May 1998, the Company announced the completion of its 7.3 million share repurchase program approved by the Board of Directors in March 1997. The stock was purchased at an average price of $22.00 per share, for a total cost of $160.8 million, with approximately 3.8 million shares repurchased and retired during fiscal 1999 at an average cost of $21.00 per share, or approximately $80.4 million. Upon completion of that program, the Board of directors approved the purchase of an additional ten million shares. Through February 28, 1999 the Company acquired and retired approximately 5.7 million shares under the May 1998 program at an average cost of $17.17 per share, or a total cost of approximately $97.8 million. Total purchases under both authorizations in fiscal 1999 were approximately 9.5 million shares at an average cost of $18.71 per share, or a total cost of approximately $178.2 million. Subsequent to February 28, 1999, the Company acquired and retired the remaining 4.3 million shares remaining under the May 1998 program at an average cost of $15.75 per share, or a total cost of approximately $67.7 million. The ten million shares acquired under the May 1998 program were acquired at an average cost of $16.55 per share, or a total cost of approximately $165.5 million. Upon completion of the May 1998 program in May 1999, the Company's Board of directors approved the purchase of an additional ten million shares. It is expected that such shares will be purchased in the open market, or through privately negotiated transactions, at prices which the Company considers to be attractive. - - In April 1999, the Company acquired the net assets of Lombardini FIM S.p.A., an Italian-based manufacturer of small gasoline and diesel engines for $148 million, consisting of $42 million in cash and the assumption of $106 million of existing debt. Lombardini produces small engines of up to 50kw (65 horsepower) in power and competes in various markets, supplying engines to agricultural, marine, automotive, electrical generation and home and lawn care markets, primarily in Europe. It also exports its products to North America, Africa, Latin America and Asia. Lombardini will be managed as a part of the Company's Automotive Business Segment. - - During fiscal 1998, the Company acquired the net assets of LPI Systemes Moteurs S.A. (LPI) for a net cash purchase price of approximately $60 million. LPI, based in France, manufactures plastic air admission systems which include air intake manifolds and cooling modules produced by injection molding, welding and blow molding technologies. LPI is included in the Company's Automotive Business Segment. The Company also made a number of smaller acquisitions in Europe and Australia during fiscal 1998 for a total cost of approximately $30 million. - - During fiscal 1997, as part of the Company's strategy to become more focused within its Industrial Business Segment, the Company sold its Professional Audio, Vapor Corporation, Interstate Highway Signs and Eagle Signal businesses and certain other non-operating assets. In fiscal 1998, the Company sold its Gulton Data Systems and LFE Industrial Systems businesses. The total of all of these divestitures generated gross proceeds of approximately $313 million. 30 - - At the beginning of fiscal 1997, the Company acquired the net assets of Imperial Eastman for a cash purchase price of approximately $78 million. Imperial Eastman is a manufacturer and marketer of a broad range of thermoplastic hydraulic and pneumatic hose assemblies, and steel and brass couplings, adapters and fittings for both high and low pressure applications. Imperial Eastman is included in the Company's Industrial Business Segment. The Company's long-term capital needs are met by cash generated from earnings, bank financing, and public debt and equity offerings. Recent long-term financing activities include the following: - - The Company used a portion of the net proceeds from the divestitures completed near the end of fiscal 1999 to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines which were primarily used to fund the Company's stock repurchase program during fiscal 1999. The excess proceeds were invested in short-term bank deposits and money market instruments, and will ultimately be used to help fund future debt reductions, common stock repurchases and/or strategic acquisitions. - - In October 1997, the Company completed the private placement of $275 million principal amount of its 4-3/4% Convertible Subordinated Notes due 2004 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 4-3/4% Notes). The 4-3/4% Notes are convertible into the Company's Common Stock at a price of $32.8125 per share, subject to anti-dilution adjustments. - - In August 1997, the Company completed the private placement of $250 million principal amount of its 7-1/2% Senior Subordinated Notes due 2007 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 7-1/2% Notes) at a purchase price of 99.471% of their face amount. - - The Company used a portion of the net proceeds from the divestiture transactions completed during fiscal 1997 to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines, and to refinance its $258 million principal amount of 8-3/4% Senior Subordinated Notes due April 1, 2003 (the 8-3/4% Notes). During fiscal 1998, $184.9 million of the 8-3/4% Notes were acquired in open- market purchases and the remaining $73.1 million of the 8-3/4% Notes were called and redeemed on April 2, 1998. 31 - - In March 1996, the Company entered into a $500 million, five-year non- amortizing revolving credit facility (the "Credit Agreement") with various financial institutions. The proceeds of the initial borrowings under the Credit Agreement were used to repay amounts outstanding under the Company's previously existing credit agreements. - - In March 1996, the Company also completed the sale of $250 million principal amount of its 7-3/4% Senior Subordinated Notes due 2006 (the 7-3/4% Notes). The net proceeds from the sale of the 7-3/4% Notes were used to reduce outstanding indebtedness under the Credit Agreement. As of February 28, 1999, the Company had borrowing availability under its Credit Agreement of $500 million and availability under its various other domestic and foreign demand lines of credit of approximately $225 million. Foreign Currency The Company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivatives transactions. The Company's sales from foreign locations and exports are significant; therefore, the Company does enter into foreign currency forward contracts from time-to-time as a hedge for certain existing or anticipated business transactions denominated in various foreign currencies. The maximum notional amount of foreign currency forward contracts outstanding at any one time during fiscal 1999 was not significant. Results of Operations The Company classifies its operations into the following two business segments: (i) Automotive, which includes the design, manufacture and distribution of power transmission, fuel and fluid handling and air-intake systems and components for the global automotive aftermarket and OEM (original equipment manufacturers) market; and (ii) Industrial, which includes the design, manufacture and distribution of power and fluid management systems and components for industrial OEM and distribution markets worldwide, transportation, specialty filtration and other products. The results of operations of LPI, Imperial Eastman and the smaller acquisitions made during the periods, have been included in the Company's results of operations from their respective dates of acquisition. The following discussion of the Company's results of operations is based on the table below, which presents the Company's results of operations separate from the Company's repositioning and restructuring charges and segregates the results related to the Company's discontinued operations from the results of the Company's continuing operations for all periods presented (dollars in thousands): 32
Years Ended The Last Day of February ------------------------------------ 1999 1998 1997 ---- ---- ---- (As Restated) Net sales from continuing operations $1,948,600 $1,844,300 $1,717,900 ---------- ---------- ---------- Operating costs: Cost of products sold (before restructuring and repositioning charges) 1,312,900 1,225,000 1,147,700 Selling and administration 305,700 297,700 281,100 Research and development 53,300 47,400 39,900 Depreciation and amortization 80,500 66,300 58,200 --------- --------- --------- Total operating costs 1,752,400 1,636,400 1,526,900 --------- --------- --------- Operating income 196,200 207,900 191,000 Interest expense 53,900 49,700 45,800 --------- --------- --------- Income from continuing operations, before provision for taxes 142,300 158,200 145,200 Provision for taxes 51,200 60,400 56,600 --------- --------- --------- Income from continuing operations, before repositioning and restructuring charges 91,100 97,800 88,600 Repositioning and restructuring charges, net of taxes (represents pretax charges of $63.8 million and $112.5 million in 1999 and 1997, respectively) (38,700) - (67,500) --------- --------- --------- Income from continuing operations 52,400 97,800 21,100 --------- --------- --------- Income from discontinued operations: Income from operations, net of taxes 4,100 11,400 17,500 Gain (loss) on divestitures, net of taxes (6,300) - 17,500 --------- --------- --------- Income (loss) from discontinued operations (2,200) 11,400 35,000 --------- --------- --------- Extraordinary loss from early extinguishment of debt, net of tax benefits (2,600) (10,600) - --------- --------- --------- NET INCOME $ 47,600 $ 98,600 $ 56,100 ========== ========== ==========
On a consolidated basis, net sales from continuing operations increased $104.3 million (6%) in fiscal 1999 in comparison to fiscal 1998. The increase was primarily attributable to the Automotive Segment's internal sales growth and the inclusion of the results of operations of LPI and several smaller acquisitions made in fiscal 1999 and the latter half of fiscal 1998. In the Company's Automotive Segment, net sales in fiscal 1999 increased $96.9 million (11%) in comparison to fiscal 1998. Internal sales growth, after adjusting for the LPI and smaller acquisitions, was $56.8 million (6%). The internal growth was lead by the Segment's OEM/OES Sector, which increased approximately $52.2 million (7%) in fiscal 1999 in comparison to fiscal 1998. OEM/OES growth of 10% was driven primarily by the International markets, with a slower rate of growth of 2.4% in the U.S. The U.S. growth was somewhat hampered by the GM strike which occurred earlier in the fiscal year. In the Aftermarket Sector, internal sales growth was $4.6 million (2%) in fiscal 1999 in comparison to fiscal 1998. The internal growth in this Sector was led by growth in the U.S., which offset a slight decline in the International aftermarket. 33 In the Industrial Segment, net sales in fiscal 1999 increased $7.4 million (1%) in comparison to fiscal 1998. Internal sales, after adjusting for smaller acquisitions in the Power Transmission and Fluid Transfer Sector, experienced a reduction amounting to $29.3 million (5%) for fiscal 1999 in comparison to fiscal 1998. Such reduction was primarily attributable to a significant decline in the global agricultural equipment markets in the last half of the fiscal year, along with weak petroleum and petrochemical markets experienced throughout the year. These reductions were offset by record sales in the Segment's Transportation Sector, which increased 6% over comparable fiscal 1998. The Segment's Specialty Filter Sector also contributed to the increase, with internal sales growth of approximately 3% in fiscal 1999 as compared to fiscal 1998. In fiscal 1998, consolidated net sales from continuing operations increased $126.4 million (7%) in comparison to fiscal 1997. Such sales were negatively effected by approximately $60.0 million as a result of unfavorable foreign currency exchange rate movements during fiscal 1998. If exchange rates in fiscal 1998 had remained consistent with the rates in effect in fiscal 1997, net sales from continuing operations in fiscal 1998 would have increased approximately 11% in comparison to fiscal 1997. The increase in fiscal 1998's sales was primarily attributable to internal growth, and to a lesser extent to the inclusion of the results of operations of LPI and several smaller acquisitions from their respective dates of acquisition. In the Company's Automotive Segment, net sales in fiscal 1998 increased $107.1 million (14%) in comparison to fiscal 1997. Internal sales growth in fiscal 1998, was approximately 6% in comparison to fiscal 1997. Such growth was primarily generated by the Segment's Automotive OEM Sector, with OEM growth in the U.S. leading the way. The negative movements in foreign currency exchange rates during fiscal 1998 related primarily to the Automotive Segment's OEM business. In the Aftermarket Sector, internal sales decreased nominally in fiscal 1998 in comparison to fiscal 1997. In the Company's Industrial Segment, net sales in fiscal 1998 increased $19.3 million (2%) in comparison to fiscal 1997. Internal sales growth in fiscal 1998 was approximately 2% in comparison to fiscal 1997. This increase was led by the Segment's Power Transmission and Fluid Transfer, and Transportation Sectors in the U.S. The Industrial Segment's Power Transmission and Fluid Transfer operations outside of the U.S. remained relatively flat, year over year. Cost of products sold as a percentage of consolidated net sales were 67.4%, 66.4%, and 66.8% in fiscal 1999, 1998 and 1997, respectively. The increase in fiscal 1999 is primarily attributable to the effects in the first half of fiscal 1999 of duplicative costs and inefficiencies incurred due to additional time required to complete the Company's restructuring program. The Company also experienced a negative effect on earnings from the General Motors strike during fiscal 1999. The Company began to experience improved margins in the latter half of fiscal 1999, upon the substantial completion of its restructuring plan. 34 Selling and administration costs as a percentage of consolidated net sales were 15.7%, 16.1% and 16.4% in fiscal 1999, 1998 and 1997, respectively. The reduced level of costs reflects operating efficiencies achieved from the integration of the operations acquired and the reorganization of the Company's business segments. The lower level of costs also indicates the benefits of the Company's continued emphasis on cost control. Research and development costs increased by $5.9 million (12%) in fiscal 1999 in comparison to fiscal 1998, which in turn increased by $7.5 million (19%) in comparison to fiscal 1997. As a percentage of consolidated net sales, such costs were approximately 2.7%, 2.6% and 2.3% in fiscal 1999, 1998 and 1997, respectively. This increased level of investment reflects the Company's continuing emphasis on new product development, resulting from a number of new product and systems initiatives which the Company is pursuing, as well as the introduction of new technology to the North American Automotive OEM market from acquisitions in Europe. Depreciation and amortization expense increased by $14.2 million (21%) in fiscal 1999 in comparison to fiscal 1998, which in turn increased by $8.1 million (14%) in comparison to fiscal 1997. The increases are attributable to increased levels of capital equipment expenditures in fiscal 1998 and 1997 to support the Company's restructuring efforts, as well as new facilities and equipment required to support new products and markets and increased business opportunities in Europe and South America. To a lesser extent, additional goodwill amortization related to acquisitions in the latter part of fiscal 1998, also contributed to the increase. The above mentioned items resulted in the following operating income from continuing operations (before the repositioning and restructuring charge) for each of the fiscal years presented (dollars in millions): 1999 1998 1997 ---------------- --------------- -------------- % Of % Of % Of Related Related Related Amount Sales Amount Sales Amount Sales ------ ------- ------ ------- ------ ------- OPERATING INCOME Automotive $101.0 10.2% $104.1 11.6% $ 91.8 11.7% Industrial 109.5 11.4% 119.6 12.6% 118.6 12.7% ------ ------ ------ Total operating income before corporate expenses 210.5 10.8% 223.7 12.1% 210.4 12.2% Corporate expenses (14.3) (0.7)% (15.8) (0.8)% (19.4) (1.1)% ------ ----- ------ ----- ------ ----- Operating income $196.2 10.1% $207.9 11.3% $191.0 11.1% ====== ===== ====== ===== ====== ===== 35 The $63.8 repositioning charge in fiscal 1999 relates to the Company's decision to reposition its Automotive Aftermarket business, and make certain other strategic decisions relative to its personnel requirements, inventory management practices, facility utilization and non-core lines of business. The effect of this charge, after taxes, reduced income from continuing operations by $38.7 million, or $.59 per diluted share of Common Stock. The $112.5 million restructuring charge recognized in fiscal 1997 relates to the Company's decision to realign and refocus its operations. The effect of this charge, after taxes, reduced income from continuing operations by $67.5 million, or $1.01 per diluted share of Common Stock. Interest expense in fiscal 1999 increased $4.2 million (8%) over fiscal 1998, which in turn increased $3.9 million (9%) over fiscal 1997. The increase is primarily due to borrowings incurred to finance the Company's stock repurchase program and the acquisition of LPI and several smaller acquisitions in fiscal 1999 and the latter part of fiscal 1998. This increase was partially offset by the benefits of proceeds from asset divestitures and reduced rates on the Company's domestic debt, primarily related to the issuance of the 7-1/2% and 4-3/4% Notes in the latter part of fiscal 1998 to refinance higher rate debt. The increase in fiscal 1998 is primarily the result of increased borrowings required to finance the Imperial Eastman and other smaller acquisitions. Interest expense also reflects the benefits of amounts allocated to discontinued operations, which amounted to $13.1 million, $11.9 million and $13.2 million in fiscal 1999, 1998 and 1997, respectively. The effective tax rate as a percentage of pre-tax accounting income for fiscal 1999 reflects an expense of 36.0%, compared to an expense of approximately 38.2% and 39.0% in fiscal 1998 and 1997, respectively. The decrease in the effective tax rate in fiscal 1999 as compared to fiscal 1998 and 1997 is primarily the result of a more favorable mix of foreign income, as well as the benefits of certain tax planning strategies. The Company's income from continuing operations in fiscal 1999, 1998 and 1997 was made up of the following elements (dollars in thousands, except per share amounts): 1999 1998 1997 ---- ---- ---- Elements of the Company's income from continuing operations: Before repositioning/restructuring charges $ 91,100 $97,800 $ 88,600 Repositioning/restructuring charges (38,700) - (67,500) -------- ------- -------- Income from continuing operations $ 52,400 $97,800 $ 21,100 ======== ======= ======== Diluted income per share from continuing operations: Before repositioning/restructuring charges $ 1.51 $ 1.49 $ 1.33 Repositioning/restructuring charges (.59) - (1.01) -------- ------- -------- Income from continuing operations $ .92 $ 1.49 $ .32 ======== ======= ======== 36 Income from continuing operations in fiscal 1999 (before the repositioning charge) decreased $6.7 million (7%) over the comparable amount for fiscal 1998, which in turn increased $9.2 million (10%) over fiscal 1997 (before the restructuring charge). On a diluted per share basis, such amount for fiscal 1999 represents an increase of $.02 (1%) over the comparable amount for fiscal 1998, which in turn increased $.16 (12%) over fiscal 1997. The diluted per share increase in fiscal 1999 is a result of reduced weighted average shares outstanding as a result of the Company's stock repurchase program, which more than offset the effect of the decrease in income from continuing operations. Impact of Inflation The competitive environment in which the Company operates makes it extremely difficult to pass on increased costs to its customers. In many instances, the Company is not able to increase its prices at all, and in certain situations is forced to reduce its selling prices. This environment makes it critical for the Company to be able to operate in a continuously more efficient manner. The Company must also work closely with its suppliers to minimize price increases and push for pricing improvements in the same manner that its customers demand of the Company. Impact of the Year 2000 Issue The Year 2000 Issue is the result of computer software programs being written using two digits rather than four to define the applicable year. Any of the Company's software programs, computer hardware or equipment that have date- sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, manufacture products or engage in other normal business activities. The Company has developed a formal plan to ensure that all of its significant date-sensitive computer software and hardware systems ("Information Technology") and other equipment utilized in its various manufacturing, distribution and administration activities (utilizing embedded chips or software..."Operating Equipment") will be Year 2000 compliant and operational on a timely basis. The plan addresses all of the Company's locations throughout the world, and includes a review of computer applications that connect elements of the Company's business directly to its customers and suppliers. The plan also includes an assessment process to determine that the Company's significant customers and suppliers ("Third-Party Activities") will also be Year 2000 compliant. The Company's plan to resolve the Year 2000 Issue includes four major phases - assessment, remediation, testing, and implementation. The Company has substantially completed the assessment phase of its plan for all of its significant Information Technology and Operating Equipment that it believes could be affected by the Year 2000 Issue. Based upon its assessment, the Company concluded that it would be necessary to reprogram and/or replace certain of its Information Technology. The Company also determined that certain of its Operating Equipment would also require modifications to make sure they remain operational. 37 For its Information Technology exposures, the Company is approximately 98% complete on the remediation phase for all of its significant systems, and estimates that it will complete software reprogramming and/or replacement by the end of the first quarter of fiscal 2000. To date, the Company has completed approximately 95% of its testing and has implemented approximately 90% of the required remediation for such systems. The testing and implementation phases are targeted to be substantially completed during the second quarter of fiscal 2000. The remediation of Operating Equipment is approximately 90% complete,and the Company is targeting substantial completion of its related remediation efforts by the end of the first quarter of fiscal 2000. Testing and implementation of the affected equipment is also targeted to be substantially completed during the second quarter of fiscal 2000. With respect to Third-Party Activities, the Company has made inquiries of its significant customers and suppliers and, at the present time, is not aware of problems that would materially impact the Company's operations. However, the Company has no means of ensuring that these customers and suppliers (and in turn their customers and suppliers) will be Year 2000 compliant in a timely manner. The inability of these parties to successfully resolve their Year 2000 issues could have a material adverse effect on the Company. The Company is utilizing both internal and external resources to reprogram or replace, test, and implement the required Year 2000 modifications. The Company's total cost to address the Year 2000 Issue is estimated at $9.3 million and is being funded through operating cash flow. The elements of such costs are as follows (amounts in thousands): Incurred Through Costs Yet Total February 28, To Be Estimated 1999 Incurred Cost ----------- -------- --------- Capital expenditures related to new systems and equipment $1,600 $1,500 $ 3,100 Operating expenses related to modifications of existing systems and equipment 4,600 1,600 6,200 ------ ------ ------- Total costs $6,200 $3,100 $ 9,300 ====== ====== ======= The Company's plan to complete its Year 2000 modifications is based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, and other factors. Management does not believe that the cost of achieving Year 2000 compliance will significantly impact the results of the Company's operations or its financial position. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, the ability of the Company's significant customers and suppliers (and, in turn, their significant customers and suppliers) to also achieve Year 2000 compliance, and similar uncertainties. 38 The Company presently believes that with modifications and replacement of existing hardware and software, and continued contact with its significant customers and suppliers, problems related to the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not successfully completed, and if the Year 2000 plans of its significant customers and suppliers are not completed on a timely basis, the Year 2000 Issue could have a material adverse effect on the Company's results of operations, cash flows and financial condition. Euro Conversion On January 1, 1999, the Euro became the common currency of eleven of the fifteen member states of the European Union. After the introduction of the Euro, the national currencies will remain legal tender in the participating countries until mid-calendar-year 2002. During the dual currency phase, businesses must be capable of conducting commercial transactions in either the Euro or the national currency. After the dual currency phase, all businesses in participating countries must conduct all transactions in the Euro and must convert their financial records and reports to be Euro-based. The Company expects that all its facilities will be capable of complying with the Euro conversion timetable and with customer requirements for quoting and billing in Euro dollars. The Company's information technology systems are currently meeting the dual currency phase requirements, and it is anticipated that the final phase of the Euro conversion will not have a negative effect on the Company. Forward-Looking Information This Management's Discussion and Analysis and other sections of this Annual Report contain forward-looking statements that are based on current expectations, estimates and projections about the industries in which the Company operates, as well as management's beliefs and assumptions. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The Future Factors that may affect the operations, performance and results of the Company's businesses include the following: a. general economic and competitive conditions in the markets and countries in which the Company operates, and the risks inherent in international operations; b. the Company's ability to continue to control and reduce its costs of production; c. the level of consumer demand for new vehicles equipped with the Company's products; 39 d. the level of consumer demand for the Company's aftermarket products, which varies based on such factors as the severity of winter weather, the age of automobiles in the Company's markets and the impact of improvements or changes in original equipment products; e. the effect of changes in the distribution channels for the Company's aftermarket and industrial products; f. the strength of the U.S. dollar against currencies of other countries where the Company operates, as well as cross-currencies between the Company's operations outside of the U.S. and other countries with whom they transact business; and g. the successful completion of the Company's Year 2000 plan, as well as the plans of its significant customers and suppliers. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company does not intend to update forward-looking statements. 40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- Index to Financial Statements Page Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1999 41 Consolidated Balance Sheets at February 28, 1999 and 1998 42 Consolidated Statements of Income for each of the three fiscal years in the period ended February 28, 1999 43 Consolidated Statements of Stockholders' Equity for each of the three fiscal years in the period ended February 28, 1999 44 Consolidated Statements of Comprehensive Income for each of the three fiscal years in the period ended February 28, 1999 45 Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended February 28, 1999 46 Notes to Consolidated Financial Statements 47 41 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Mark IV Industries, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity, comprehensive income and cash flows present fairly, in all material respects, the financial position of Mark IV Industries, Inc. and Subsidiaries (the "Company") as of February 28, 1999 and 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 28, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Rochester, New York March 22, 1999 42 MARK IV INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS FEBRUARY 28, 1999 and 1998 (Dollars in Thousands) ASSETS 1999 1998 ---- ---- Current Assets: Cash and short-term investments $ 125,700 $ 120,900 Accounts receivable 406,000 466,400 Inventories 297,600 393,400 Other current assets 133,300 105,600 ---------- ---------- Total current assets 962,600 1,086,300 Pension and other non-current assets 185,500 226,600 Property, plant and equipment, net 562,300 668,400 Cost in excess of net assets acquired 369,300 439,200 ---------- ---------- TOTAL ASSETS $2,079,700 $2,420,500 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities $ 57,800 $ 133,800 8-3/4% Notes, called for redemption - 73,100 Accounts payable 219,900 222,400 Compensation related liabilities 79,000 75,500 Accrued interest 23,200 28,600 Other current liabilities 92,100 94,500 ---------- ---------- Total current liabilities 472,000 627,900 ---------- ---------- Long-Term Debt: Senior debt 24,700 21,400 Subordinated debt 772,800 772,500 ---------- ---------- Total long-term debt 797,500 793,900 ---------- ---------- Other non-current liabilities 213,500 246,700 ---------- ---------- Stockholders' Equity: Preferred stock - $.01 par value; Authorized 10 million shares; No issued shares - - Common stock - $.01 par value; Authorized 200 million shares; Issued 53.4 million shares in 1999 and 62.9 million shares in 1998 500 600 Additional paid-in capital 440,700 617,800 Retained earnings 203,300 167,100 Foreign currency translation adjustment (47,800) (33,500) ---------- ---------- Total stockholders' equity 596,700 752,000 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,079,700 $2,420,500 ========== ========== The accompanying notes are an integral part of these financial statements. 43
MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED THE LAST DAY OF FEBRUARY 1999, 1998 and 1997 (Amounts in Thousands, Except Per Share Data) 1999 1998 1997 ---- ---- ---- (As Restated) Net sales from continuing operations $1,948,600 $1,844,300 $1,717,900 ---------- ---------- ---------- Operating costs: Cost of products sold (including $63.8 million and $112.5 million related to repositioning and restructuring charges in 1999 and 1997, respectively) 1,376,700 1,225,000 1,260,200 Selling and administration 305,700 297,700 281,100 Research and development 53,300 47,400 39,900 Depreciation and amortization 80,500 66,300 58,200 ---------- ---------- ---------- Total operating costs 1,816,200 1,636,400 1,639,400 ---------- ---------- ---------- Operating income 132,400 207,900 78,500 Interest expense 53,900 49,700 45,800 ---------- ---------- ---------- Income from continuing operations, before provision for taxes 78,500 158,200 32,700 Provision for taxes 26,100 60,400 11,600 ---------- ---------- ---------- Income from continuing operations 52,400 97,800 21,100 ---------- ---------- ---------- Income from discontinued operations: Income from operations, net of taxes 4,100 11,400 17,500 Gain (loss) on divestitures, net of taxes (6,300) - 17,500 ---------- ---------- ---------- Income (loss) from discontinued operations (2,200) 11,400 35,000 ---------- ---------- ---------- Extraordinary loss from early extinguishment of debt, net of tax benefits (2,600) (10,600) - ---------- ---------- ---------- NET INCOME $ 47,600 $ 98,600 $ 56,100 ========== ========== ========== Net income per share of common stock: Basic: Income from continuing operations $ .92 $ 1.52 $ .32 Income (loss) from discontinued operations (.04) .18 .52 Extraordinary loss (.04) (.16) - ---------- ---------- ---------- NET INCOME $ .84 $ 1.54 $ .84 ========== ========== ========== Diluted: Income from continuing operations $ .92 $ 1.49 $ .32 Income (loss) from discontinued operations (.03) .17 .52 Extraordinary loss (.04) (.16) - ---------- ---------- ---------- NET INCOME $ .85 $ 1.50 $ .84 ========== ========== ========== Weighted average number of shares outstanding: Basic 56,900 64,100 66,300 ========== ========== ========== Diluted 65,500 67,400 66,700 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 44
MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED THE LAST DAY OF FEBRUARY 1999, 1998 AND 1997 (Dollars in Thousands, Except Per Share Data) Foreign Additional Currency Common Paid-in Retained Translation Stock Capital Earnings Adjustment ------ --------- -------- ---------- Balance at February 29, 1996 $ 600 $617,600 $109,700 $ (2,400) Net income for fiscal 1997 56,100 Cash dividends of $.138 per share (9,100) Stock dividend of 5% 100 77,300 (77,400) Restricted stock amortization 1,300 Stock options activity, including related tax benefits 300 Translation adjustment (15,700) ------- -------- ------- -------- Balance at February 28, 1997 700 696,500 79,300 (18,100) Net income for fiscal 1998 98,600 Cash dividends of $.17 per share (10,800) Purchase and retirement of 3,474,420 shares of Common Stock (average cost of $23.14 per share) (100) (80,300) Restricted stock amortization 1,300 Stock options activity, including related tax benefits 300 Translation adjustment (15,400) ------- -------- ------- ------- Balance at February 28, 1998 600 617,800 167,100 (33,500) Net income for fiscal 1999 47,600 Cash dividends of $.205 per share (11,400) Purchase and retirement of 9,520,925 shares of Common Stock (average cost of $18.71 per share) (100) (178,100) Restricted stock amortization 700 Stock options activity, including related tax benefits 300 Translation adjustment (14,300) ------- -------- -------- -------- Balance at February 28, 1999 $ 500 $440,700 $203,300 $(47,800) ======= ======== ======== ========
The accompanying notes are an integral part of these financial statements. 45 MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED THE LAST DAY OF FEBRUARY 1999, 1998 AND 1997 (Dollars in Thousands) 1999 1998 1997 -------- -------- -------- Net income $ 47,600 $ 98,600 $ 56,100 Balance sheet effect of foreign currency translation adjustments (14,300) (15,400) (15,700) -------- -------- -------- Comprehensive net income $ 33,300 $ 83,200 $ 40,400 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 46
MARK IV INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED THE LAST DAY OF FEBRUARY 1999, 1998 AND 1997 (Dollars in Thousands) 1999 1998 1997 ---- ----- ---- (As Restated) Cash flows from operating activities: Income from continuing operations $ 52,400 $ 97,800 $ 21,100 Items not affecting cash: Depreciation and amortization 80,500 66,300 58,200 Deferred income taxes 34,700 47,200 15,800 Pension income, net of other items (22,700) (15,100) (5,900) Repositioning and restructuring charges, net of tax 5,800 - 36,400 Changes in assets and liabilities, net of effects of acquired and divested businesses: Accounts receivable (5,800) (39,300) (37,500) Inventories 15,900 (10,100) (33,800) Other assets (500) (5,400) (20,000) Accounts payable and other liabilities (24,300) (53,400) 9,400 -------- -------- -------- Net cash provided by continuing operating activities 136,000 88,000 43,700 Net cash provided by discontinued operations 18,600 22,400 17,200 Extraordinary items before deferred charges (3,300) (11,700) - -------- -------- -------- Net cash provided by operating activities 151,300 98,700 60,900 -------- -------- -------- Cash flows from investing activities: Acquisitions - continuing operations (8,300) (82,700) (95,200) Acquisitions - discontinued operations - (7,500) - Divestitures and asset sales 271,900 36,700 276,600 Purchase of plant and equipment, net: Continuing operations (77,300) (134,500) (90,700) Discontinued operations (3,500) (19,000) (20,200) -------- -------- -------- Net cash provided by (used in) investing activities 182,800 (207,000) 70,500 -------- -------- -------- Cash flows from financing activities: Credit agreement borrowings, net - - (97,300) Issuance of subordinated debt, net of fees - 515,400 - Retirement of subordinated debt (73,100) (184,900) - Other changes in long-term debt, net 11,100 1,400 (16,700) Changes in short-term bank borrowings (83,800) (13,100) (8,200) Common stock transactions (178,100) (80,100) 300 Cash dividends paid (11,400) (10,800) (9,100) Discontinued operations 6,000 - - -------- --------- -------- Net cash provided by (used in) financing activities (329,300) 227,900 (131,000) -------- --------- -------- Net increase in cash and short-term investments 4,800 119,600 400 Cash and short-term investments: Beginning of the year 120,900 1,300 900 -------- -------- -------- End of the year $125,700 $120,900 $ 1,300 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 47 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company and its Significant Accounting Policies The Company Mark IV Industries, Inc. and Subsidiaries (the Company) is a diversified manufacturer of proprietary and other products, with operations primarily in automotive and industrial power and fluid transfer businesses. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions have been eliminated. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which requires management to make estimates and assumptions that affect the reported and contingent amounts of assets and liabilities as of the date of such financial statements, and the reported amounts of revenues and expenses during the reporting periods. It should be recognized that the actual results could differ from those estimates. Cash and Short-term Investments Short-term investments consist of temporary bank deposits and money market instruments with various financial institutions, and such items represent the substantial part of the cash and short-term investments as of February 28, 1999 and 1998. For purposes of cash flows, the Company considers overnight investments as cash equivalents. The Company paid interest of approximately $75.4 million, $58.0 million and $62.0 million in fiscal 1999, 1998 and 1997, respectively. The Company paid income taxes of approximately $33.9 million, $27.0 million and $26.0 million in fiscal 1999, 1998 and 1997, respectively. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of periodic temporary investments of excess cash and trade receivables. The Company places its temporary excess cash and short-term investments in temporary bank deposits and high quality short-term money market instruments through several high credit quality financial institutions. The credit risk associated with trade receivables is minimal due to the Company's large customer base and ongoing control procedures which monitor the creditworthiness of customers. Historically, the Company has not experienced significant losses on trade receivables. Inventories Inventories are stated at the lower of cost or market, with cost determined primarily on the last-in, first-out (LIFO) method. 48 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property, Plant and Equipment The Company provides for depreciation of plant and equipment primarily on the straight-line method over its useful life. The cost of property, plant and equipment retired or otherwise disposed of, and the accumulated depreciation thereon, are eliminated from the asset and related accumulated depreciation accounts, and any resulting gain or loss is reflected in income. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired (goodwill) is amortized on the straight- line method over 40 years. The Company continually evaluates the existence of goodwill impairment on the basis of whether the goodwill is fully recoverable from projected, undiscounted net cash flows of the related business. Foreign Currency The assets and liabilities of the Company's international subsidiaries are translated at year-end exchange rates, and resulting gains and losses are accumulated as a separate component of stockholders' equity. Foreign currency transactions are included in income as realized. The Company enters into foreign currency forward contracts as a hedge for certain existing or anticipated business transactions denominated in foreign currencies. Gains or losses on contracts related to existing business transactions are deferred and recognized as the related transactions are completed, while those related to anticipated transactions are recognized as of the balance sheet date. The Company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivatives transactions. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 - Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 133 standardized the accounting for derivative instruments by requiring them to be recognized as balance sheet assets or liabilities, measured at their fair market value. Certain criteria have been established by SFAS No. 133 to determine if a derivative is designated and qualifies as a hedge. Changes in the fair value of derivatives that do not meet hedge accounting criteria in SFAS No. 133 are required to be reported in earnings. SFAS No. 133 will be effective for the Company's fiscal year ending February 28, 2001. Management is in the process of assessing the impact of its SFAS No. 133 adoption; however, it anticipates the effect on its financial statements will not be significant. 49 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Segment Reporting In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131 - Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131). The new Statement supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. The management approach defines the Company's reportable business segments based upon the internal organization used by management for making operating decisions and assessing overall performance. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position of the Company. It also did not have a significant effect on the Company's disclosure of its segment information, as its segments had previously been presented consistent with the current management approach required by SFAS No. 131 (as identified in Note 13). Earnings Per Share of Common Stock The Company adopted Statement of Financial Accounting Standards No. 128 - Earnings Per Share (SFAS No. 128) in the fourth quarter of fiscal 1998. SFAS No. 128 is intended to simplify the earnings per share computations and make them more comparable from company to company. Basic earnings per share is calculated on the basis of the weighted average number of shares outstanding, adjusted for subsequent stock distributions. Diluted earnings per share, in addition to the weighted average determined for basic earnings per share, includes common stock equivalents which would arise from the exercise of stock options using the treasury stock method, and assumes the conversion of the Company's 4-3/4% Convertible Subordinated Notes for the period outstanding since their issuance in October 1997. Stock-Based Compensation Companies are required to either recognize compensation expense for grants of stock options, or provide pro forma disclosures relative to what the effect of such accounting recognition would have been. The Company has chosen not to recognize compensation expense for options granted under its Incentive Stock Option Plans, and the related pro forma information has been presented in Note 12 to these consolidated financial statements. Tax benefits received by the Company upon the exercise and subsequent sale of the options by its employees are recognized as an increase in additional paid-in capital as they occur. Reclassifications Certain reclassifications of 1998 and 1997 financial statements and related footnote amounts have been made to conform with the 1999 presentation. 50 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Restructuring and Repositioning Charges During the latter part of fiscal 1997, the Company began to realign and refocus its operations, including the closure of certain facilities and the termination of approximately 1,700 employees, with a net reduction of approximately 1,000 employee positions. The restructuring was substantially completed in fiscal 1999. In that regard, the Company recognized a restructuring charge of $112.5 million in fiscal 1997 (including $60.7 million of non-cash charges), and such amount has been included in cost of products sold in the accompanying consolidated statement of income. As of February 28, 1999, approximately $12.0 million of this charge remains to be expended, related primarily to the run-out of severance and lease commitments. During fiscal 1999, the Company began to reposition its automotive aftermarket business, and made certain other strategic decisions relative to its personnel requirements, inventory management practices, facility utilization and non- core lines of business. During this period the Company also completed the remaining facility rationalization related to its fiscal 1997 restructuring plan, as discussed above. As a result of these developments, the Company recognized a charge in fiscal 1999 in the amount of $66.0 million, with $63.8 related to continuing operations, and the balance related to discontinued operations. The amount charged to continuing operations has been included in the cost of products sold, and is made up of the following elements (dollars in thousands): Amounts Balance Expended or Remaining Adjusted at Initial During February 28, Charge Fiscal 1999 1999 ------ ----------- ----------- Continuing Operations: Non-cash charges $24,800 $(24,800) $ - Costs to complete the fiscal 1997 restructuring plan 21,900 (21,900) - Facility closing and lease run-out costs 7,500 (300) 7,200 Severance and other costs 9,600 (500) 9,100 ------- -------- ------- Total costs related to continuing operations 63,800 (47,500) 16,300 Discontinued operations 2,200 (2,200) - ------- -------- ------- Total costs $66,000 $(49,700) $16,300 ======= ======== ======= The non-cash charge includes $12.1 million related to inventory, with the balance related primarily to the impairment of the value of certain fixed assets. The after-tax effect of the charge reduced income from continuing operations by $38.7 million and reduced diluted income per share from continuing operations by $.59 in fiscal 1999. 51 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Acquisitions and Divestitures In October 1997, the Company acquired the net assets of LPI Systemes Moteurs S.A. (LPI) for a net cash purchase price of approximately $60.0 million. LPI, based in France, manufactures plastic air admission systems which include air intake manifolds and cooling modules produced by injection molding, welding and blow molding technologies. LPI is included in the Company's Automotive business segment. The Company also made a number of smaller acquisitions in Europe, Australia and South America during fiscal 1999 and 1998. In fiscal 1997, the Company acquired the net assets of Imperial Eastman for a cash purchase price of approximately $78.0 million. Imperial Eastman is a manufacturer and marketer of a broad range of thermoplastic hydraulic and pneumatic hose assemblies and steel and brass couplings, adapters and fittings for both high and low pressure applications. Imperial Eastman is included in the Company's Industrial business segment. On February 26, 1999, the Company completed the sale of its Automotive Filter Business for $276.0 million. The purchase price was paid in cash, less the assumption of approximately $6.4 million of debt, and is subject to adjustment based upon an audit of the Closing Balance Sheet in accordance with the provisions of the related Purchase Agreement. The Company's Automotive Filter Business was part of its Automotive business segment. Near the end of fiscal 1999, the Company also sold several smaller stand-alone business units for net cash consideration of approximately $16.0 million. The results of operations of these separate units have been segregated from the Company's continuing operations and accounted for as discontinued operations in the accompanying consolidated statements of income and cash flows for fiscal 1999. The consolidated statements of income and cash flows for fiscal 1998 and 1997 have been restated to reflect such discontinued operations in a manner consistent with the presentation for fiscal 1999. The results of operations of these discontinued businesses up to their respective disposal dates were as follows (dollars in thousands): 1999 1998 1997 ---- ---- ---- Sales $363,000 $365,900 $358,100 ======== ======== ======== Income before interest and taxes $ 19,200 $ 30,400 $ 32,200 Interest expense allocated (13,100) (11,900) (13,200) Provision for taxes (2,000) (7,100) (7,400) -------- -------- -------- Income from discontinued operations $ 4,100 $ 11,400 $ 11,600 ======== ======== ======== In fiscal 1998, the Company sold its Data Systems and LFE Industrial Systems businesses. Such businesses were included in the results of operations of the Company's Industrial segment through their respective disposal dates. In fiscal 1997, the Company sold its Professional Audio business, as well as a number of other non-core businesses. The results of operations for such divested businesses have been presented as discontinued operations in the Company's consolidated statements of income through their respective disposal dates. 52 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Accounts Receivable and Inventories Accounts receivable are reflected net of allowances for doubtful accounts of $9.6 million and $13.6 million at February 28, 1999 and 1998, respectively. The amount at February 28, 1998 includes $2.4 million related to discontinued operations. Inventories consist of the following at February 28, 1999 and 1998 (dollars in thousands): 1999 1998 ---- ---- Raw materials $ 76,200 $ 86,200 Work-in-process 51,600 73,000 Finished goods 169,800 234,200 -------- -------- Total $297,600 $393,400 ======== ======== The total at February 28, 1998 includes $66.0 million related to discontinued operations. As a result of the fair value determination of inventories required by the purchase method of accounting for acquired companies as of their acquisition date, LIFO costs exceed historical FIFO costs by approximately $31.8 million and $38.7 million at February 28, 1999 and 1998, respectively. The excess at February 28, 1998 includes approximately $9.2 million related to discontinued operations. 5. Property, Plant and Equipment Property, plant and equipment are stated at cost and consist of the following at February 28, 1999 and 1998 (dollars in thousands): 1999 1998 ---- ---- Land and land improvements $ 24,900 $ 25,900 Buildings 174,700 179,900 Machinery and equipment 599,200 658,000 -------- -------- Total property, plant and equipment 798,800 863,800 Less accumulated depreciation 236,500 195,400 -------- -------- Property, plant and equipment, net $562,300 $668,400 ======== ======== The net amount at February 28, 1998 includes $111.3 million related to discontinued operations. Depreciation expense related to continuing operations was approximately $68.6 million, $56.1 million and $48.1 million in fiscal 1999, 1998 and 1997, respectively. 6. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is presented net of accumulated amortization of approximately $54.3 million and $51.1 million at February 28, 1999 and 1998, respectively. Cost in excess of net assets acquired at February 28, 1999 reflects approximately $12.9 million related to the Company's acquisitions in fiscal 1999, as well as final purchase accounting for acquisitions completed in fiscal 1998. Cost in excess of net assets acquired at February 28, 1999 also reflects the elimination of approximately $64.1 million related to discontinued operations. Amortization expense related to continuing operations was approximately $10.4 million, $8.7 million and $7.9 million in fiscal 1999, 1998 and 1997, respectively. 53 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Long-Term Debt Long-term debt consists of the following at February 28, 1999 and 1998 (dollars in thousands): 1999 1998 ---- ---- Senior debt: Credit Agreement $ - $ - Other items 42,400 31,200 ---------- ---------- Total senior debt 42,400 31,200 Less current maturities (17,700) (9,800) ---------- ---------- Net senior debt 24,700 21,400 ---------- ---------- Subordinated debt: 4-3/4% Convertible Subordinated Notes 275,000 275,000 7-1/2% Senior Subordinated Notes 248,900 248,800 7-3/4% Senior Subordinated Notes 248,900 248,700 8-3/4% Senior Subordinated Notes - 73,100 ---------- ---------- Total subordinated debt 772,800 845,600 Less current portion - (73,100) ---------- ---------- Net subordinated debt 772,800 772,500 ---------- ---------- Total long-term debt 797,500 793,900 Stockholders' equity 596,700 752,000 ---------- ---------- Total capitalization $1,394,200 $1,545,900 ========== ========== Long-term debt as a percentage of total capitalization 57.2% 51.4% ========== ========== The Company's primary credit agreement (the Credit Agreement) provides for a non-amortizing revolving credit facility through March 2001, with borrowing availability of $400 million under a domestic facility (the Domestic Credit Facility) and $100 million under a multi-currency facility (the Multi-Currency Credit Facility). The Multi-Currency Credit Facility permits borrowings to be made in U.S. dollars as well as specified foreign currencies. Borrowings under the Domestic Credit Facility bear interest at an annual rate equal to, at the Company's option, either (i) the greater of (a) the reference rate of the agent acting on behalf of the various banks or (b) the Federal Funds Rate plus 0.50% or (ii) LIBOR plus a margin (the Applicable Margin) ranging from 0.225% to 0.35% depending upon the Company's consolidated leverage ratio, as determined on a quarterly basis. Borrowings under the Multi-Currency Credit Facility bear interest at the LIBOR rate for the currency of each loan plus the Applicable Margin. The Company is also required to pay a commitment fee at an annual rate ranging from 0.125% to 0.20% of the total borrowing availability under the Credit Agreement (the Facility Fee Rate), determined on the basis of the same consolidated leverage ratio. Based upon the Company's consolidated leverage ratio as of February 28, 1999, the Applicable Margin and Facility Fee Rate are 0.225% and 0.15%, respectively. The Credit Agreement contains customary covenants, including those requiring the maintenance of specified consolidated interest coverage and leverage ratios and amounts of consolidated net worth. Borrowings under the Credit Agreement are guaranteed by the Company's significant domestic and international subsidiaries and are collateralized by a pledge of the capital stock of each of such subsidiaries. 54 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In October 1997, the Company completed the private placement of $275 million principal amount of its 4-3/4% Convertible Subordinated Notes due 2004 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 4-3/4% Notes). The 4-3/4% Notes are convertible into the Company's Common Stock at a price of $32.8125 per share, subject to anti-dilution adjustments. The 4-3/4% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness and senior subordinated notes. In August 1997, the Company completed the private placement of $250 million principal amount of its 7-1/2% Senior Subordinated Notes due 2007 (and subsequently exchanged them for equivalent notes registered under the Securities Act of 1933, as exchanged, the 7-1/2% Notes) at a purchase price of 99.471% of their face amount. The 7-1/2% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness, and rank the same in right of payment as the Company's 7-3/4% Senior Subordinated Notes. The 7-3/4% Notes are due 2006 and are general unsecured obligations of the Company. The 7-3/4% Notes are subordinated in right of payment to all existing and future senior indebtedness, and rank the same in right of payment as the Company's 7-1/2% Notes. The Company used a portion of the net proceeds from the transactions described above to reduce outstanding senior indebtedness under the Company's Credit Agreement and domestic demand lines, and to refinance $184.9 million of its $258 million principal amount of 8-3/4% Senior Subordinated Notes due April 1, 2003 (the 8-3/4% Notes). The Company recognized an extraordinary charge in fiscal 1998 of $10.6 million, net of $6.5 million of tax benefits, for the early extinguishment of debt. The remaining $73.1 million principal amount of the 8-3/4% Notes were called for redemption on April 2, 1998 at 104.375% of principal amount, resulting in an extraordinary charge in fiscal 1999 of $2.6 million, net of $1.4 million of tax benefits. Based on market quotes and interest rates currently available to the Company for debt with similar terms and remaining maturities, the aggregate fair value of total long-term debt at February 28, 1999 and 1998 was approximately $726 million and $794 million, respectively. Annual maturities of long-term debt for the next five fiscal years are approximately: 2000 - $17.7 million; 2001 - $6.8 million; 2002 - $5.4 million; 2003 - $5.8 million; 2004 - $2.4 million. 8. Leases The Company has operating leases which expire at various dates through 2010 with, in some instances, cost escalation and renewal provisions. Total rental expense under operating leases related to continuing operations was approximately $13.9 million, $13.2 million and $15.0 million in fiscal 1999, 1998 and 1997, respectively. Future minimum rental payments under operating leases are approximately: 2000-$10.0 million; 2001-$9.3 million; 2002-$9.1 million; 2003-$8.5 million; 2004-$7.1 million; and 2005 and thereafter - $18.6 million. 55 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Income Taxes Income from continuing operations, before provision for taxes, and the related provision for taxes for fiscal 1999, 1998 and 1997 consists of the following (dollars in thousands): 1999 1998 1997 ---- ---- ---- Income before provision for taxes: United States $ 87,300 $ 98,000 $ 77,000 International 55,000 60,200 68,200 Repositioning/restructuring charge (63,800) - (112,500) -------- -------- -------- Total $ 78,500 $158,200 $ 32,700 ======== ======== ======== Provision for taxes: Currently payable: United States $ 1,500 $ 1,500 $ 22,000 International 15,000 17,800 18,800 Repositioning/restructuring related (6,100) (6,100) (31,700) -------- -------- -------- Total currently payable 10,400 13,200 9,100 -------- -------- -------- Deferred: United States 29,900 35,900 6,800 International 4,800 5,200 9,000 Repositioning/restructuring related (19,000) 6,100 (13,300) -------- -------- -------- Total deferred 15,700 47,200 2,500 -------- -------- -------- Total provision for taxes $ 26,100 $ 60,400 $ 11,600 ======== ======== ======== The provision for taxes on income from continuing operations for fiscal 1999, 1998 and 1997 differs from the amount computed using the United States statutory income tax rate as follows (dollars in thousands): 1999 1998 1997 ---- ---- ---- Expected tax at United States statutory income tax rate $27,500 $55,400 $ 11,500 Permanent differences 1,000 2,200 2,000 State and local income taxes 1,200 2,000 (1,000) International tax rate differences and other items, net (3,600) 800 (900) ------- ------- -------- Total provision for taxes $26,100 $60,400 $ 11,600 ======= ======= ======== 56 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences which give rise to a significant portion of deferred tax assets (liabilities) consist of the following at February 28, 1999 and 1998 (dollars in thousands): 1999 1998 ------ ------ Current: Tax credit carryforwards $ 19,500 $ 18,400 International items, net 13,500 15,200 Insurance related liabilities 11,700 10,200 Repositioning/restructuring liabilities 11,300 6,600 Compensation related liabilities 4,900 6,600 Other current items 3,600 (11,600) -------- -------- Net current asset $ 64,500 $ 45,400 ======== ======== Non-current: Fixed and intangible assets $(39,500) $(53,100) Pension and postretirement related items (28,400) (18,200) Capital and operating loss carryforwards 34,100 13,900 Other non-current items (100) (12,000) -------- -------- Total non-current liability (33,900) (69,400) Valuation allowance (14,000) - -------- -------- Net non-current liability $(47,900) $(69,400) ======== ======== Based on the Company's history of prior operating earnings and its expectations for the future, management of the Company has determined that it is more likely than not that operating income will be sufficient to enable it to realize its deferred tax assets, including tax credit carryforwards which begin to expire in 2007. The undistributed earnings of the Company's international subsidiaries have been reinvested in each country, and are not expected to be remitted back to the parent company. The valuation allowance represents a reserve for the capital loss carryforwards. Such losses, which expire in 2004, may be used to offset future capital gains. 10. Pension and Other Postretirement Benefit Plans Information concerning the Company's defined benefit pension plans consists of the following (dollars in thousands): Defined Benefit Pension Plans ----------------------------- 1999 1998 1997 Change in Plan Assets: ---- ---- ---- Fair value of plan assets at the beginning of the year $ 471,400 $ 418,000 $ 366,400 Acquisitions - - 20,800 Actual return on plan assets (22,800) 95,000 57,300 Benefits paid (34,000) (41,600) (26,500) --------- --------- --------- Fair value of plan assets at the end of the year $ 414,600 $ 471,400 $ 418,000 ========= ========= ========= 57 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Defined Benefit Pension Plans ----------------------------- 1999 1998 1997 ---- ---- ---- Change in Benefit Obligations: Benefit obligations at the beginning of the year $(356,000) $(337,100) $(303,100) Acquisitions - - (24,500) Service cost (5,200) (4,800) (5,600) Interest cost (24,000) (23,800) (23,300) Curtailment gains (losses) 6,000 (400) (2,400) Special termination benefits - - (16,000) Change in the discount rate - (17,900) - Other actuarial gains (losses) (15,300) (13,600) 11,300 Benefits paid 34,000 41,600 26,500 --------- --------- --------- Benefit obligations at the end of the year $(360,500) $(356,000) $(337,100) ========= ========= ========= Funded Status Reconciliation: Funded status $ 54,100 $ 115,400 $ 80,900 Unrecognized actuarial losses 96,100 12,600 30,900 Unrecognized prior service costs 1,500 1,700 1,100 --------- --------- --------- Prepaid benefit recognized in the consolidated balance sheet at the end of the year $ 151,700 $ 129,700 $ 112,900 ========= ========= ========= Components of Net Pension Income (Expense): Service cost $ (5,200) $ (4,800) $ (5,600) Interest cost (24,000) (23,800) (23,300) Expected return on plan assets 52,300 45,700 42,900 Curtailment losses - (400) (2,400) Special termination benefits - - (16,000) Amortization of unrecognized losses - - (1,000) --------- --------- --------- Net pension income (expense) for the year $ 23,100 $ 16,700 $ (5,400) ========= ========= ========= Plan assets include Common Stock of the Company with a total market value of $30.4 million as of February 28, 1999. The special termination benefits of $16.0 million in fiscal 1997 relate to the Company's restructuring activities, as discussed in Note 2. The net pension income identified above includes service cost expense related to discontinued operations of approximately $1.3 million, $1.2 million and $1.1 million in fiscal 1999, 1998 and 1997, respectively. 58 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information concerning the Company's other postretirement benefit plans consists of the following (dollars in thousands): Other Postretirement Benefit Plans ---------------------------------- 1999 1998 1997 ---- ---- ---- Change in Benefit Obligations: Benefit obligations at the beginning of the year $ (95,600) $ (88,200) $ (84,100) Acquisitions - - (4,100) Service cost (600) (500) (600) Interest cost (6,300) (6,200) (6,200) Curtailment gains 6,900 - 2,900 Change in the discount rate - (3,500) - Other actuarial losses (1,700) (7,300) (5,100) Benefits paid 11,300 10,100 9,000 --------- --------- --------- Benefit obligations at the end of the year $ (86,000) $ (95,600) $ (88,200) ========= ========= ========= Funded Status Reconciliation: Funded status $ (86,000) $ (95,600) $ (88,200) Unrecognized actuarial losses 22,200 29,300 18,300 Unrecognized prior service costs (400) (900) (300) --------- --------- --------- Accrued liability recognized in the consolidated balance sheet at the end of the year $ (64,200) $ (67,200) $ (70,200) ========= ========= ========= Components of Expense for Other Postretirement Benefits: Service cost $ (600) $ (500) $ (600) Interest cost (6,300) (6,200) (6,200) Curtailment gains - - 2,900 Amortization of unrecognized losses (1,300) (600) (100) -------- --------- --------- Net expense for the year $ (8,200) $ (7,300) $ (4,000) ======== ========= ========= The weighted average actuarial assumptions utilized in determining the above amounts for the defined benefit and other postretirement benefit plans as of the end of the year were as follows: Expected return on plan assets 11.5% 11.5% 11.5% Discount rate 7.0% 7.0% 7.5% Rate of compensation increase 3.0% 4.0% 4.0% 59 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's other postretirement benefit plans identified above provide health and life insurance benefits to a number of existing retirees from certain of its operations under the provisions of a number of different plans. Contributions currently required to be paid by the retirees towards the cost of such plans range from zero to 100%. The Company also has a number of active employees who might receive such benefits upon their retirement. Relative to the above financial information, the actuarial valuations assume a medical cost trend rate of 7% for fiscal 2000, decreasing by 1% per year to an ultimate level of 4.5% in fiscal 2002. In that regard, the impact of a 1% change in the health care cost trend rate would change the benefit obligations by $1.7 million and change the total service and interest cost components by approximately $100,000. The Company also has defined contribution pension plans for a significant number of its employees in the United States, as well as for certain of its employees outside of the United States. The Company's contributions to these plans are based on various percentages of compensation, and in some instances are based upon the amount of the employees' contributions to the plans. The annual cost of these plans related to continuing operations amounted to approximately $11.6 million, $12.9 million and $14.5 million in fiscal 1999, 1998 and 1997, respectively, the substantial part of which was funded currently. 11. Net Income Per Share Following is a reconciliation of net income and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share: Basic Net Income Per Share 1999 1998 1997 -------------------------- ---- ---- ---- Net income $47,600 $ 98,600 $56,100 ======= ======== ======= Weighted average common shares outstanding 56,900 64,100 66,300 ======= ======== ======= Basic net income per share $ .84 $ 1.54 $ .84 ======= ======== ======= Diluted Net Income Per Share ---------------------------- Net income $47,600 $ 98,600 $56,100 After-tax equivalent of interest expense on 4-3/4% convertible subordinated notes 8,000 2,700 - ------- -------- ------- Income for purposes of computing diluted net income per share $55,600 $101,300 $56,100 ======= ======== ======= Weighted average common shares outstanding 56,900 64,100 66,300 Dilutive stock options 200 500 400 Weighted average assumed conversion of 4-3/4% convertible subordinated notes 8,400 2,800 - ------- -------- ------- Weighted average common shares outstanding for purposes of computing diluted net income per share 65,500 67,400 66,700 ======= ======== ======= Diluted net income per share $ .85 $ 1.50 $ .84 ======= ======== ======= The weighted average diluted common shares outstanding for fiscal 1999 excludes the dilutive effect of approximately 900,000 options, since such options have an exercise price in excess of the average market value of the Company's Common Stock during the fiscal year. 60 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Stockholders' Equity and Stock Options The Company has a Shareholders' Rights Plan under which Rights were distributed as a dividend at a rate of one Right for each share of Common Stock held. Each Right entitles the holder to buy one one-hundredth of a newly-issued share of the Company's Series A Junior Participating Preferred Stock at an exercise price of $80.00 per share. If an acquiring person beneficially owns 20% or more of the Company's Common Stock or the Company is a party to a business combination which is not approved by the Company's Board of Directors, each Right (other than those held by the acquiring person) will entitle the holder to receive, upon exercise, shares of Common Stock of the Company or of the surviving company with a value equal to two times the exercise price of the Right. In May 1998, the Company announced completion of its 7.3 million share repurchase program approved by the Board of Directors in March 1997. The stock was purchased at an average price of $22.00 per share, for a total cost of $160.8 million, with approximately 3.8 million shares repurchased and retired during fiscal 1999 at an average cost of $21.00 per share, or approximately $80.4 million. Upon completion of that program, the Board of Directors approved the purchase of an additional ten million shares. It is expected that such shares will be purchased in the open-market, or through privately negotiated transactions, at prices which the Company considers to be attractive. Through February 28, 1999 the Company acquired and retired approximately 5.7 million shares under the new program at an average cost of $17.17 per share, or a total cost of approximately $97.8 million. Total purchases under both authorizations in fiscal 1999 were approximately 9.5 million shares at an average cost of $18.71 per share, or a total cost of approximately $178.2 million. Subsequent to February 28, 1999, the Company acquired approximately 3.6 million additional shares, at an average cost of $15.14 per share, or a total cost of approximately $55.1 million. Under the Company's Restricted Stock Plan, there are approximately 26,900 restricted shares outstanding under various awards as of February 28, 1999. Approximately 276,000 shares remain available for issuance under the Plan as of that date. The fair market value of restricted stock awards as of the date of grant is recognized as it is earned over the restriction period (normally 5 years), with approximately $0.7 million, $1.3 million and $1.3 million recognized as expense in fiscal 1999, 1998 and 1997, respectively. The Company's qualified Incentive Stock Option Plans provide for granting options to key employees to allow them to purchase the Company's Common Stock at an exercise price equal to 100% of the market price on the date of grant. The options may be exercised in cumulative annual increments of 25% commencing one year after the date of grant, and have a maximum duration of ten years. There were approximately 2.4 million and 3.2 million shares reserved for the future granting of options as of February 28, 1999 and 1998, respectively. 61 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the status of all of the Company's stock option transactions for fiscal 1999, 1998 and 1997 (share amounts in thousands): 1999 1998 1997 ----------------- ---------------- ----------------- Weighted Weighted Weighted Average Average Average Option Option Option Option Option Option Shares Price Shares Price Shares Price ------ ------ ------ ------- ------ ------- Balance at beginning of year 1,638 $16.85 1,421 $15.11 1,841 $14.08 Activity during the year: Granted 827 $17.48 357 $22.26 - - Exercised (72) $ 8.90 (136) $12.89 (410) $10.45 Canceled (53) $18.27 (4) $16.62 (10) $16.15 ---- ---- ---- Balance at end of year: Outstanding 2,340 $17.28 1,638 $16.85 1,421 $15.11 ===== ===== ===== Exercisable 1,064 $16.13 850 $14.80 684 $13.60 ===== ===== ===== At February 28, 1999, approximately 590,400 of the options outstanding have a weighted average remaining life of approximately 5 years, and are exercisable at prices ranging primarily from $10.28 to $16.74 per share. The remaining 1,749,600 options outstanding have a weighted average remaining life of approximately 8 years and are exercisable at prices ranging from $12.68 to $22.26 per share. The 827,000 and 357,000 options granted during fiscal 1999 and 1998, had a weighted average fair value of approximately $10.00 per share for Corporate Officers and $5.00 per share for other employees. For purposes of estimating such fair value, the Company utilized the Black-Scholes option pricing model, and the following valuation assumptions: Options Granted to Options Granted to Corporate Officers Other Employees ------------------ ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Pricing volatility factor 32.9% 30.5% 26.8% 24.0% Option expiration term 10 years 10 years 4 years 4 years Risk-free interest rate range 4.7% to 5.6% 6.3% to 6.9% 4.6% to 5.5% 6.6% to 6.9% Annual dividend yield .9% to 1.6% .7% .9% to 1.6% .7% 62 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company applies APB Opinion No. 25 in accounting for its stock options and, accordingly, no compensation cost has been recognized for stock options in the accompanying consolidated financial statements. If the Company had recognized compensation expense for the options based upon the values identified above, earnings for fiscal 1999, 1998 and 1997 would have changed as follows (amounts in thousands, except per share data): Pro Forma Earnings (Unaudited) ------------------------------ 1999 1998 1997 ---- ---- ---- Net income, as reported $ 47,600 $ 98,600 $ 56,100 Compensation expense related to options granted (3,200) (2,200) (1,300) Tax benefit of compensation expense 1,100 800 500 -------- -------- -------- Net income, as adjusted $ 45,500 $ 97,200 $ 55,300 ======== ======== ======== Basic net income per share, as reported $ .84 $ 1.54 $ .84 ======== ======== ======== Basic net income per share, as adjusted $ .80 $ 1.52 $ .83 ======== ======== ======== Diluted net income per share, as reported $ .85 $ 1.50 $ .84 ======== ======== ======== Diluted net income per share, as adjusted $ .82 $ 1.48 $ .83 ======== ======== ======== 13. Business Segment Information The Company's Business Segments are organized on the basis of common management, and are identified as follows: (i) Automotive, which includes the design, manufacture and distribution of power transmission, fuel and fluid handling and air-intake systems and components for the global automotive aftermarket and OEM (original equipment manufacturers) market; and (ii) Industrial, which includes the design, manufacture and distribution of power and fluid management systems and components for industrial OEM and distribution markets worldwide, transportation, specialty filtration and other products. The prior year's segment information has been restated for the effects of the Company's discontinued operations and to present the information required by SFAS No. 131. Executive management evaluates the performance of its Business Segments and allocates resources to them primarily based upon their operating income, and exclusive of interest expense and income taxes. The accounting policies of the Segments are the same as those described in Note 1. Segment data includes goodwill amortization as well as an allocation of net pension income. 63 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information concerning the Company's Business Segments for fiscal 1999, 1998 and 1997 is as follows (dollars in thousands): 1999 1998 1997 ---- ---- ---- NET SALES TO CUSTOMERS Automotive $ 990,800 $ 893,900 $ 786,800 Industrial 957,800 950,400 931,100 ---------- ---------- ---------- Total related to continuing operations $1,948,600 $1,844,300 $1,717,900 ========== ========== ========== OPERATING INCOME Automotive $ 101,000 $ 104,100 $ 91,800 Industrial 109,500 119,600 118,600 ---------- ---------- ---------- Management's measure of the segments' operating performance 210,500 223,700 210,400 Repositioning/restructuring charges (63,800) - (112,500) General corporate expense (14,300) (15,800) (19,400) Interest expense (53,900) (49,700) (45,800) Provisions for taxes (26,100) (60,400) (11,600) ---------- ---------- ---------- Income from continuing operations $ 52,400 $ 97,800 $ 21,100 ========== ========== ========== DEPRECIATION AND AMORTIZATION EXPENSE Automotive $ (42,100) $ (32,100) $ (26,600) Industrial (35,400) (30,500) (27,900) General corporate (3,000) (3,700) (3,700) ---------- ---------- ---------- Total related to continuing operations $ (80,500) $ (66,300) $ (58,200) ========== ========== ========== NON-CASH PENSION AND RELATED INCOME, NET Automotive $ 11,400 $ 7,600 $ 3,000 Industrial 11,300 7,500 2,900 ---------- ---------- ---------- Total related to continuing operations $ 22,700 $ 15,100 $ 5,900 ========== ========== ========== IDENTIFIABLE ASSETS Automotive $ 974,500 $ 934,300 $ 690,200 Industrial 951,600 961,900 905,600 ---------- ---------- ---------- Total identifiable assets of the segments 1,926,100 1,896,200 1,595,800 General corporate assets 153,600 146,000 32,800 ---------- ---------- ---------- Total assets related to continuing operations 2,079,700 2,042,200 1,628,600 Discontinued operations - 378,300 346,000 ---------- ---------- ---------- Total consolidated $2,079,700 $2,420,500 $1,974,600 ========== ========== ========== CAPITAL OUTLAYS Automotive $ 40,800 $ 72,600 $ 52,600 Industrial 36,500 63,800 40,900 ---------- ---------- ---------- Total related to continuing operations $ 77,300 $ 136,400 $ 93,500 ========== ========== ========== 64 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's revenues by product type, and the segments they relate to, are as follows (dollars in thousands): Segment 1999 1998 1997 ------- ---- ---- ---- Power Transmission Both $ 557,300 $ 547,400 $ 521,500 Fuel and Fluid Handling Both 915,300 887,200 810,100 Air-Intake Systems Automotive 66,800 24,100 - Specialty Filtration Products and Systems Industrial 128,500 118,100 118,800 Other Products Industrial 280,700 267,500 267,500 ---------- ---------- ---------- Net sales from continuing operations $1,948,600 $1,844,300 $1,717,900 ========== ========== ========== The Company's operations outside of the United States are located primarily in Europe, and to a lesser extent in Canada, Latin America and the Far East. Information concerning the Company's operations by geographic area for fiscal 1999, 1998 and 1997 is as follows (dollars in thousands): 1999 1998 1997 NET SALES FROM ---- ---- ---- CONTINUING OPERATIONS United States $1,276,800 $1,231,700 $1,164,100 Italy 260,300 249,800 221,400 Other International 411,500 362,800 332,400 ---------- ---------- ---------- Total related to continuing operations $1,948,600 $1,844,300 $1,717,900 ========== ========== ========== IDENTIFIABLE LONG-LIVED ASSETS United States $ 720,700 $ 739,100 $ 668,300 Italy 138,100 120,400 109,200 Other International 258,300 240,800 132,600 ---------- ---------- ---------- Total related to continuing operations 1,117,100 1,100,300 910,100 Discontinued operations - 233,900 219,000 ---------- ---------- ---------- Total consolidated $1,117,100 $1,334,200 $1,129,100 ========== ========== ========== The net sales to customers reflect the sales of the continuing operating units originating in each geographic area to unaffiliated customers. Export sales of continuing operating units from the United States to unaffiliated customers were $143.9 million, $110.4 million, and $94.9 million in fiscal 1999, 1998 and 1997, respectively. Sales between geographic areas are accounted for at prices which are competitive with prices charged to unaffiliated customers. Inter-segment sales are not material. 65 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Quarterly Financial Data and Information (Unaudited) The following table sets forth the Company's unaudited results of operations for each of the fiscal quarters in the years ended February 28, 1999 and 1998 (amounts in thousands, except per share data): First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ---- Fiscal 1999 - ----------- Continuing operations: Net sales $509,700 $484,200 $490,500 $464,200 $1,948,600 ======== ======== ======== ======== ========== Gross profit (a) $163,300 $153,300 $164,100 $155,000 $ 635,700 ======== ======== ======== ======== ========== Operating income before repositioning charge $ 51,700 $ 44,400 $ 54,500 $ 45,600 $ 196,200 Repositioning charge - - (63,800) - (63,800) -------- -------- -------- -------- ---------- Operating income (loss) 51,700 44,400 (9,300) 45,600 132,400 Interest expense (12,600) (13,600) (14,200) (13,500) (53,900) Provision for taxes (14,000) (11,200) 10,600 (11,500) (26,100) -------- -------- -------- -------- ---------- Total continuing 25,100 19,600 (12,900) 20,600 52,400 Discontinued operations 1,800 1,300 (100) (5,200) (2,200) Extraordinary loss (2,600) - - - (2,600) -------- -------- -------- -------- ---------- Net income (loss) $ 24,300 $ 20,900 $(13,000) $ 15,400 $ 47,600 ======== ======== ======== ======== ========== Basic earnings per share (b): Continuing operations: Before repositioning charge $ .41 $ .34 $ .47 $ .38 $ 1.60 Repositioning charge - - (.71) - (.68) -------- ------- -------- -------- --------- Total continuing .41 .34 (.24) .38 .92 Discontinued operations .03 .02 - (.10) (.04) Extraordinary loss (.04) - - - (.04) --------- ------- -------- -------- --------- Net income (loss) $ .40 $ .36 $ (.24) $ .28 $ .84 ========= ======= ======== ======== ========= Diluted earnings per share (b)(c): Continuing operations: Before repositioning charge $ .39 $ .33 $ .44 $ .36 $ 1.51 Repositioning charge - - (.68) - (.59) -------- ------- -------- -------- -------- Total continuing .39 .33 (.24) .36 .92 Discontinued operations .02 .02 - (.08) (.03) Extraordinary loss (.04) - - - (.04) -------- ------- -------- -------- -------- Net income (loss) $ .37 $ .35 $ (.24) $ .28 $ .85 ======== ======= ======== ======== ======== 66 MARK IV INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ----- Fiscal 1998 - ----------- Continuing operations: Net sales $471,800 $432,600 $476,500 $463,400 $1,844,300 ======== ======== ======== ======== ========== Gross profit (a) $160,100 $147,500 $161,100 $150,600 $ 619,300 ======== ======== ======== ======== ========== Operating income $ 56,500 $ 51,800 $ 54,700 $ 44,900 $ 207,900 Interest expense (11,200) (12,900) (14,200) (11,400) (49,700) Provision for taxes (17,600) (15,100) (15,400) (12,300) (60,400) -------- -------- -------- -------- ---------- Total continuing 27,700 23,800 25,100 21,200 97,800 Discontinued operations 2,400 3,700 2,200 3,100 11,400 Extraordinary loss - - (10,600) - (10,600) -------- -------- -------- -------- ---------- Net income $ 30,100 $ 27,500 $ 16,700 $ 24,300 $ 98,600 ======== ======== ======== ======== ========== Basic earnings per share (b): Continuing operations $ .42 $ .37 $ .39 $ .33 $ 1.52 Discontinued operations .04 .06 .04 .05 .18 Extraordinary loss - - (.16) - (.16) -------- -------- -------- -------- ---------- Net income $ .46 $ .43 $ .27 $ .38 $ 1.54 ======== ======== ======== ======== ========== Diluted earnings per share (b): Continuing operations $ .42 $ .37 $ .38 $ .32 $ 1.49 Discontinued operations .04 .06 .04 .04 .17 Extraordinary loss - - (.16) - (.16) -------- -------- -------- -------- ---------- Net income $ .46 $ .43 $ .26 $ .36 $ 1.50 ======== ======== ======== ======== ========== ___________________________________ (a) Excludes depreciation expense (and repositioning charge in fiscal 1999). (b) The sum of quarterly amounts do not equal the fiscal year amount due to the weighted effect of stock repurchases during the year and rounding differences, as well as the anti-dilution limitations referred to in Note "c". (c) As a result of the net loss in the third quarter, the full effect of the common stock equivalents would be anti-dilutive to earnings from continuing operations. Therefore, the diluted amounts are limited to be no more than the basic amounts for the quarter. 67 15. Legal and Environmental Matters One of the Company's subsidiaries has been named as a defendant in a number of litigation actions related to product supplied to one of the subsidiary's customers. The parties seek damages related to alleged defects in certain hose products manufactured by the subsidiary and included by the customer in its retail gasoline fuel delivery systems. The Company believes it has good and valid defenses against the claims, and has submitted a counter-claim against the customer. The Company is also involved in various other legal and environmental-related issues. The Company believes that it has adequately provided for costs to be expended in the future relative to its existing environmental related obligations, the reserves for which have not been discounted to their present value. In the opinion of the Company's management, the ultimate cost to resolve these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------- None. PART III Items 10-13 - ----------- The information required for Items 10, 11, 12 and 13 is incorporated herein by reference to the information set forth in the definitive Proxy Statement for the Company's 1999 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission not later than 120 days after February 28, 1999. 68 PART IV ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------ Page (a) (1) Financial Statements -------------------- Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1999 41 Consolidated Balance Sheets at February 28, 1999 and 1998 42 Consolidated Statements of Income for each of the three fiscal years in the period ended February 28, 1999 43 Consolidated Statements of Stockholders' Equity for each of the three fiscal years in the period ended February 28, 1999 44 Consolidated Statements of Comprehensive Income for each of the three fiscal years in the period ended February 28, 1999 45 Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended February 28, 1999 46 Notes to Consolidated Financial Statements 47 (2) Financial Statement Schedule ---------------------------- Report of Independent Accountants for each of the three fiscal years in the period ended February 28, 1999 73 II. Valuation and Qualifying Accounts 74 All other schedules and statements have been omitted as the required information is inapplicable or is presented in the financial statements or notes thereto. 69 (b) Reports on Form 8-K The following reports were filed pertaining to events occurring during the quarter ended February 28, 1999. (1) A current report on Form 8-K dated February 26, 1999, was filed to Report under Item 2 and Item 7, for the Company's disposition of its Automotive Filter Business to Arvin Industries, Inc. (2) A current Report on Form 8-K dated april 20, 1999, was filed to report under Item 5, the Company's unaudited Consolidated Balance Sheets as of February 28, 1999 and 1998, and unaudited Income Statement data for the fiscal years ended February 28, 1999, 1998 and 1997. The unaudited financial information was filed as a prelude to the Registrant's Audited Financial Statements included elsewhere herein. (c) Exhibits 2.1 Agreement and Plan of Merger dated as of October 3, 1994 by and among Mark IV Industries, Inc., Mark IV Acquisition Corp., and Purolator Products Company, incorporated by reference to exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date (incorporated by reference to the exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date). 2.2 Offer to Purchase by and among Mark IV Industries, Inc., Mark IV Acquisition corp., and Purolator Products Company, as revised, incorporated by reference to exhibit (a)(1) to Amendment No. 1 to Schedule 14D-1 (Tender Offer) dated October 11, 1994, as filed with the SEC on such date. 2.3 Purchase Agreement by and between Mark IV Industries, Inc. and Arvin Industries, Inc. dated February 8, 1999 (incorporated by reference to the Exhibit 10.1 to the Company's Form 8-K dated February 26, 1999). 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 28.1 to the Company's Registration Statement No. 33-45215 on Form S-3, as filed with the SEC on January 24, 1993). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated July 1, 1997). 4.2 By-Laws of the Registrant (incorporated by reference to Exhibit 4.12 To Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3, dated August 6, 1991). 70 4.3 Conformed copy of the Indenture, dated as of March 11, 1996, between Mark IV Industries, Inc. and Fleet National Bank as Trustee; including the form of Senior Subordinated Notes due April 1, 2006 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 6, 1996). 4.4 Conformed copy of the Indenture, dated as of August 11, 1997, between Mark IV Industries, Inc, as issuer and Marine Midland Bank, as trustee; including the form of Senior Subordinated Notes due September 1, 2007 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated August 25, 1997). 4.5 Conformed copy of the Indenture, dated as of October 29, 1997, between Mark IV Industries, Inc., as issuer and The Bank of New York, as trustee; including the form of Convertible Subordinated Notes due November 1, 2004 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 6, 1997). Executive Compensation Plans and Arrangements (10.1 -10.21) ----------------------------------------------------------- 10.1 Employment Agreement dated March 1, 1995 between the Company and Sal Alfiero (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.2 Employment Agreement dated March 1, 1995 between the Company and Gerald S. Lippes (incorporated by reference to Exhibit 10.3 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.3 Employment Agreement dated March 1, 1995 between the Company and William P. Montague (incorporated by reference to Exhibit 10.4 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.4 Employment Agreement dated March 1, 1995 between the Company and Frederic L. Cook (incorporated by reference to Exhibit 10.5 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.5 Employment Agreement dated March 1, 1995 between the Company and John J. Byrne (incorporated by reference to Exhibit 10.6 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.6 Employment Agreement dated March 1, 1995 between the Company and Richard L. Grenolds (incorporated by reference to Exhibit 10.7 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 71 10.7 Employment Agreement dated March 1, 1995 between the Company and Douglas J. Fiegel (incorporated by reference to Exhibit 10.8 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.8 Employment Agreement dated January 1, 1995 between the Company, Dayco Products, Inc. ("Dayco"), Dayco Europe, A.B. and Kurt J. Johansson (incorporated by reference to Exhibit 10.10 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.9 Employment Agreement dated January 1, 1995 between the Company, Dayco and Patricia Richert (incorporated by reference to Exhibit 10.11 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.10 * Employment Agreement dated May 1, 1997 between the Company, Dayco and Richard F. Bing. 10.11 Amendment and Restatement of Mark IV Industries, Inc. and Subsidiaries Incentive Stock Option Plan, as of February 8, 1988 (incorporated by reference to Exhibit 10.13.1 to the Company's Registration Statement No. 33-42307 on Form S-8 dated August 19, 1991). 10.12 Amendment and Restatement of the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan Effective March 30, 1994 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.13 Mark IV Industries, Inc. and Subsidiaries 1996 Incentive Stock Option Plan effective April 24, 1996 (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K dated February 28, 1998). 10.14 Amendment and Restatement of the Mark IV Industries, Inc. 1992 Restricted Stock Plan Effective March 1, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.15 Amendment and Restatement of the Mark IV Industries, Inc. Executive Bonus Plan effective March 1, 1995 (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K dated February 28, 1998). 10.16 First Amendment and Restatement of the Mark IV Industries, Inc. Enhanced Executive Incentive Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K dated February 29, 1992). 10.17 * Fourth Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. Effective January 1, 1999. 72 10.18 First Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation for Non-Employee Directors of Mark IV Industries, Inc. Effective December 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.19 First Amendment and Restatement of the Non-qualified Plan of Deferred Incentive Compensation for Executives of Certain Operating Divisions and Subsidiaries of Mark IV Industries, Inc. Effective November 30, 1993 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.20 Short Term Incentive Bonus Plan of Dayco Products, Inc. dated March 30, 1994 (incorporated by reference to Exhibit 10.20 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.21 Executive Loan Program (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the Fiscal year ended February 28, 1997). Other Material Contract Exhibits -------------------------------- 10.22 Conformed copy of the Credit Agreement, dated as of March 8, 1996, among the Registrant and Dayco PTI S.p.A., as Borrowers, certain other subsidiaries of the Registrant, as Guarantors, various banks and financial institutions, Chemical Bank, as Administrator and Bid Agent, Bank of America National Trust and Savings Association, as Documentation Agent, and BA Securities, Inc. and Chemical Securities, Inc. as Arrangers (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated March 6, 1996). 21* Subsidiaries of the Registrant. 23* Consent of Independent Accountants. 27* Financial Data Schedule. ______________________ * Filed herewith by direct transmission pursuant to the EDGAR program. 73 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Mark IV Industries, Inc. Our report on the consolidated financial statements of Mark IV Industries, Inc. and Subsidiaries as of February 28, 1999 and 1998 and for each of the three fiscal years in the period ended February 28, 1999, is included in Item 8 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP Rochester, New York March 22, 1999 74
MARK IV INDUSTRIES, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Charged Deductions Beginning (Credited) Accounts Ending Classifications Balance to Expense Charged Off Other(a) Balance - ---------------- ---------- ---------- ----------- -------- ------- Year ended February 28, 1999 - ---------------------------- Allowance for doubtful accounts $ 13,600,000 $3,300,000 $(4,200,000) $(3,100,000) $ 9,600,000 ============ ========== ============ ============ =========== Year ended February 28, 1998 - ---------------------------- Allowance for doubtful accounts $ 14,700,000 $3,300,000 $(4,400,000) $ - $13,600,000 ============ ========== ============ ============ =========== Year ended February 28, 1997 - ---------------------------- Allowance for doubtful accounts $ 16,700,000 $4,800,000 $(4,700,000) $(2,100,000) $14,700,000 ============ ========== ============ ============ =========== (a) Represents the following February February February 28, 1999 28, 1998 28, 1997 -------- -------- -------- Reserve at date of acquisition of subsidiary $ 100,000 $ 200,000 $ 500,000 Reclassification from other reserves - - 200,000 Reserves of discontinued operations disposed (3,200,000) - (2,400,000) Foreign currency translation adjustment - (200,000) (400,000) ----------- --------- ----------- $(3,100,000) $ - $(2,100,000) =========== ========= ===========
75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MARK IV INDUSTRIES, INC. By: /s/ Sal H. Alfiero ------------------------------ Sal H. Alfiero, Chairman of the Board and Chief Executive Officer Dated: May 28, 1999 - -------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date --------- ----- ---- /s/ Sal H. Alfiero Chairman of the Board May 28, 1999 - ----------------------- and Chief Executive Officer ------------ Sal H. Alfiero /s/ William P. Montague President, Director May 28, 1999 - ----------------------- ------------ William P. Montague /s/ John J. Byrne Vice President and May 28, 1999 - ----------------------- Chief Financial Officer ------------ John J. Byrne /s/ Richard L. Grenolds Vice President and May 28, 1999 - ----------------------- Chief Accounting Officer ------------ Richard L. Grenolds /s/ Gerald S. Lippes Secretary and Director May 28, 1999 - ----------------------- ------------ Gerald S. Lippes /s/ Clement R. Arrison Director May 28, 1999 - ----------------------- ------------ Clement R. Arrison 76 Exhibit Index 2.1 Agreement and Plan of Merger dated as of October 3, 1994 by and among Mark IV Industries, Inc., Mark IV Acquisition Corp., and Purolator Products Company, incorporated by reference to exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date (incorporated by reference to the exhibit (c)(1) to Schedule 14D-1 (Tender Offer) dated October 7, 1994, as filed with the SEC on such date). 2.2 Offer to Purchase by and among Mark IV Industries, Inc., Mark IV Acquisition corp., and Purolator Products Company, as revised, incorporated by reference to exhibit (a)(1) to Amendment No. 1 to Schedule 14D-1 (Tender Offer) dated October 11, 1994, as filed with the SEC on such date. 2.3 Purchase Agreement by and between Mark IV Industries, Inc. and Arvin Industries, Inc. dated February 8, 1999 (incorporated by reference to the Exhibit 10.1 to the Company's Form 8-K dated February 26, 1999). 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 28.1 to the Company's Registration Statement No. 33-45215 on Form S-3, as filed with the SEC on January 24, 1993). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated July 1, 1997). 4.2 By-Laws of the Registrant (incorporated by reference to Exhibit 4.12 To Amendment No. 1 to the Registrant's Registration Statement No. 33-41553 on Form S-3, dated August 6, 1991). 4.3 Conformed copy of the Indenture, dated as of March 11, 1996, between Mark IV Industries, Inc. and Fleet National Bank as Trustee; including the form of Senior Subordinated Notes due April 1, 2006 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 6, 1996). 4.4 Conformed copy of the Indenture, dated as of August 11, 1997, between Mark IV Industries, Inc, as issuer and Marine Midland Bank, as trustee; including the form of Senior Subordinated Notes due September 1, 2007 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated August 25, 1997). 4.5 Conformed copy of the Indenture, dated as of October 29, 1997, between Mark IV Industries, Inc., as issuer and The Bank of New York, as trustee; including the form of Convertible Subordinated Notes due November 1, 2004 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 6, 1997). 77 Executive Compensation Plans and Arrangements (10.1 -10.21) 10.1 Employment Agreement dated March 1, 1995 between the Company and Sal Alfiero (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.2 Employment Agreement dated March 1, 1995 between the Company and Gerald S. Lippes (incorporated by reference to Exhibit 10.3 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.3 Employment Agreement dated March 1, 1995 between the Company and William P. Montague (incorporated by reference to Exhibit 10.4 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.4 Employment Agreement dated March 1, 1995 between the Company and Frederic L. Cook (incorporated by reference to Exhibit 10.5 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.5 Employment Agreement dated March 1, 1995 between the Company and John J. Byrne (incorporated by reference to Exhibit 10.6 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.6 Employment Agreement dated March 1, 1995 between the Company and Richard L. Grenolds (incorporated by reference to Exhibit 10.7 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.7 Employment Agreement dated March 1, 1995 between the Company and Douglas J. Fiegel (incorporated by reference to Exhibit 10.8 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.8 Employment Agreement dated January 1, 1995 between the Company, Dayco Products, Inc. ("Dayco"), Dayco Europe, A.B. and Kurt J. Johansson (incorporated by reference to Exhibit 10.10 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.9 Employment Agreement dated January 1, 1995 between the Company, Dayco and Patricia Richert (incorporated by reference to Exhibit 10.11 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.10 * Employment Agreement dated May 1, 1997 between the Company, Dayco and Richard F. Bing. 10.11 Amendment and Restatement of Mark IV Industries, Inc. and Subsidiaries Incentive Stock Option Plan, as of February 8, 1988 (incorporated by reference to Exhibit 10.13.1 to the Company's Registration Statement No. 33-42307 on Form S-8 dated August 19, 1991). 78 10.12 Amendment and Restatement of the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan Effective March 30, 1994 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.13 Mark IV Industries, Inc. and Subsidiaries 1996 Incentive Stock Option Plan effective April 24, 1996 (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K dated February 28, 1998). 10.14 Amendment and Restatement of the Mark IV Industries, Inc. 1992 Restricted Stock Plan Effective March 1, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.15 Amendment and Restatement of the Mark IV Industries, Inc. Executive Bonus Plan effective March 1, 1995 (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K dated February 28, 1998). 10.16 First Amendment and Restatement of the Mark IV Industries, Inc. Enhanced Executive Incentive Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K dated February 29, 1992). 10.17 * Fourth Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. Effective January 1, 1999. 10.18 First Amendment and Restatement of the Non-Qualified Plan of Deferred Compensation for Non-Employee Directors of Mark IV Industries, Inc. Effective December 1, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994). 10.19 First Amendment and Restatement of the Non-qualified Plan of Deferred Incentive Compensation for Executives of Certain Operating Divisions and Subsidiaries of Mark IV Industries, Inc. Effective November 30, 1993 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.20 Short Term Incentive Bonus Plan of Dayco Products, Inc. dated March 30, 1994 (incorporated by reference to Exhibit 10.20 to the Company's Annual Report or Form 10-K for the fiscal year ended February 28, 1995). 10.21 Executive Loan Program (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the Fiscal year ended February 28, 1997). 79 Other Material Contract Exhibits -------------------------------- 10.22 Conformed copy of the Credit Agreement, dated as of March 8, 1996, among the Registrant and Dayco PTI S.p.A., as Borrowers, certain other subsidiaries of the Registrant, as Guarantors, various banks and financial institutions, Chemical Bank, as Administrator and Bid Agent, Bank of America National Trust and Savings Association, as Documentation Agent, and BA Securities, Inc. and Chemical Securities, Inc. as Arrangers (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated March 6, 1996). 21* Subsidiaries of the Registrant. 23* Consent of Independent Accountants. 27* Financial Data Schedule. * Filed herewith by direct transmission pursuant to the EDGAR program. EX-10.10 2 Exhibit 10.10 ------------- EMPLOYMENT AGREEMENT THIS AGREEMENT made as of this 1st day of May, 1997, by and between MARK IV INDUSTRIES, INC., a Delaware corporation, with offices at 501 John James Audubon Parkway, Amherst, New York 14228 ("Mark IV"), Dayco Products, Inc., a Delaware corporation with offices at One Prestige Place, Miamisburg, Ohio 45342 ("Dayco"), (Mark IV and Dayco being sometimes hereinafter collectively referred to as the "Corporations") and Richard F. Bing, an individual residing at 1941 Alda Court, Centreville, Ohio 45459 (the "Executive"). RECITALS: WHEREAS, the Executive is expected to make a major contribution to the profitability, growth and financial strength of each of the Corporations; and WHEREAS, the Corporations have determined that retaining the services of the Executive is in their respective best interests and in the best interests of the stockholders of Mark IV and, accordingly, the Corporations desire to secure the services of the Executive on behalf of the Corporations; CONSIDERATION: NOW, THEREFORE, in consideration of the conditions and covenants set forth in this Agreement, the parties hereto agree as follows: ARTICLE 1. Employment and Duties 1.01 Employment. The Corporations hereby agree to, and do hereby employ the Executive, and the Executive hereby agrees to and does hereby accept employment, by Mark IV, as Vice President of Mark IV, and by Dayco, as President of the Industrial Division of Dayco ("Dayco Industrial"). It is contemplated that the Executive will continue to serve as Vice President of Mark IV and President of Dayco Industrial subject to the provisions of this Agreement and the right of the Board of Directors of Mark IV and Dayco to elect new officers. 1.02 Duties. During the period of his employment under this Agreement, the Executive shall perform such executive duties and responsibilities as may be assigned to him, from time to time, by the Board of Directors of Mark IV and the Board of Directors of Dayco (as the case may be) and shall be subject, at all times, to the control of the applicable Board of Directors. The Executive shall devote substantially full time and energies to the supervision and management of the business and affairs of the Industrial Division of Mark IV ("Mark IV Industrial") and Dayco Industrial and to the furtherance of their respective interests. The Executive shall report directly to the President of Mark IV Industrial or such other officer of Mark IV as may be designated by the Chief Executive Officer of Mark IV. The Corporations shall not require the Executive to perform services hereunder outside the Dayton, Ohio metropolitan area with such frequency or duration as would require the Executive to move his residence from the Dayton area. 1 ARTICLE 2. Compensation and Fringe Benefits 2.01 Base Salary. During the period of the Executive's employment hereunder, the Corporations shall pay to the Executive an annual salary ("Base Salary") of $225,000, payable in substantially equal monthly installments. The Board of Directors of Mark IV, through its Compensation Committee, shall in good faith review the Base Salary of the Executive on an annual basis. For purposes of determining the Executive's rights under any plans, programs, arrangements or benefits provided to the Executive pursuant to this Agreement, the full amount of any cash bonuses payable to the Executive shall be deemed to be paid by Dayco. 2.02 Bonuses. The Executive shall be entitled to participate in all current and deferred worldwide bonus and incentive compensation programs which may be maintained, from time to time, by Dayco for its executive officers. 2.03 Reimbursement of Expenses. Dayco shall reimburse the Executive for all reasonable expenses which the Executive may, from time to time, incur on its behalf in the performance of his responsibilities and duties under this Agreement, provided that the Executive accounts to Dayco for such expenses in the manner prescribed by Dayco. 2.04 Mark IV Executive Fringe Benefits. The Executive shall be permitted to participate under the terms of (a) the Mark IV Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan, as amended; and any other incentive stock option plan which may from time to time be established by Mark IV Industries, Inc.; and (b) the Non-Qualified Plan of Deferred Incentive Compensation for Executives of Certain Operating Divisions and Subsidiaries of Mark IV Industries, Inc., as amended (hereinafter the "Deferred Comp. Plan"). Except as otherwise expressly provided for above in this Section 2.04, the Executive shall not be permitted to participate in or receive any benefits under the terms of any plan, program or arrangement maintained or contributed to by Mark IV for Mark IV employees. 2.05 Deferred Comp. Plan. During the term of this Agreement, the Executive shall be permitted to defer the receipt of payment of all or any portion of the Base Salary to which the Executive is entitled under the terms of this Agreement and to defer the receipt of payment of all or any portion of the amount of any bonuses or other incentive compensation (which is otherwise payable immediately) to which the Executive may become entitled under the terms of this Agreement or any bonus or incentive compensation plan maintained by Dayco, all in the manner permitted for certain specified executives pursuant to the terms of the Deferred Comp Plan. In addition, during the term of this Agreement, the Executive shall be entitled to receive his proportionate share of any amounts allocated annually by the Compensation Committee of the Board of Directors of Mark IV to participants in the Deferred Comp Plan whose principal place of employment is Dayco's corporate headquarters. 2 2.06 Tax Qualified Plans. The Executive shall be entitled to participate in the Mark IV Savings & Retirement Plan (the "Master 401(k) Plan") (a master profit sharing/401(k) plan maintained by Mark IV for certain employees of certain of its subsidiaries) as applicable to salaried employees of Dayco, and all other tax-qualified pension, profit sharing or retirement plans maintained, from time to time, by either of the Corporations for salaried employees of Dayco. 2.07 Medical Benefits. Dayco currently provides salaried employees of Dayco (hereinafter referred to as "Dayco Salaried Employees") and certain retired salaried employees of Dayco (hereinafter referred to as "Retired Dayco Salaried Employees") with group medical insurance type protection against certain costs and expenses relating to medical services and treatments provided to such Dayco Salaried Employees (or Retired Dayco Salaried Employees), their spouses and their dependents under a group medical program maintained by the Corporations (such group medical program being hereinafter the "Dayco Medical Plan"). In connection with the maintenance and administration of the Dayco Medical Plan, the Corporations calculate and establish, on an annual basis, an amount which, generally, is equal to the expected per capita cost of maintaining the Dayco Medical Plan for such year and which is used by the Corporations in determining the amount of the contributions which the Corporations will require from Dayco Salaried Employees (and Retired Dayco Salaried Employees) in order to provide such Dayco Salaried Employees (and Retired Dayco Salaried Employees) the group medical insurance type coverage provided by the Dayco Medical Plan (such amount being hereinafter referred to as a "Premium"). During the term of this Agreement, the Corporations shall provide the Executive, his spouse and his dependents with the same type of group medical insurance coverage which is provided to Dayco Salaried Employees under the terms of the Dayco Medical Plan; provided that neither of the Corporations shall have any obligation to provide such group medical insurance type coverage to the Executive, his spouse and his dependents unless the Executive pays to Dayco, on a monthly basis, the same portion of the Premium (hereinafter the "Employee Portion") which all other Dayco Salaried Employees are required to pay for such group medical insurance type coverage. 2.08 Group Welfare Benefits. During the period of the Executive's employment under the terms of this Agreement, the Executive shall be eligible to participate in the Mark IV Industries, Inc. and Subsidiaries Group Welfare Benefit Program as applicable to Dayco Salaried Employees (hereinafter the "Flex Choice Plan"). As provided for by the terms of the Flex Choice Plan, the Executive shall be entitled to elect to receive one or more of the following benefits under the terms of the group welfare benefit programs which are contained within the Flex Choice Plan and available to Dayco Salaried Employees: (a) group medical insurance type coverage under the Dayco Medical Plan; (b) dental insurance coverage; (c) employee life insurance coverage; (d) accidental death and dismemberment insurance coverage; (e) dependent life insurance coverage; (f) long term disability insurance coverage; (g) health care spending account benefits; and (h) dependent care spending account benefits. In the event that the Flex Choice Plan is amended during the term of this Agreement to increase or reduce the number or type of group welfare benefit programs available to Dayco Salaried Employees, the Executive shall be entitled to elect to receive one or more of the new group welfare benefit programs which are available under the terms of the Flex Choice Plan. 3 Notwithstanding the foregoing, the Corporations shall have no obligation to maintain or provide any such group welfare benefits to the Executive unless the Executive pays to Dayco, on a monthly basis, the Employee Portion of any costs associated with the maintenance and provision of such group welfare benefits to the same extent that such Employee Portion is paid by all other Dayco Salaried Employees and determined, from time to time, under the provisions of the Flex Choice Plan. The Corporations shall also pay all premiums necessary to maintain a business travel accident insurance policy for the Executive with coverage and benefits which are at least reasonably comparable to the business travel accident insurance coverage in effect for the Executive as of the date of this Agreement. 2.09 Continuation of Medical Benefits and Insurance Coverage. (a) If the Executive retires from his employment with the Corporations as permitted by Section 3.05 hereof, the Corporations shall have no obligation to continue to provide any life, medical, disability or other insurance coverage to the Executive except to the extent that Dayco provides life insurance and retiree medical insurance type coverage for its Retired Dayco Salaried Employees. In the event that the Executive elects to receive retiree medical insurance type coverage under the Dayco Medical Plan, the Corporations shall provide such retiree medical insurance type coverage to the Executive, his spouse and dependents; provided that, the Executive pays to Dayco on a monthly basis, the portion of the Premium due in connection with the provision of such retiree medical insurance type coverage under the Dayco Medical Plan to the same extent that such portion of the Premium is required to be paid by all other Retired Dayco Salaried Employees. In the event that the Executive elects to receive the life insurance coverage which is available to Retired Dayco Salaried Employees, the Corporations shall provide such life insurance protection to the Executive provided that the Executive pays to Dayco the portion of any life insurance premiums due in connection with the maintenance of such life insurance coverage to the same extent that such portion of such life insurance premiums is paid by all other Retired Dayco Salaried Employees. (b) If the Executive's employment with the Corporations is terminated by either of the Corporations either for cause, as permitted by Section 3.02 hereof, or without cause, as permitted by Section 3.03 hereof, following the Executive's termination, the Corporations shall take such action as may be necessary to cause group meidical insurance type coverage which is at least reasonably comparable to the group medical insurance type coverage which was in effect under the Dayco Medical Plan for the Executive, his spouse and dependents immediately prior to the termination of his employment, to be continued for a period of one (1) year following the date on which the Executive's employment with the Corporations is terminated. Notwithstanding the foregoing, the Corporations shall not be obligated to continue to provide such group medical insurance type coverage to the Executive, his spouse and dependents unless, in the event the Executive's employment is terminated by either of the Corporations for cause (as permitted by Section 3.02 hereof), the Executive pays to Dayco, on a monthly basis, the full amount of the Premium which is payable with respect to the provision of such group medical insurance type coverage to a Dayco Salaried Employee and, in the event the Executive's employment is terminated by either of the Corporations without cause (as permitted by Section 3.03 hereof), the Executive pays to Dayco on a monthly basis, an amount which shall not exceed the Employee Portion 4 (determined at the time such group medical insurance type coverage is provided) of the Premium payable by Dayco Salaried Employees, for the group medical insurance type coverage which is then being provided to such Dayco Salaried Employees. At the end of the one (1) year period following the date on which the Executive's employment with the Corporations is terminated (without cause) or, if earlier, at such time that the Corporations terminate the group medical insurance type coverage required to be provided to the Executive hereunder by reason of the Executive's failure to pay the Employee Portion of the Premiums described above, the Executive shall be entitled to elect to receive continuation coverage with respect to such medical insurance coverage in accordance with the applicable provisions of Section 4980B of the Internal Revenue Code of 1986, as applicable continuation coverage provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (c) If the Executive's employment with the Corporations is terminated as a result of his suffering of a Total and Permanent Disability as described in Section 6.04 hereof, following the Executive's termination, the Corporations shall provide group medical insurance type coverage to the Executive, his spouse and dependents which is the same as the group medical insurance type coverage which is provided under the Dayco Medical Plan to Dayco Salaried Employees; provided that, the Corporations shall have no obligation to provide such group medical insurance type coverage to the Executive, his spouse and dependents unless the Executive pays to Dayco, on a monthly basis, an amount which shall not exceed the Employee Portion (determined at the time such medical insurance coverage is provided) of the Premium payable by Dayco Salaried Employees for the group medical insurance type coverage which is then being provided to such Dayco Salaried Employees. Provided that the Executive continues to pay Dayco the amount described in the preceding sentence, the Corporations shall continue to provide such group medical insurance type coverage to the Executive, his spouse and dependents after the date he suffers from a Total and Permanent Disability until the earlier of the date that the Executive qualifies for Social Security Disability Insurance benefits, including Medicare, or the date the Executive attains age 65. Notwithstanding the foregoing, if Dayco provides group medical insurance type coverage under the Dayco Medical Plan for its Retired Dayco Salaried Employees which is more valuable than the group medical insurance type coverage provided to the Executive under Medicare, the Corporations shall, at the earlier of the date the Executive qualifies for Medicare and the date the Executive attains age 65, provide the Executive the same group medical insurance type coverage which is provided by Dayco for such Retired Dayco Salaried Employees provided that the Executive pays to Dayco the portion of the Premiums due from Retired Dayco Salaried Employees with respect to such group medical insurance type coverage as described Section 2.09(a) above. (d) If the Executive incurs a Change in Control Termination as defined in Section 7.01 hereof, the Corporations shall continue to maintain and pay, for the life of the Executive, any premiums due for life insurance coverage in an amount which is at least reasonably comparable to the life insurance coverage which was provided to the Executive immediately prior to the Executive's Change in Control Termination provided that the Executive shall continue to be obligated during such period to pay to the Corporations the Employee Portion of the premiums due for such insurance coverage as 5 determined at the time the Executive's Change in Control Termination occurs. In addition, if the Executive incurs a Change in Control Termination as defined in Section 7.01 hereof, the Corporations shall take any such action as may be necessary to continue to provide group medical insurance type coverage to the Executive, his spouse and dependents for life which is at least reasonably comparable to the group medical insurance type coverage which was in effect for the Executive under the Dayco Medical Plan immediately prior to the Executive's Change in Control Termination; provided that, the Executive shall continue to be obligated during such period, to pay to the Corporations, the Employee Portion of the Premiums due for any such group medical insurance type coverage as determined at the time the Executive's Change in Control Termination occurs. 2.10 Vacation and Other Benefits. During each full year of the Executive's employment hereunder, the Executive shall be entitled to paid vacations as prescribed in Dayco's vacation policy based on all years of the Executive's service with Dayco. In addition, the Executive shall be entitled to receive such other employee benefit plans as may, from time to time, be provided by either of the Corporations. ARTICLE 3. Term and Termination 3.01 Term. The period of employment of the Executive under this Agreement shall commence May 1, 1997 and continue through April 30, 2000. Thereafter, unless otherwise terminated by either of the Corporations pursuant to Section 3.03 hereof, effective May 1, 2000 and on each May 1 thereafter, the term of this Agreement shall automatically be renewed for an additional period of twelve (12) months. 3.02 Termination For Cause. Notwithstanding the provisions of Section 3.01 hereof, each of the Corporations may terminate the Executive's employment hereunder at any time for cause, by delivering to the Executive a written notice of termination setting forth the date on which such termination is to be effective and specifying in reasonable detail the facts and circumstances claimed to provide a basis for the termination. For purposes of this Agreement, each Corporation shall have "cause" to terminate the Executive's employment hereunder upon the Executive's: (a) willful and continued failure to substantially perform his duties hereunder other than any such failure resulting from the Executive's incapacity due to physical or mental illness; (b) illegal or criminal conduct; (c) intentional falsification of records or reports or any other act or acts of dishonesty constituting a felony and resulting, or intended to result, directly or indirectly, in personal gain or enrichment of the Executive at the expense of either of the Corporations; (d) excessive and/or chronic use of alcohol, narcotics or other controlled substances (other than under the supervision of a licensed physician); or (e) willful engagement in gross misconduct materially injurious to either of the Corporations. 6 3.03 Termination Without Cause. Notwithstanding anything to the contrary contained in Section 3.01 hereof, each of the Corporations may, at any time on or after the date hereof, terminate the Executive's employment, without cause, by delivering a written notice of termination to the Executive which sets forth the date on which such termination is to be effective; provided that, the effective date of any such termination shall not be less than ninety (90) days following the date on which such written notice of termination is delivered to the Executive. 3.04 Termination by the Executive. Notwithstanding anything to the contrary contained in Section 3.01 hereof, the Executive may terminate his employment hereunder at any time by delivering a written notice of termination to either of the Corporations which sets forth the date on which such termination is to be effective; provided that, the effective date of any such termination shall not be less than ninety (90) days following the date on which such written notice of termination is delivered to either of the Corporations. 3.05 Retirement. The Executive may retire from his employment with the Corporations at any time following his attainment of age sixty (60) by delivering to either of the Corporations a written notice of his intent to terminate his employment with either of the Corporations and retire, which written notice sets forth the date on which such retirement (and its related termination of employment) is to be effective; provided that, the effective date of such retirement shall not be less than thirty (30) days following the date on which such written notice of termination is delivered to either of the Corporations. 3.06 Effect of Notice of Intent to Terminate. Upon delivery by either of the Corporations to the Executive of a written notice of intent to terminate, the Executive's employment with both of the Corporations shall be terminated, effective at the time stated in such written notice of intent to terminate. In addition, upon the Executive's delivery to either of the Corporations of a written notice of intent to terminate (whether or not such termination is intended to be a retirement) the Executive's employment with both the Corporations shall be terminated effective at the time stated in such written notice of intent to terminate. ARTICLE 4. Confidentiality; Non-Compete Provisions 4.01 Confidentiality. During the period of the Executive's employment hereunder and for a period of ten (10) years following the termination of the Executive's employment for any reason whatsoever (including, without limitation, retirement, a "for cause" termination or any other voluntary or involuntary termination), the Executive agrees that he will not, without the written consent of the Board of Directors of Mark IV, disclose to any person 7 (other than a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Corporations or to a person as required by any order or process of any court or regulatory agency) any material confidential information obtained by the Executive while in the employ of the Corporations with respect to any management strategies, policies or techniques or with respect to any products, improvements, formulae, designs or styles, processes, customers, methods of distribution, or methods of manufacture of any of the Corporations; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by either of the Corporations. 4.02 Non-Compete. During the period of eighteen (18) months after the date of termination of the Executive's employment hereunder, for any reason whatsoever (including, without limitation, retirement, "for cause" termination or any other voluntary or involuntary termination), the Executive will not, directly or indirectly, own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business which competes with any business conducted by either of the Corporations or with any group, division or subsidiary of either of the Corporations in any geographic area where such business is being conducted at the time of such termination (any such business being hereinafter referred to as a "Competitive Operation"). Ownership by the Executive of 2% or less of the voting stock of any publicly held corporation shall not constitute a violation of this Section 4.02. 4.03 Competitive Operation. For purposes of Section 4.02 hereof: (a) a business shall not be deemed to be a Competitive Operation unless: (i) 25% or more of the consolidated gross sales and operating revenues, of either of the Corporations is derived from such business; or (ii) 25% or more of the consolidated net income of either of the Corporations is derived from such business; or (iii) 25% or more of the consolidated assets of either of the Corporations are devoted to such business; and (b) a business which is conducted by either of the Corporations at the time of the Executive's termination and which subsequently is sold or discontinued by either of the Corporations shall not, subsequent to the date of such sale or discontinuance, be deemed to be a Competitive Operation within the meaning of Section 4.02. 8 ARTICLE 5. Death Benefits 5.01 Death Benefits. If the Executive dies during the term of his employment hereunder, in addition to any death benefits payable under the terms of any life insurance policies maintained by the Corporations on the life of the Executive, any death benefits payable on account of the death of the Executive under the terms of the Deferred Comp Plan, and any death benefits payable on account of the death of the Executive under the terms of any tax qualified retirement plans maintained by the Corporations, the Corporations shall pay to such person, firm, corporation, trust or other entity which shall, from time to time, be designated by the Executive to either of the Corporations, in writing, as the intended recipient of death benefits provided for under the terms of this Agreement (such person, firm, corporation, trust or other entity being hereinafter referred to as the Executive's "Beneficiary") a death benefit equal to 50% of the Executive's Base Salary at the rate in effect on the date of the Executive's death. In addition, if Dayco pays a bonus to its executive officers for the fiscal year of Mark IV in which the Executive's death occurs, at the time Dayco pays such bonuses to its executive officers for such fiscal year: (a) if the Executive's death occurs during the first six (6) months of Mark IV's fiscal year, the Corporations shall pay to the Executive's Beneficiary, an amount equal to fifty percent (50%) of the amount of the bonus which would have been payable to the Executive pursuant to the bonus plans referred to in Section 2.02 hereof for the fiscal year of Mark IV in which the Executive's death occurs; and (b) if the Executive's death occurs at any time after the first six (6) months of Mark IV's fiscal year, the Corporations shall pay to the Executive's Beneficiary, an amount equal to the amount of the bonus which would have been payable to the Executive pursuant to the bonus plans referred to in Section 2.02 hereof for the fiscal year of Mark IV in which the Executive's death occurs. 5.02 Continuation of Medical Insurance Coverage. If the Executive dies prior to the termination of his employment and if, at the time of the Executive's death, the Executive's spouse or dependents are still living, the Corporations shall take such action as may be necessary to provide group medical insurance type coverage to the Executive's spouse and dependents which is at least reasonably comparable to the group medical insurance type coverage, if any, which was in effect for the Executive, his spouse and dependents under the Dayco Medical Plan immediately prior to the Executive's death, to be continued for the Executive's spouse and dependents for a period of one (1) year following the date of the Executive's death; provided that the Corporations shall not be obligated to continue to provide such group medical insurance type coverage to the Executive's spouse and dependents unless the Executive's spouse pays to Dayco, on a monthly basis, an amount which shall not exceed the Employee Portion (determined at the time such group medical insurance type coverage is provided) of the Premium payable by Dayco Salaried Employees for the group medical insurance type coverage which is then being provided to such Dayco Salaried Employees. At the end of the one (1) year period following the date of the Executive's death or, if earlier, at such time that the Corporations terminate the group medical insurance type coverage 9 required to be provided to the Executive's spouse and dependents hereunder by reason of the failure of the Executive's spouse to pay the Employee Portion of the Premium described above, the Executive's spouse and dependents shall be entitled to elect to receive continuation coverage with respect to such medical insurance in accordance with the applicable provisions of Section 4980B of the Internal Revenue Code of 1986, as amended, and the applicable continuation coverage provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE 6. Disability Benefits 6.01 Short-Term Disability. Except as otherwise provided in Section 6.02 hereof, in the event the Executive becomes disabled and is unable to perform his duties hereunder, there shall be no reduction in the amount of the Executive's Base Salary or any other benefits payable to him under this Agreement. 6.02 Long-Term Disability. If, during the term of this Agreement, it is determined that the Executive suffers from a Total and Permanent Disability (as hereinafter defined), then, effective on the last day of the month in which such determination is made, the Executive's employment hereunder shall be deemed to be terminated. Upon such termination, unless a Change in Control (as defined in Section 7.02 hereof) has occurred within the three (3) year period preceding such termination and the Executive, as permitted by Section 7.01 hereof, has elected, in writing, to receive payment of the Change in Control benefits described in Article 7 of this Agreement, the Corporations shall pay to the Executive in equal monthly installments, for each twelve (12) month period beginning on the day immediately following the date of such termination and any anniversary thereof (an "Anniversary Date"), until the Executive's 65th birthday, an amount equal to, his Base Salary, at the rate in effect on the date his employment is terminated, up to a maximum of $150,000 per year (adjusted as set forth below), less the amounts of all social security, retirement or disability benefits payable to the Executive for each such twelve (12) month period by any agency of the United States Government or the State of Ohio. In addition to the foregoing, in the event the Executive's employment with the Corporations is terminated as a result of his suffering of a Total and Permanent Disability, the Corporation shall continue to provide group medical insurance type coverage to the Executive as required by Section 2.09(c) hereof. 6.03 Cost of Living Adjustment. On each Anniversary Date, the $150,000 per year limit contained in Section 6.02 shall be adjusted on a cumulative basis for each annual increase in the U. S. Department of Labor Bureau of Labor Statistics Consumer Price Index for Urban Wage Earners and Clerical Workers, New York, New York, 1982-84 = 100 measured between the month prior to the first month in which such compensation payments were made and the month prior to the commencement of each such successive year. 10 6.04 Determination of Total and Permanent Disability. Any question as to the existence or extent of disability of the Executive upon which the Executive and the Corporations cannot agree shall be determined by a qualified independent physician selected by the Executive and approved by the Corporations (or, if the Executive is unable to make such selection, as selected by any adult member of his immediate family). For purposes of this Agreement, the Executive shall be deemed to suffer from a Total and Permanent Disability if it is determined that the Executive is physically or mentally unable to substantially perform his duties under this Agreement for a period of twelve (12) consecutive months. The determination of any question as to disability under this Section 6.04 by such physician shall be made in writing to the Corporations and to the Executive and shall be final and conclusive for all purposes of this Agreement. ARTICLE 7. Change in Control Benefits 7.01 Change in Control Termination. The Corporations will provide or cause to be provided to the Executive the rights and benefits described in Section 7.03 hereof in the event that, during the term of this Agreement (including any renewal terms), the Executive's employment by the Corporations is terminated at any time within three (3) years following a "Change in Control" (as hereinafter defined) either: (a) by either of the Corporations for any reason other than the Executive's fraudulent conduct in connection with his employment by the Corporations or conviction of a felony; or (b) by the Executive following the occurrence of any of the following events: (i) the assignment to the Executive of any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status immediately preceding such Change in Control; (ii) a reduction of the Executive's Base Salary, bonuses or other compensation or benefits from those types or amounts in effect immediately prior to the Change in Control; or (iii) the relocation of the principal executive offices of either of the Corporations or a change in the duties of the Executive which requires the Executive to move his residence from its Dayton, Ohio metropolitan area; or (c) by the Executive, if he shall determine in good faith that due to a Change in Control, he is no longer able to effectively discharge his duties under this Agreement. 11 For purposes of this Agreement, if the Executive's employment with the Corporations is terminated after the occurrence of a Change in Control (as hereinafter defined) for any of the reasons described above in this Section 7.01, such termination of employment shall hereinafter be referred to as a "Change in Control Termination." In the event that the Executive's employment with either of the Corporations is terminated within three (3) years following a Change in Control and, following the date the Executive's employment with either of the Corporations is terminated, it is determined (in accordance with Section 6.04 hereof) that, at the time the Executive's employment with either of the Corporations was terminated, the Executive suffered from a Total and Permanent Disability (as defined in Section 6.04 hereof), the Executive shall have the right to elect, in writing, to receive the Change in Control benefits provided for by this Article 7 or the disability benefits provided for by Section 6.02 hereof. Upon receipt by either of the Corporations of such written election from the Executive, the Corporations shall pay (or cause to be paid) to the Executive, the Change in Control benefits provided for by this Article 7 or the disability benefits provided for by Section 6.02 hereof, whichever is elected by the Executive. The Corporations shall not be entitled to object to or contest their obligations to make any such payments (or cause such payments to be made) or the Executive's right to make any such election on the grounds that the Executive suffered from a Total and Permanent Disability at the time his employment was terminated. In addition, if the Executive has attained at least age sixty (60) and the Executive elects to terminate his employment with the Corporations for any of the reasons set forth above in this Section 7.01 and within three (3) years following the occurrence of a Change in Control, the Corporations shall have no right to object to or challenge the right of an Executive to receive any payments provided for under this Article 7 on the grounds that the Executive was otherwise entitled to retire from his employment with the Corporation pursuant to Section 3.05 hereof. 7.02 Change in Control. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if: (a) any consolidation or merger of Mark IV is consummated, as a result of which, Mark IV is not the continuing or surviving corporation, or pursuant to which shares of Mark IV's common stock would be converted into cash, securities or other property, other than a merger of Mark IV in which the holders of Mark IV's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (b) any consolidation or merger of Dayco is consummated, as a result of which, Dayco is not the continuing or surviving corporation or pursuant to which shares of Dayco's common stock would be converted to cash, securities or other property other than a merger of Dayco in which Mark IV, immediately following such merger, directly or indirectly owns not less than fifty-one percent (51%) of the issued and outstanding common stock of the surviving corporation; (c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Mark IV is consummated, or (d) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all 12 of the assets of Dayco is consummated except any such transaction or series of transactions which result in the transfer of all or substantially all the assets of Dayco to Mark IV or any direct or indirect wholly owned subsidiaries of Mark IV; or (e) the stockholders of Mark IV approve any plan or proposal for the liquidation or dissolution of Mark IV; or (f) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") but excluding Mark IV and each of Mark IV's officers and directors, whether individually or collectively), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 20% or more of Mark IV's outstanding common stock or more than fifty percent (50%) of Dayco's outstanding common stock other than as a result of an initial public offering of the common stock of Dayco pursuant to a registration statement filed with the United States Securities and Exchange Commission under the applicable provisions of the Securities Act of 1993, as amended; or (g) during any period of three (3) consecutive years, individuals who at the beginning of such period constitute the entire Board of Directors of Mark IV shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by Mark IV's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 7.03 Payments on Change in Control Termination. (a) If a Change in Control Termination occurs prior to the end of the first year of the Executive's employment hereunder, the Corporations shall pay to the Executive within ten (10) days after the date of such Change in Control Termination, a lump sum payment equal to three (3) times the sum of: (i) the Base Salary of the Executive in effect on the date of such Change in Control Termination; and (ii) the annualized amount of all bonuses awarded to or received by the Executive pursuant to Section 2.02 hereof prior to the Change in Control Termination, or, if no bonus has been awarded to or received by the Executive prior to the Change in Control Termination, the amount of the bonuses which would have been awarded to or received by the Executive on an annualized basis pursuant to Section 2.02 hereof with respect to the fiscal year of Mark IV in which the Change in Control Termination occurs, assuming the Executive's employment with the Corporations continued through the end of such fiscal year (the annualized amount of the bonus awarded to or received by the Executive or to be awarded to or received by the Executive with respect to the fiscal year of Mark IV in which the Change in Control Termination occurs being hereinafter referred to as the "Initial Bonus"); (b) If a Change in Control Termination occurs after the end of the first year of the Executive's employment hereunder but prior to the end of the second year of the Executive's employment hereunder, the Corporations shall pay to the Executive within ten (10) days after the date of such Change in Control Termination, a lump sum payment equal to three (3) times the sum of: (i) the average of the Base Salary of the Executive in effect during the 13 Executive's employment hereunder; and (ii) the average of the sum of: (A) Initial Bonus; and (B) the amount of all bonuses awarded to or received by the Executive under Section 2.02 hereof during the second year of the Executive's employment hereunder, or, if no bonus has been awarded to or received by the Executive during the second year of the Executive's employment hereunder, the amount of the bonuses which would have been awarded to or received by the Executive on an annualized basis pursuant to Section 2.02 hereof with respect to the fiscal year of Mark IV in which the Change in Control Termination occurs, assuming the Executive's employment with the Corporations continued through the end of such fiscal year (the amount of the bonus awarded to or received by the Executive or to be awarded to or received by the Executive with respect to the fiscal year of Mark IV in which the Change in Control Termination occurs being hereinafter referred to as the "Second Bonus"); (c) If a Change in Control Termination occurs after the end of the second year of the Executive's employment hereunder but prior to the end of the third year of the Executive's employment hereunder, the Corporations shall pay the Executive within ten (10) days after the date of such Change in Control Termination, a lump sum payment equal to three (3) times the sum of: (i) the average of the Base Salary of the Executive in effect during the Executive's employment hereunder; and (ii) the average of the sum of: (A) the amount of the Initial Bonus; (B) the Second Bonus; and (C) the amount of all bonuses awarded to or received by the Executive under Section 2.02 hereof during the third year of the Executive's employment hereunder, or, if no bonus has been awarded to or received by the Executive during the third year of the Executive's employment hereunder, the amount of the bonuses which would have been awarded to or received by the Executive on an annualized basis pursuant to Section 2.02 hereof with respect to the fiscal year of Mark IV in which the Change in Control Termination occurs, assuming the Executive's employment with the Corporations continued through the end of such fiscal year; and (d) If a Change in Control Termination occurs after the end of the third year of the Executive's employment hereunder, the Corporations shall pay to the Executive within ten (10) days after the date of such Change in Control Termination, a lump sum payment equal to three (3) times the sum of: (i) the average of the Base Salary of the Executive in effect during the three (3) year period ending on the date the Change in Control Termination occurs; and (ii) the average of the amount of all bonuses awarded to or received by the Executive pursuant to Section 2.02 hereof during the three (3) year period ending on the date of the Change in Control Termination. 7.04 Effect of Deferred Compensation. The amounts payable to the Executive pursuant to Section 7.03 hereof shall be determined based on the amount of the Base Salary and the amount of any bonus which is payable to the Executive, whether or not the Executive actually receives payment of such Base Salary or bonus as a result of a deferral made by the Executive of the receipt of payment of any portion of such Base Salary or bonus as permitted by the terms of the Deferred Comp. Plan as applicable to the Executive. 14 7.05 Benefits Upon Death. If the Executive dies following a Change in Control Termination but prior to the payment of the applicable lump sum provided for in Section 7.03 above, the Corporations shall pay the applicable lump sum described in Section 7.03 hereof to the Executive's Beneficiary (as described in Section 5.01 hereof) within ten (10) days following receipt by either of the Corporations of payment instructions from such Beneficiary. 7.06 Effect of Change in Control Termination on Other Benefits. (a) The occurrence of a Change in Control Termination with respect to the Executive shall not affect the Executive's right to receive any payments due to the Executive under the terms of the Master 401(k) Plan, the Deferred Comp. Plan or any other tax qualified or other retirement plan which the Executive is a participant in. All such payments will be made in accordance with the provisions of the applicable document containing the terms of the Master 401(k) Plan, the Deferred Comp. Plan and any other such tax qualified or other retirement plan. (b) The occurrence of a Change in Control Termination with respect to the Executive shall not affect the obligation of the Corporations under Section 2.09 hereof to continue to pay all premiums needed to maintain policies of life insurance for the Executive and to continue to provide group medical insurance type coverage for the benefit of the Executive for the rest of the Executive's life in amounts at least reasonably comparable to the group medical insurance type coverage which was in effect for the Executive and the policies of such life insurance maintained by the Corporation for the benefit of the Executive as of the date of the Executive's Change in Control Termination. (c) Except as set forth in Sections 7.06(a) and (b) hereof, any payments required to be made to the Executive or his Beneficiary pursuant to Sections 7.03 and 7.05 hereof shall, when received by the Executive, or his Beneficiary, be in lieu of any payments otherwise provided with respect to the Executive's termination of employment under any other severance pay or other similar plan or policy maintained by the Corporations. The Corporations may, in their sole discretion, change, replace or eliminate the Dayco Medical Plan and any retirement plan or insurance policy described in Sections 7.06(a) and (b) above at any time, but shall not do so after a Change in Control in a manner which would prevent the Executive from receiving any benefit which he would otherwise have been entitled to receive either immediately preceding the Change of Control or immediately preceding a Change in Control Termination. 7.07 Certain Additional Payments by the Corporations. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by either of the Corporations to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended or any similar section (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties being hereinafter collectively 15 referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 7.07(c) hereof, all determinations required to be made under this Section 7.07, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by Coopers & Lybrand, L.L.P. or any other nationally recognized firm of certified public accountants (the "Accounting Firm" ) which shall provide detailed supporting calculations both to each of the Corporations and to the Executive within 15 business days of termination of the Executive's employment under this Agreement, if applicable, or such earlier time as is requested by the Executive or either of the Corporations. When calculating the amount of the Gross-Up Payment, the Executive shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Gross-Up Payment is to be made, and (ii) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. If the Accounting Firm has performed services for the person, entity or group who caused the Change of Control, as described in Section 7.02 hereof or any affiliate thereof, the Executive may select an alternative accounting firm from any nationally recognized firm of certified public accountants. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon each of the Corporations and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporations should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporations exhaust their remedies pursuant to Section 7.07(c) hereof, and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporations to or for the benefit of the Executive. 16 (c) The Executive shall notify each of the Corporations in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by either of the Corporations of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise each of the Corporations of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to the Corporations (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If either of the Corporations notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Corporations any information reasonably requested by either of the Corporations relating to such claim, (ii) take such action in connection with contesting such claim as either of the Corporations shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by either of the Corporations, (iii)cooperate with the Corporations in good faith in order effectively to contest such claim, and (iv) permit each of the Corporations to participate in any proceedings relating to such claim; provided, however, that the Corporations shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7.07(c), the Corporations shall control all proceedings taken in connection with such contest and, at their sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at their sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporations shall determine; provided, however, that if either of the Corporations directs the Executive to pay such claim and sue for a refund, the Corporations shall advance the amount of such payment to the Executive, on an interest free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statue of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such 17 contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporations' control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Corporations pursuant to Section 7.07(c) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the compliance by the Corporations with the requirements of Section 7.07(c)) promptly pay to the Corporations the amount of such refund (together with any interest paid or credited thereon by the taxing authority after deducting any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Corporations pursuant to Section 7.07(c) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporations do not notify the Executive in writing of their intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid under Section 7.07(a) hereof. The forgiveness of such advance shall be considered part of the Gross-Up Payment and subject to gross-up for any taxes (including interest or penalties) associated therewith. ARTICLE 8. Severance and Effects of Termination 8.01 Effect of Termination for Cause. In the event the Executive's employment with the Corporations is terminated by either of the Corporations for cause pursuant to the provisions of Section 3.02 hereof, the Corporations shall pay to the Executive any monthly installment of his Base Salary which is accrued and unpaid as of the date of the Executive's termination at the monthly rate then in effect and, thereafter, except as otherwise provided for by Sections 2.09, 8.06 and 8.07 hereof, the Corporations shall have no further obligation to pay the Executive any additional Base Salary, compensation or bonuses, no further obligation to provide the Executive any medical, life, disability or other insurance benefits hereunder and no further obligation to pay or provide any other benefits provided to the Executive hereunder. 8.02 Effect of Voluntary Termination. In the event that the Executive voluntarily terminates his employment with the Corporations as provided for by Section 3.04 hereof, the Corporations shall pay to the Executive any monthly installment of his Base Salary which is accrued and unpaid as of the date of the Executive's termination at the monthly rate then in effect and, thereafter, the Corporations shall have no further obligation to pay the Executive any additional Base Salary, compensation or bonuses, no further obligation to provide any medical, life, disability or other insurance benefits to the Executive hereunder, and, except as otherwise provided under the terms of Sections 8.06 and 8.07 hereof, no further obligation to pay any other benefits provided to the Executive hereunder. 18 8.03 Effect of Termination Without Cause. In the event the Executive's employment with the Corporations is terminated by either of the Corporations, without cause, pursuant to Section 3.03 hereof, the Corporations shall, (except as otherwise provided by Section 8.05 hereof), pay the Executive an amount equal to the sum of: (a) one and one-half (1.5) times his Base Salary at the rate then in effect (such amount being hereinafter referred to as the "Base Salary Severance Payment"); (b) a pro-rata portion (determined on the basis of the number of months the Executive was employed by the Corporations during the fiscal year of Mark IV in which the Executive's employment is terminated) of the amount, if any, of all bonuses which would have been payable to the Executive had he continued in the employ of the Corporations until the end of the fiscal year of Mark IV in which the Executive's employment is terminated without cause (such amount being hereinafter referred to as the "Bonus Severance Payment"); and (c) any amounts with respect to which the Executive is deemed to be vested under the terms of the Deferred Comp. Plan (such amount being hereinafter referred to as the "Deferred Comp. Severance Payment"). For purposes of this Section 8.03, (w) the Base Salary Severance Payment shall be paid to the Executive in eighteen (18) substantially equal consecutive monthly installments beginning on the first day of the first calendar month following the date the Executive's employment with the Corporations is terminated; (x) the Bonus Severance Payment, if any, shall be paid to the Executive in one lump sum payment at the time bonuses are paid to salaried employees of Dayco for the fiscal year of Mark IV in which the Executive's employment is terminated; and (y) the Deferred Comp. Severance Payment shall be paid to the Executive at the time and in the manner provided for in the Deferred Comp. Plan. In addition, if the Executive's employment with any of the Corporations is terminated by any of the Corporations, without cause, pursuant to Section 3.03 hereof, except as otherwise provided above and in Sections 2.09 and 8.07 hereof, the Corporations shall have no further obligation following the Executive's termination to pay the Executive any additional Base Salary, compensation or bonuses, no further obligation to provide any medical, life, disability or other insurance benefits to the Executive hereunder and no further obligation to pay to the Executive any other benefits otherwise provided to the Executive hereunder. 8.04 Effect of Retirement. In the event the Executive terminates his employment with the Corporations by reason of his retirement as provided for in Section 3.05 hereof, the Corporations shall pay to the Executive any monthly installment of his Base Salary which is accrued and unpaid as of the date of the Executive's retirement at the monthly rate then in effect plus an amount equal to the amount of all bonuses which would have been payable to the Executive by the Corporations pursuant to Section 2.02 hereof if the Executive had remained in the employ of the Corporations until the end of the fiscal year of Mark IV in which the Executive retires and assuming that average monthly earnings of Dayco and Mark IV for the portion of Mark IV's fiscal year which has elapsed prior to the date the Executive retires continues at such rate after the Executive retires through the end of the fiscal year of Mark IV in which the Executive retires. In addition, in the event the Executive terminates his employment with the Corporations by reason of his retirement as 19 provided for in Section 3.05 hereof, the Corporations shall provide the Executive group medical insurance type coverage which is the same as the group medical insurance type coverage provided by Dayco to Retired Dayco Salaried Employees under the terms of the Dayco Medical Plan provided that the Executive pays to the Corporations the portion of the Premiums which is required to be paid by all other Retired Dayco Salaried Employees in connection with the provision of such group medical insurance type coverage as described in the first paragraph of Section 2.09 hereof. Thereafter, except as otherwise provided for above in this Section 8.04 and except as otherwise provided in Sections 8.06 and 8.07 hereof, the Corporations shall have no further obligation to pay the Executive any additional Base Salary, compensation, bonuses or other benefits provided to the Executive hereunder. 8.05 Special Rules Relating to IPO's. Notwithstanding anything to the contrary contained in this Agreement, in the event that the Executive's employment with Mark IV is terminated in connection with an initial public offering of the common stock of Dayco as described in Section 7.02(f) hereof, and, in connection with such initial public offering, the Executive remains the President of Dayco Industrial, such termination shall, for purposes of determining the Executive's rights upon a termination of employment, be deemed to be a voluntary termination of employment by the Executive pursuant to Section 3.04 hereof. In addition if, in connection with an initial public offering of common stock of Dayco as described in Section 7.02(f) hereof, the Executive rejects an offer from Dayco to be employed by Dayco as President of Dayco Industrial upon terms which are at least reasonably comparable to the terms of this Agreement and, in connection with the Executive's rejection of such offer of employment, the Executive terminates his employment with the Corporations or the Executive's employment with the Corporations is terminated by the Corporations, without cause, as permitted by Section 3.03 hereof, notwithstanding anything to the contrary contained in Section 8.03 hereof, upon the occurrence of such termination, the Corporations shall pay to the Executive any monthly installment of his Base Salary which is accrued and unpaid as of the date of the Executive's termination at the monthly rate then in effect and, thereafter, except as otherwise provided by Sections 2.09(a), 8.06 and 8.07 hereof, the Corporations shall have no further obligation to pay the Executive any additional Base Salary, compensation or bonuses, no further obligation to provide any medical, life, disability or other insurance benefits to the Executive hereunder, and no further obligation to pay any other benefits to the Executive hereunder. 8.06 Non-Qualified Deferred Compensation Plan Payments. Upon termination of the Executive's employment with the Corporations for any reason, the Executive shall be entitled to payment in full of the vested portion, determined at the time the Executive's employment with the Corporations is terminated, of the vested portion of all amounts payable to the Executive under the terms of the Deferred Comp. Plan. Payment of such vested portion of the amounts payable to the Executive under the terms of the Deferred Comp. Plan shall be made at the time and in the manner provided for by the terms of the Deferred Comp. Plan. 20 8.07 Retirement Plan Payments. Nothing in this Agreement shall be deemed to limit the Executive's rights to receive or the obligations of the Corporations to pay or provide for the Executive and his beneficiaries, any continuation coverage as required by ERISA or any retirement or other benefits accrued by the Executive at any time under the terms of any retirement plans maintained by the Corporations which are subject to the requirements of ERISA and satisfy the requirements of Section 401 of the Code. ARTICLE 9. Miscellaneous 9.01 Litigation Expenses. In the event that any dispute shall arise under this Agreement between the Executive and either of the Corporation which is related to the Change in Control Termination provisions of Article 7 hereof, the Corporations shall be responsible for the payment of all reasonable expenses of all parties to such dispute, including reasonable attorney fees, regardless of the outcome thereof. 9.02 Amendments. This Agreement may not be amended or modified orally, and no provision hereof may be waived, except in a writing signed by the parties hereto. 9.03 Assignment. This Agreement cannot be assigned by either party hereto except with the written consent of the other. 9.04 Prior Agreements. This Agreement shall supersede and replace any and all prior agreements between either of the Corporations and the Executive, whether express or implied. Except as specifically provided herein, nothing contained in this Agreement shall be construed to constitute a waiver by the Executive of any rights or claims under any existing pension or retirement plans of either of the Corporations. 9.05 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the personal representatives and successors in interest of the Executive and any successors in interest of either of the Corporations. 9.06 No Duplication. Each of the Corporations shall be jointly and severally liable for providing the Executive the compensation and benefits provided for by this Agreement. Notwithstanding the foregoing, the Executive shall not be entitled to payment of duplicate benefits or compensation from each of the Corporations and the payment once, by any or all of the Corporations, of the compensation and benefits to be provided to the Executive hereunder shall be deemed to fully satisfy the obligations of the Corporations hereunder. 9.07 Applicable Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly within such State except with respect to the internal affairs of the Corporations and their respective stockholders, which shall be governed by the General Corporation Law of the State of Delaware. 21 9.08 Notices. All notices and other communications given pursuant to this Agreement shall be deemed to have been properly given or delivered if hand-delivered, or if mailed, by certified mail or registered mail postage prepaid, addressed to the Executive at the address first above written or if to either of the Corporations, at their respective addresses first above written with a copy to the attention of Gerald S. Lippes, Secretary, 700 Guaranty Building, Buffalo, New York 14202. Notwithstanding anything to the contrary contained in this agreement, delivery of any notice or communication by the Executive to either of the Corporations shall be deemed and construed to be effective as a delivery of such notice or other communication to each of the Corporations. From time to time, any party hereto may designate by written notice any other address or party to which such notice or communication or copies thereof shall be sent. 9.09 Severability of Provisions. In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby and this Agreement shall be interpreted as if such invalid, illegal or unenforceable provision was not contained herein. 9.10 Headings. The headings of the Sections and Articles of this Agreement are inserted for convenience only and shall not constitute a part hereof or affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and each of the Corporations have caused this Agreement to be executed as of the day and year first above written. MARK IV INDUSTRIES, INC. By: /s/ William P. Montague /s/ Richard F. Bing ----------------------- --------------------- Name: William P. Montague Richard F. Bing Title: President DAYCO PRODUCTS, INC. By: /s/ Bruce A. McNiel - ------------------------------- Name: Bruce A. McNiel Title: President EX-10.17 3 Exhibit 10.17 NON-QUALIFIED PLAN OF DEFERRED COMPENSATION OF MARK IV INDUSTRIES, INC. ________________________________ Fourth Amendment and Restatement _________________________________ Effective January 1, 1999 1 NON-QUALIFIED PLAN OF DEFERRED COMPENSATION OF MARK IV INDUSTRIES, INC. _______________________________________ Fourth Amendment and Restatement ______________________________________ WHEREAS, Mark IV Industries, Inc., a Delaware corporation having its principal place of business at One Town Centre, John James Audubon Parkway, Amherst, New York ("Mark IV") adopted a non- qualified plan of deferred compensation known as the "Non- Qualified Plan of Deferred Compensation of Mark IV Industries, Inc." (the "Plan") effective February 20, 1990 in order to provide a select group of its highly compensated management employees the same amount of retirement income such highly compensated management employees would have been entitled to receive if the provisions of the Internal Revenue Code as amended by the Tax Reform Act of 1986, did not require Mark IV to change the manner in which it administered a tax qualified retirement plan maintained by Mark IV for the benefit of certain of its employees and known as the Mark IV Retirement Savings Plan (now known as the Mark IV Savings & Retirement Plan) and a tax qualified defined contribution pension plan known as the Mark IV Industries, Inc. and Subsidiaries Master Defined Contribution Pension Plan (which plan was merged into the Mark IV Savings & Retirement Plan effective January 1, 1993); and WHEREAS, the Plan provides for the hypothetical investment of amounts hypothetically credited to accounts established to maintain records of the amounts payable to Participants in the Plan; and WHEREAS, Mark IV amended and restated the Plan effective December 1, 1991 to provide that the value of the accounts of certain Participants will be equal to the greater of the amount hypothetically allocated to the account of the Participant together with interest thereon and the value of common stock of Mark IV which is to be hypothetically allocated to the account of such Participant, and to make certain other conforming changes to the Plan; and WHEREAS, Mark IV amended and restated the Plan effective December 16, 1992, to provide certain Participants the opportunity to defer the receipt of payment of any bonus or other incentive compensation which they may be entitled to receive under the terms of certain executive bonus arrangements and to provide that the amount of the incentive bonus, if any, which the Participant defers shall be credited with hypothetical earnings and paid in accordance with the terms of this Plan; and 2 WHEREAS, Mark IV amended and restated the Plan effective September 1, 1993, to provide that certain Participants shall be permitted to defer the receipt of all or any part of the salary or wages they are entitled to receive and to provide that the amount of the salary or wages deferred by the Participant, if any, shall be credited with hypothetical earnings and paid in accordance with the terms of this Plan; and WHEREAS, effective January 1, 1996, Mark IV began administering the Plan in a manner which provided for the allocation of hypothetical matching contributions to the accounts of Participants that deferred the receipt of their compensation pursuant to the Plan; and WHEREAS, due to the size of the Accounts of certain Participants, Mark IV has now determined that it is appropriate to limit the aggregate amount of the compensation and bonuses which may be deferred by Participants and, in certain cases, to require a portion of the amount of the compensation and bonuses deferred by Participants to be distributed immediately; and WHEREAS, Mark IV desires to amend the Plan to reflect miscellaneous changes in the manner in which the Plan is administered, to provide a limitation on the aggregate amount of compensation and bonuses which may be deferred by Plan Participants and to require that distributions be made to certain Participants with respect to the amount of compensation and bonuses deferred by such Participants; NOW, THEREFORE, Mark IV hereby adopts the following as the Fourth Amendment and Restatement of the Plan effective as of January 1, 1999: 3 TABLE OF CONTENTS Section Page Section 1 Definitions 1 Section 2 Eligibility 9 Section 3 Annual Deferred Compensation Commitment, Compensation Deferrals and Matching Contributions 10 Section 4 Distributions 28 Section 5 Trust Established Upon Change in Control 42 Section 6 Administration 44 Section 7 Amendment, Termination and Merger 47 Section 8 Miscellaneous 48 1 SECTION 1. Definitions 1.01 Account means the account or accounts established and maintained by the Committee (as hereinafter defined) for each Participant (as hereinafter defined) to reflect the amount of the deferred compensation payable to each Participant under the terms of this Plan and, in the event a Trust Fund (as hereinafter defined) is established pursuant to Section 5.01 hereof, to reflect the interest of each Participant in the Trust Fund. 1.02 Affiliate means any corporation under common control with Mark IV within the meaning of Internal Revenue Code Section 414(b) and any trade or business (whether or not incorporated) under common control with Mark IV within the meaning of Internal Revenue Code Section 414(c). 1.03 Anniversary Date means March 1 of each year. 1.04 Annual Allocation Account means a sub-account maintained by the Committee within each Participant's Account for each Plan Year (as hereinafter defined) with respect to which an Annual Deferred Compensation Commitment (as hereinafter defined) is to be made, which sub-account is established by the Committee for the purpose of valuing the total aggregate amount of each of the Annual Deferred Compensation Commitments made by Mark IV to the Participant's Account together with any earnings thereon as provided for in this Plan. 1.05 Annual Deferred Compensation Commitment means, for each Plan Year, the total amount of the deferred compensation which Mark IV has agreed and committed to allocate and pay with respect to such Plan Year, to each of the Participants in the Plan, excluding: (a) interest; (b) the amount of any Compensation Deferrals (as hereinafter defined) which are deferred at the option of a Participant; and (c) the amount of any Matching Contributions relating to Compensation Deferrals made by a Participant (as hereinafter defined). 1.06 Applicable Interest Rate means: (a) for each Plan Year, a rate of interest equal to one hundred twenty percent (120%) of the average of the Federal long-term interest rates established by the Secretary of the Treasury pursuant to the provisions of Section 1274 of the Internal Revenue Code and the regulations thereunder for the months of March, June, September and December of the calendar year which ends within the Plan Year; and (b) for each calendar year, a rate of interest equal to one hundred twenty percent (120%) of the average of the Federal long term interest rates established by the Secretary of the Treasury pursuant to the provisions of Section 1274 of the Internal Revenue Code and the regulations thereunder for the months of March, June, September and December of such calendar year. 2 1.07 Authorized Absence means a leave of absence from the Employer (as hereinafter defined) or any Affiliate for a period not exceeding twenty-four (24) months or absence to enter the Armed Services of the United States during a period of national emergency or at any time through the operation of a compulsory military service law of the United States. Leaves of absence may be granted in the event of illness or accident of an Eligible Employee (as hereinafter defined) or a member of his family or for the continuation of the training or education of the Eligible Employee. For purposes of this Plan, an Eligible Employee who leaves on an Authorized Absence shall not be deemed to have incurred a termination of employment with the Employer or any Affiliate solely by reason of his leaving on such Authorized Absence. However, the failure of any Eligible Employee to return to active employment with the Employer or any Affiliate after a leave of absence or authorized extension thereof or during the period after his separation from military service in which his reemployment rights are guaranteed by law shall be deemed a termination of employment at the later of the date of commencement of such leave of absence or such military leave or the date for which he was last credited with an Hour of Service (as hereinafter defined). Leaves of absence shall be granted in accordance with the Employer's normal policies and practices in a uniform and non- discriminatory manner. 1.08 Beneficiary means any person or persons designated, in writing, by a Participant to share in the benefits of the Plan after his death, or if none, his spouse, or, if neither, his estate. 1.09 Break in Service means each Plan Year during which an Eligible Employee has completed no more than 500 Hours of Service due to a termination of employment with the Employer and any Affiliate. A termination of employment shall not occur upon a Participant's transfer between the employment of the Employer and any Affiliate. In the case of an Eligible Employee who is absent from work for any period by reason of: (a) the pregnancy of the Eligible Employee; (b) the birth of a child of the Eligible Employee; (c) the placement of a child with the Eligible Employee in connection with the adoption of such child by such Eligible Employee; or (d) the need to care for such child for a period beginning immediately following the birth or placement of such child with such Eligible Employee; 3 such Eligible Employee shall receive an Hour of Service for each Hour of Service which the Eligible Employee would have been credited with during the period of such absence had the Eligible Employee not been absent. If the Committee is unable to determine the number of Hours of Service which the Eligible Employee would have been credited with had such Eligible Employee not been absent, such Eligible Employee shall be credited with 8 Hours of Service per work day of such absence. Notwithstanding the foregoing, an Eligible Employee shall not be credited with more than the number of Hours of Service required to prevent such Eligible Employee from incurring a Break in Service nor be credited with more than 501 Hours of Service by reason of any absence described in this paragraph. The Hours of Service credited under this paragraph shall be credited in the computation period in which the absence begins if the crediting is necessary to prevent the Eligible Employee from incurring a Break in Service in that computation period or, in all other cases, in the following computation period. The provisions of this paragraph shall be used solely for purposes of determining whether an Eligible Employee has incurred a Break in Service for vesting purposes. 1.10 Board of Directors means the Board of Directors of Mark IV. 1.11 Committee means the administrative committee, referred to in Section 6.01, designated by the Board of Directors of Mark IV to administer the Plan. 1.12 Compensation means: (a) for purposes of determining the amount which a Participant shall be entitled to defer the receipt of pursuant to Section 3.02 hereof, an amount equal to the total salary or wages paid or payable by an Employer to a Participant at the Participant's regular rate for services actually rendered during the calendar year ending within the Plan Year including overtime and including bonuses which are payable with respect to services performed during the fiscal year of the Employer in which such calendar year ends but which bonuses are paid after the end of such calendar year (whether or not such salary, wages, overtime or bonuses are actually paid as a result of the Participant's election to defer receipt of such Compensation) but excluding: (i) the amount, if any, of the compensation or wages of the Participant which are contributed on behalf of the Participant to the Mark IV Savings & Retirement Plan; (ii) the amount, if any, of the compensation or wages of the Participant which are contributed on behalf of the Participant to any cafeteria plan established and/or maintained by the Employer pursuant to Section 125 of the Internal Revenue Code; and (iii) the amount of the Annual Deferred Compensation Commitment allocated to the Account of a Participant under this Plan or any other contributions or benefits made to or for the benefit of any Participant under any other pension, profit sharing, insurance, hospitalization or other plan or policy maintained by the Employer for the benefit of any such Participant; and (b) for purposes of determining the amount of the Annual Deferred Compensation Commitment to be allocated to the Account of a Participant pursuant to Section 3.04 hereof, an 4 amount equal to: (i) total salary or wages paid or payable by the Employer to a Participant at his regular rate for services actually rendered during the calendar year ending within the Plan Year including overtime and including estimated bonuses which will be payable with respect to services performed during the fiscal year of the Employer in which such calendar year ends but which bonuses are paid after the end of such calendar year (whether or not such salary, wages, overtime or bonuses are actually paid as a result of the Participant's election to defer the receipt of such Compensation) minus the amount, if any, of bonuses paid during such calendar year which are attributable to services provided by the Employee during the fiscal year of the Employer which ends during the immediately preceding calendar year; (ii) the amount, if any, of the compensation or wages of the Participant which are contributed on behalf of the Participant to the Mark IV Savings & Retirement Plan; (iii) the amount, if any, of the compensation or wages of the Participant which are contributed on behalf of the Participant to any cafeteria plan established and/or maintained by the Employer pursuant to Section 125 of the Internal Revenue Code; minus the portion, if any, of the amount of the compensation or wages contributed on behalf of the Participant to the cafeteria plan maintained by the Participant's employer to the extent that such compensation or wages are used for the payment of group term life insurance premiums under the cafeteria plan; (iv) the amount, if any which is included in the taxable income of a Participant as a result of the lapsing of any restrictions on transferability of common stock of Mark IV which has been issued to the Participant pursuant to the terms of the Mark IV Industries, Inc. 1992 Restricted Stock Plan; and (v) the amount, if any, of ordinary income realized by a Participant in connection with the exercise of any stock options granted to the Participant under the terms of any incentive stock option plan which is maintained by Mark IV or in connection with the sale by the Participant of any stock of Mark IV which is acquired by the Participant pursuant to the terms of any such Plan; but excluding any portion of the Annual Deferred Compensation Commitment allocated to the Account of a Participant under this Plan or any other contributions or benefits made to or for the benefit of any Participant under any other pension, profit sharing, insurance, hospitalization or other plan or policy maintained by the Employer for the benefit of any such Eligible Employee. The decision of the Committee as to what constitutes Compensation within the meaning of the foregoing definitions shall be conclusive. 1.13 Compensation Deferral means, for the Plan Year ending February 28, 1993, for the four (4) month period beginning September 1, 1993 and ending December 31, 1993 and for each calendar year beginning on or after January 1, 1994, the amount, if any, of the Compensation payable to a Participant which the Participant has elected to defer the receipt of payment of pursuant to Section 3.02 hereof and which Mark IV has agreed and committed to allocate and pay to such Participant in the future under the terms of this Plan. 5 1.14 Compensation Deferral Account means a sub-account maintained by the Committee within the Account of each Participant that has made a Compensation Deferral, which sub-account is established by the Committee for the purpose of valuing the amount of the Compensation Deferrals made by the Participant together with any earnings thereon as provided for in this Plan. 1.15 Dollar Value means, except as otherwise specifically provided in Section 3.10 hereof, an amount equal to the sum of: (a) the dollar amount credited to a Participant's Account, if any, under the terms of the Plan, determined as of November 30, 1991 including the interest credited thereon as provided for in this Plan; and (b) the total of the dollar amounts credited after November 30, 1991 to each of the Annual Allocation Accounts, the Compensation Deferral Account and the Matching Contributions Account (as hereinafter defined) contained within the Participant's Account including the interest credited thereon as provided for in this Plan. 1.16 Effective Date means February 20, 1990. 1.17 Eligible Employee means each executive officer of the Employer. 1.18 Employer means Mark IV Industries, Inc. and any other corporation or other business entity affiliated with Mark IV which is a successor in interest to such corporation or which, hereafter, with the approval of the Board of Directors of Mark IV, adopts the provisions and obligations of the Plan with respect to its employees by resolution of its own Board of Directors or similar governing body. 1.19 ERISA means the Employee Retirement Income Security Act of 1974, as amended, and corresponding provisions of future laws, as amended. 1.20 Fiduciary means any person with respect to the Plan to the extent: (a) He exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets; (b) He renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the Plan or has any authority or responsibility to do so; or (c) He has any discretionary authority or discretionary responsibility in the administration of the Plan. 6 This term also includes persons designated by the Committee to carry out fiduciary responsibilities under the Plan. A Fiduciary may serve in more than one fiduciary capacity (including service as both Trustee and Committee) with respect to this Plan. 1.21 Hour of Service means each hour for which an Eligible Employee is paid, or entitled to payment, by the Employer or any Affiliate for the performance of duties. In addition, an Hour of Service means each hour for which an Eligible Employee is paid, or entitled to payment, directly or indirectly by the Employer or any Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, an Employer or Affiliate approved sick or disability leave, layoff, leave of absence, military leave or jury duty. Notwithstanding the above, the hours required to be credited to an Eligible Employee pursuant to the provisions of the preceding sentence shall not include hours for which payment is made or due under a plan maintained solely for the purpose of complying with applicable Workers' Compensation laws, or Unemployment Compensation or disability insurance laws, and no more than 501 hours shall be credited to an Eligible Employee on account of any single continuous period during which the Eligible Employee performs no duties. In addition, no hours shall be credited for a payment which solely reimburses an Eligible Employee for medical or medically related expenses incurred by the Eligible Employee. An Hour of Service also means each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer or any Affiliate; provided, however, that in no event shall the same hours be credited under both this paragraph and the other paragraphs of this Section 1.21. The computation period to which Hours of Service shall be credited and the number of Hours of Service to be credited for reasons other than the performance of duties shall be determined under Title 29, Subchapter C, Section 2530.200b(b) and (c) of Code of Federal Regulations, which is hereby incorporated by reference. Hours of Service shall be determined from records maintained by the Employer or Affiliate. 1.22 Internal Revenue Code, Code and IRC each mean the Internal Revenue Code of 1986, as amended. 1.23 Investment Manager means that person so designated by the Committee to manage and invest designated Plan assets, who acknowledges his acceptance in writing and who is either: (a) registered in good standing as an Investment Adviser under the Investment Advisers Act of 1940; (b) a bank, as defined in that Act; or (c) an insurance company qualified to perform investment management services under the laws of more than one state. 1.24 Mark IV Savings & Retirement Plan means a master profit sharing/401(k) plan established effective March 1, 1987 and maintained by Mark IV Industries, Inc. and any successor plan to such master profit sharing/401(k) plan. 7 1.25 Matching Contributions means, for each Plan Year beginning on or after March 1, 1996, the amount which Mark IV has agreed and committed to allocate and pay with respect to such Plan Year, to each of the Participants in the Plan, which amount is determined pursuant to the provisions of Section 3.03 hereof, and is based on the amount of the Compensation deferred by the Participant on whose behalf such allocation is made, reduced by the amount, if any, of matching contributions made on behalf of the Participant under the terms of the Mark IV Savings & Retirement Plan. 1.26 Matching Contributions Account means a sub-account maintained by the Committee within each Participant's Account for the purpose of valuing the total amount of the Matching Contributions allocated to the Participant's Account together with any earnings thereon as provided for in this Plan. 1.27 Participant means any Eligible Employee of the Employer who becomes a participant in the Plan. 1.28 Phantom Stock means the shares of common stock of Mark IV, if any, which are hypothetically allocated to a Participant's Account pursuant to the terms of this Plan. 1.29 Plan means this non-qualified plan of deferred compensation known as the Non-Qualified Plan of Deferred Compensation of Mark IV Industries, Inc. 1.30 Plan Year means the 12 consecutive month period beginning on March 1 of each calendar year. 1.31 Share Value means an amount equal to: (a) the sum of: (i) the number of shares of Phantom Stock, if any, credited to a Participant's Account as of November 30, 1991 under the terms of this Plan; and (ii) the total of the number of shares of Phantom Stock, if any, credited after November 30, 1991 to each of the Annual Allocation Accounts, the Compensation Deferral Account and the Matching Contributions Account contained within the Participant's Account; multiplied by (b) the applicable price per share of common stock of Mark IV as determined pursuant to Section 3.07 hereof. 1.32 Taxable Wage Base means, for each Plan Year, the maximum amount of earnings which may be considered wages under Internal Revenue Code Section 3121(a)(1), determined as of the last day of the calendar year ending with or within the Plan Year. 1.33 Trust Fund means one or more trust funds which may be established by Mark IV pursuant to this Plan, and all the assets at any time held by the Trustee (as hereinafter defined) of such trust funds. 8 1.34 Trustee means the person or persons, firm or corporation designated by the Board of Directors of Mark IV to serve as Trustee of any Trust Fund which may be created pursuant to the provisions of this Plan, and who, by joining in the execution of the agreement creating such Trust Fund or any amendments thereunder, signifies his acceptance of the Trust Fund and any person or persons, firm or corporation duly appointed as successor Trustee. 1.35 Valuation Date means the last day of February of each calendar year. 1.36 Year of Service means each Plan Year in which the Eligible Employee has not less than 1,000 Hours of Service. 9 SECTION 2. Eligibility 2.01 Employees Eligible. The Committee shall determine which Eligible Employees will participate in the Plan and the determination of the Committee concerning which Eligible Employees shall participate in the Plan shall be conclusive and binding on all persons. An Eligible Employee shall become a Participant in the Plan on the date that the Committee gives such Eligible Employee written notice that he or she has become a Participant in the Plan. 2.02 Participation Form. The Committee shall furnish each Eligible Employee who becomes a Participant in the Plan with a form containing such information as the Committee may desire, including, but not limited to, date of birth of the Eligible Employee, and the Beneficiary designation of such Eligible Employee. 10 SECTION 3. Annual Deferred Compensation Commitment, Compensation Deferrals and Matching Contributions 3.01 Participant's Account. (a) The Committee shall establish and maintain an Account in the name of each Participant to which the Committee shall credit the amount of each Annual Deferred Compensation Commitment made on behalf of the Participant pursuant to the provisions of Section 3.04 hereof, the amount, if any, of Compensation Deferrals made by the Participant pursuant to Section 3.02 hereof and the amount, if any, of Matching Contributions made on behalf of the Participant pursuant to Section 3.03 hereof together with interest thereon as determined by Section 3.10 hereof and, if applicable, Phantom Stock as determined pursuant to Section 3.06 hereof. (b) Beginning with the Plan Year ending on February 29, 1992 and for each calendar year thereafter in which an Annual Deferred Compensation Commitment is made pursuant to this Plan, the Committee shall establish and maintain, within each Participant's Account, an Annual Allocation Account in the name of such Participant which shall be credited with the amount of the Annual Deferred Compensation Commitment to be made on behalf of such Participant for such Plan Year as determined pursuant to Section 3.04 hereof together with interest thereon as determined pursuant to Section 3.10 hereof and, if applicable, the number of shares of Phantom Stock determined pursuant to Section 3.06 hereof. (c) Beginning with the Plan Year ending February 28, 1993 and for each calendar year beginning on or after January 1, 1994, in which a Participant makes a Compensation Deferral pursuant to this Plan, the Committee shall establish and maintain, within each Participant's Account, a Compensation Deferral Account in the name of such Participant which shall be credited with the amount of such Participant's Compensation Deferral pursuant to the terms of the Deferred Compensation Election Form executed by the Participant and effective for such calendar year, together with interest thereon as determined pursuant to Section 3.10 hereof and the number of shares of Phantom Stock determined pursuant to Section 3.06 hereof. (d) Beginning with the Plan Year ending February 28, 1997 and for each Plan Year thereafter in which a Participant makes a Compensation Deferral pursuant to this Plan, the Committee shall establish and maintain within each such Participant's Account, a Matching Contributions Account in the name of such Participant which shall be credited with the amount of the Matching Contributions, if any, to be made to the Participant's Account with respect to the Compensation Deferral made by the Participant for the calendar year which ends within such Plan Year, together with interest thereon as determined pursuant to Section 3.10 hereof and the number of shares of Phantom Stock as determined pursuant to Section 3.06 hereof. 11 (e) In the event a Trust Fund is established pursuant to Section 5.01 hereof, the Committee shall cause the Trustee to establish and maintain, within the Trust Fund, an Account in the name of each Participant. At the time the Trust Fund is established, the Trustee shall credit the Account of each Participant with an amount equal to the greater of the Dollar Value and, if applicable, the Share Value of the Participant's Account determined as of the date the Trust Fund is established and, thereafter, the Committee shall credit such Participant's Account with the Participant's share of the net earnings of the Trust Fund and charge such Participant's Account with the net losses of the Trust Fund and distributions from the Trust Fund made on the Participant's behalf. In the event that this Plan is continued by Mark IV or its successor following the establishment of a Trust Fund, the Committee shall cause the Trustee to establish a Compensation Deferral Account within the Account of a Participant that is eligible to make a Compensation Deferral, which Compensation Deferral Account shall be credited with the amount of Compensation Deferrals made to the Plan by the Participant together with earnings or losses thereon. In addition, if the Plan is continued by Mark IV or its successor following the establishment of a Trust Fund, the Committee shall cause the Trustee to establish within each Participant's Account in the Trust Fund, a Matching Contributions Account in the name of such Participant which shall be credited with the Matching Contributions, if any, to be made to the Participant's Account with respect to the amount of the Compensation Deferral made by the Participant together with the earnings or losses thereon. Finally, if the Plan is continued by Mark IV or its successor following the establishment of a Trust Fund, for each Plan Year following the establishment of the Trust Fund, the Committee shall cause the Trustee to establish within each Participant's Account in the Trust Fund, an Annual Allocation Account in the name of such Participant which shall be credited with such Participant's share of the Annual Deferred Compensation Commitment for such Plan Year together with all earnings or losses thereon. (f) In addition to the above, in the event that a Trust Fund is established pursuant to Section 5.01 hereof, whether or not this Plan is continued by Mark IV or its successor following the establishment of the Trust Fund, the Committee shall continue to maintain the Account which was maintained for each Participant prior to the establishment of the Trust Fund and, in the event that the Plan is continued by Mark IV or its successor following the establishment of the Trust Fund, the Committee shall establish an Account for each Eligible Employee that becomes a Participant in the Plan after the establishment of the Trust Fund. Immediately following the establishment of a Trust Fund pursuant to Section 5.01 hereof, the amount contained in the Account established for each Participant under the terms of this Plan shall, notwithstanding anything to the contrary contained in this Plan, be equal to the greater of the Dollar Value and, if applicable, the Share Value of the Participant's Account determined as of the date the Trust Fund is established. Thereafter, the Committee shall credit the amounts contained in such Account with interest in the manner described in Section 3.10 hereof. In the event that 12 this Plan is continued by Mark IV or its successor following the establishment of a Trust Fund, the Account described in this Section 3.01(f) shall be credited with an amount equal to the amount of any Compensation Deferrals made by the Participant, any Matching Contributions made in connection with such Compensation Deferrals and the amount of the Participant's share of the Annual Deferred Compensation Commitment made by Mark IV or its successor for each Plan Year. All such additional amounts credited to the Account of a Participant after a Trust Fund has been established, pursuant to Section 5.01 hereof, shall be credited with interest in the manner described in Section 3.10 hereof. For purposes of this Plan, if a Change in Control occurs and a Trust Fund is established, the Account which the Committee is required to continue to maintain for each Participant pursuant to this Section 3.01(f) is sometimes hereinafter referred to as the Participant's "Phantom Account." 3.02 Compensation Deferrals. For each Plan Year beginning with the Plan Year ending February 28, 1993, each Participant may elect to defer his receipt of payment of all or any part of the bonus or other incentive compensation to which he is entitled as provided for pursuant to the terms of the executive bonus and other incentive plans of Mark IV. If a Participant makes a Compensation Deferral with respect to his bonus or other incentive compensation payable in connection with the services he has provided to the Employer for any Plan Year ending on or after February 28, 1993, the amount of the bonus or other incentive compensation which the Participant has elected to defer the receipt of shall not be paid to the Participant by his Employer except as provided for hereunder. For the four (4) month period beginning September 1, 1993 and ending December 31, 1993, and for each calendar year beginning on or after January 1, 1994, each Participant may elect to defer the receipt of payment of all or any part of the salary or wages, to which he is entitled. If a Participant makes a Compensation Deferral with respect to the salary or wages to which he is entitled for the four (4) month period beginning September 1, 1993 and ending December 31, 1993 or for any calendar year thereafter, the portion of the salary or wages which the Participant has elected to defer the receipt of shall not be paid by his Employer except as provided for hereunder. The total amount of the Compensation Deferrals made by a Participant (which shall include the total amount of the salary, wages, bonus or other incentive compensation which the Participant has elected to defer the receipt of payment of) together with any earnings thereon as provided by Section 3.10 hereof, shall represent the amount which Mark IV has agreed to pay to the Participant that makes such Compensation Deferral and, unless a Trust Fund is established pursuant to Section 5.01 hereof, no segregation of any assets of Mark IV for the purpose of paying the amount such Compensation Deferral and any earnings thereon shall be required. 13 Notwithstanding anything to the contrary contained in the preceding provisions of this Section 3.02, and notwithstanding anything to the contrary contained in any Participant's Deferred Compensation Election Form, effective January 1, 1999, in no event shall any Participant be permitted to defer any portion of his Compensation (including, but not limited to, any portion of his salary, wages, bonus or other incentive compensation) if and to the extent that, after giving effect to any such Compensation Deferral, the Dollar Value of the Participant's Compensation Deferral Account would exceed the Dollar Value of the Participant's Compensation Deferral Account, determined as of December 31, 1998, together with interest thereon calculated in the manner provided for in the following paragraph. For purposes of this Plan, the Dollar Value of a Participant's Compensation Deferral Account, determined as of December 31, 1998 together with interest thereon as hereinafter provided shall, with respect to such Participant, be referred to as the "Participant's Compensation Deferral Limit". For purposes of determining the amount of a Participant's Compensation Deferral Limit, as of December 31, 1999, the Dollar Value of the Participant's Compensation Deferral Account determined as of December 31, 1998, shall be increased by an amount equal to the Applicable Interest Rate for the calendar year ending December 31, 1998 multiplied by the Dollar Value of the Participant's Compensation Deferral Account determined as of December 31, 1998. Such Participant's Compensation Deferral Limit shall be effective for the period from January 1, 2000 through December 31, 2000. Effective January 1, 2001 and each January 1 thereafter, the Participant's Compensation Deferral Limit shall be equal to the Participant's Compensation Deferral Limit in effect as of the immediately preceding January 1, increased by an amount equal to the Applicable Interest Rate for the immediately preceding calendar year multiplied by the Participant's Compensation Deferral Limit in effect as of the immediately preceding January 1. A Participant may make a Compensation Deferral by executing and delivering to the Committee, a form, supplied by the Committee, which provides a description of the amount of the salary or wages which the Participant elects to defer the receipt of together with a description of the portion of the bonus or other incentive compensation which the Participant elects to defer the receipt of (a "Deferred Compensation Election Form"). The Deferred Compensation Election Form shall also contain a statement of the period of time over which payment of the Participant's salary, wages, bonus or other incentive compensation is to be deferred (which period of time may extend beyond the Participant's Normal Retirement Date and may be different for separate and distinct portions (identified by the Participant) of the salary or 14 wages, bonus or incentive compensation which the Participant has elected to defer). The Deferred Compensation Election Form shall provide, among other things, that the Participant's election to defer the receipt of payment of the salary or wages otherwise payable to the Participant is irrevocable for the calendar year for which the election is made, that the Participant's election to defer the receipt of payment of any bonus or other incentive compensation payable to the Participant is irrevocable and that the Participant waives his right to make any claim for payment of the salary, wages, bonus or other incentive compensation which the Participant has elected to defer except to the extent such amount is payable pursuant to this Plan. Notwithstanding the provisions of the preceding paragraph, a Participant's election to defer the receipt of any portion of his salary or wages shall be effective only for the calendar year immediately following the date the Participant delivers his Deferred Compensation Election Form to the Committee and a Participant's election to defer the receipt of any portion of the bonus or other incentive compensation to which he may be entitled shall be effective only for the bonus or other incentive compensation which is payable as of the end of the Plan Year which begins after the date the Participant delivers his Deferred Compensation Election Form to the Committee. Therefore, in the event a Participant desires to defer the receipt of any portion of the salary or wages which he is otherwise entitled to for a calendar year following the calendar year in which payment of the Participant's salary or wages has been deferred, the Participant must execute and deliver a new Deferred Compensation Election Form to the Committee within the time set forth in the following paragraph. In addition, in the event a Participant desires to defer the receipt of any portion of the bonus or other incentive compensation he is entitled to for a Plan Year following the Plan Year in which any portion of his bonus or other incentive compensation was deferred, the Participant must execute and deliver a new Deferred Compensation Election Form to the Committee within the time set forth in the following paragraph. If a Participant desires to defer a portion of his Compensation effective September 1, 1993, the Participant must deliver an executed Deferred Compensation Election Form to the Committee on or before September 1, 1993. If a Participant desires to defer the receipt of any portion of his salary or wages for any calendar year beginning on or after January 1, 1994, the Participant must deliver an executed Deferred Compensation Election Form containing a statement of the Participant's intent to defer a portion of his salary or wages to the Committee on or before December 31 of the calendar year preceding the calendar year in which the Participant desires to have the receipt of such Compensation deferred. If a Participant desires to defer the receipt of any portion of his bonus or other incentive compensation for any of Mark IV's fiscal years beginning with the 15 fiscal year ending February 28, 1994, the Participant must deliver an executed Deferred Compensation Election Form containing a statement of the Participant's intent to defer such bonus to the Committee on or before the beginning of the fiscal year of Mark IV with respect to which the bonus which the Participant desires to defer is payable. 3.03 Matching Contributions. For each Plan Year beginning with the Plan Year ending February 28, 1997, Mark IV shall, with respect to each such Plan Year, allocate to the Matching Contributions Account of each Participant that has elected to make a Compensation Deferral, Matching Contributions in an amount equal to fifty percent (50%) of the amount of the Compensation which the Participant has deferred his receipt of for the calendar year ending immediately prior to the end of such Plan Year pursuant to such Compensation Deferral; provided that, for purposes of determining the amount of the Matching Contributions to be allocated to the Matching Contributions Account of a Participant: (a) the maximum amount of the Participant's Compensation which is to be used for purposes of determining the amount of the Matching Contributions to be made to the Participant's Matching Contributions Account shall be equal to the lesser of: (i) six percent (6%) of the Participant's Compensation; (ii) the actual amount of the Compensation deferred by the Participant pursuant to a Compensation Deferral made for the calendar year ending immediately prior to such Plan Year; and (iii) the maximum dollar amount of the compensation which is permitted to be deferred by participants in the Mark IV Savings & Retirement Plan as more particularly established by the Secretary of the Treasury with respect to the limitations of Section 401(k)(II)(B) of the Code; and (b) the maximum amount of Matching Contributions allocated to the Matching Contributions Account of a Participant for a Plan Year shall be equal to: (i) fifty percent (50%) of the maximum amount of the Compensation which may be used for purposes of determining the amount of Matching Contributions to be made to a Participant's Matching Contributions Account (as more particularly described in Section 3.03(a) above); reduced by (ii) the amount, if any, of the matching contributions made on behalf of such Participant under the terms of the Mark IV Savings & Retirement Plan, determined as of the end of the calendar year which ends within such Plan Year ends. The total amount of Matching Contributions allocated to the Account of a Participant together with any earnings thereon as provided for by Section 3.10 hereof, shall represent the amount which Mark IV has agreed to pay to a Participant that has made a Compensation Deferral and, unless a Trust Fund is established pursuant to Section 5.01 hereof, no segregation of any assets of Mark IV for the purpose of paying the amount of such Matching Contributions and any earnings thereon shall be required. 3.04 Determination of Annual Deferred Compensation Commitment. (a) For each Plan Year (including the Plan Year ending on February 28, 1990) and not later than the time prescribed by law for filing the Federal Income Tax Return of Mark IV for the fiscal year of Mark IV in which such Plan Year ends (including extensions thereof), the amount of the Annual Deferred Compensation Commitment to be allocated among the Participants in the Plan that were employed by the Employer as of the end of the Plan Year ending with or within such fiscal year shall be 16 determined in the manner set forth in this Section 3.04. The amount of the Annual Deferred Compensation Commitment for any Plan Year together with earnings thereon as provided by Section 3.10 hereof, shall represent the amount which Mark IV has (subject to the vesting provisions of this Plan) agreed to pay to Participants in the Plan as of the end of the Plan Year for which such Annual Deferred Compensation Commitment has been made and, unless a Trust Fund is established pursuant to Section 5.01 hereof, no segregation of any assets of Mark IV for the purpose of paying such Annual Deferred Compensation Commitment shall be required. (b) The amount of the Annual Deferred Compensation Commitment which shall be allocated to the Account of each Participant for a Plan Year shall be equal to the sum of: (i) an amount equal to four percent (4%) of the amount by which the Compensation of such Participant exceeds the lesser of: (A)(I) for the Plan Years ending prior to March 1, 1994, an amount equal to $200,000 or such other amount as may be established by the Secretary of the Treasury under IRC Section 401(a)(17); and (II) for Plan Years beginning March 1, 1994 and thereafter, an amount equal to $150,000 or such other amount as may be established by the Secretary of the Treasury under IRC Section 401(a)(17); and (B) for Plan Years beginning March 1, 1993 and thereafter, the actual amount of Compensation (within the meaning of Section 1.12(b) hereof) paid to the Participant during the calendar year ending within the Plan Year; (ii) an amount equal to that percentage of each Participant's Compensation (within the meaning of Section 1.12(b) hereof) in excess of the Taxable Wage Base for the Plan Year for which the Annual Deferred Compensation Commitment is being made, which percentage equals the rate of tax provided for by IRC Section 3111(a) as determined on the last day of the calendar year ending with or within such Plan Year. 3.05 Time of Allocation. For purposes of determining the Dollar Value of a Participant's Account: (a) the amount of the Annual Deferred Compensation Commitment to be allocated to the Account of a Participant for a Plan Year shall be deemed to be allocated to such Participant's Account, and to the Annual Allocation Account established for such Plan Year, as of the end of such Plan Year; (b) the amount of the salary or wages deferred by a Participant in connection with a Compensation Deferral shall be deemed to be credited to the Participant's Account and the Compensation Deferral Account established for the Participant as of the end of the calendar month during which the services giving rise to such salary or wages were performed; (c) the amount of any bonus or other incentive compensation deferred by a Participant in connection with a Compensation Deferral shall be deemed to be 17 credited to such Participant's Account, and to the Compensation Deferral Account established for the Participant as of the end of the Plan Year ending with or within the fiscal year of the Company with respect to which such bonus or other incentive compensation is payable; and (d) the amount of the Matching Contributions to be allocated to a Participant's Account and the Matching Contributions Account established for the Participant shall be deemed to be credited to the Participant's Account and the Participant's Matching Contributions Account as of the end of the Plan Year ending with or within the fiscal year of the Company with respect to which the Compensation Deferral which formed the basis for such Matching Contributions was made. For purposes of determining the Share Value of a Participant's Account as of the end of any Plan Year, the number of shares of Phantom Stock to be allocated to the Account of a Participant for a Plan Year shall be deemed to be allocated to such Participant's Account, to the Participant's Compensation Deferral Account, if any, to such Participant's Matching Contributions Account, if any, and to the Annual Allocation Account established for such Plan Year, as of the end of such Plan Year. 3.06 Allocations of Phantom Stock. If the Dollar Value of a Participant's Account determined as of November 30, 1991 exceeds $25,000, the Committee shall allocate to the Account of such Participant, as of December 1, 1991, the number of shares of Phantom Stock which could be purchased at a price per share determined in accordance with Section 3.07 hereof using the Dollar Value of the Participant's Account determined as of November 30, 1991. In addition, if the Dollar Value of a Participant's Account determined as of November 30, 1991 was less than $25,000 but the Dollar Value of such Participant's Account determined as of the end of any Plan Year thereafter exceeds $25,000, (including the amount, if any, of the portion of the Annual Deferred Compensation Commitment to be allocated to the Participant's Annual Allocation Account for such Plan Year, the amount, if any, of the Compensation Deferrals credited to the Participant's Compensation Deferral Account as of the end of such Plan Year and the amount, if any, of Matching Contributions credited to the Participant's Matching Contributions Account as of the end of such Plan Year), for the first Plan Year in which the Dollar Value of the Participant's Account exceeds $25,000, the Committee shall allocate to such Participant's Account as of the end of such Plan Year, the number of shares of Phantom Stock which could be purchased at a price per share determined in accordance with Section 3.07 hereof using the Dollar Value of the Participant's Account determined as of the end of such Plan Year. For purposes of this paragraph, the number of shares of Phantom Stock allocated to the Participant's Account as of the end of such Plan Year shall be allocated by the Committee among the various sub-accounts established by the Committee for the Participant in proportion to the respective Dollar Values of such sub-accounts. 18 Beginning with the Plan Year ending February 29, 1992, for the Plan Year ending February 28, 1993 and for each Plan Year thereafter, unless a Trust Fund has been established pursuant to Section 5.01 hereof, if the Dollar Value of a Participant's Account exceeds $25,000, the Committee shall credit the Annual Allocation Account to be established for such Participant with the number of shares of Phantom Stock which could be purchased at a price per share determined pursuant to Section 3.07 hereof using an amount equal to the portion of the Annual Deferred Compensation Commitment which is to be allocated to such Participant's Annual Allocation Account for such Plan Year. In addition, if the Dollar Value of a Participant's Account exceeds $25,000, as of the end of each calendar month, the Committee shall credit the Participant's Compensation Deferral Account with the number of shares of Phantom Stock, if any, which could be purchased at a price per share determined pursuant to Section 3.07 hereof using the amount of salary or wages, if any, deferred by the Participant in connection with the services performed by such Participant for such calendar month and, as of the end of each Plan Year, the Committee shall credit the Participant's Compensation Deferral Account with the number of shares of Phantom Stock, if any, which could be purchased at a price per share determined pursuant to Section 3.07 hereof using the amount of the bonus or other incentive compensation, if any, deferred by the Participant with respect to services performed by the Participant during such Plan Year. Finally, if the Dollar Value of a Participant's Account exceeds $25,000, and the Participant is entitled to have Matching Contributions made to a Matching Contributions Account established for such Participant, as of the end of the Plan Year with respect to which Matching Contributions are to be allocated to the Participant's Matching Contributions Account, the Committee shall credit the Participant's Matching Contributions Account with the number of shares of Phantom Stock which could be purchased at a price per share determined pursuant to Section 3.07 hereof using the amount, if any, of the Matching Contributions required to be credited to the Participant's Matching Contributions Account with respect to each such Plan Year. 3.07 Pricing of Mark IV Common Stock. For purposes of determining the number of shares of Phantom Stock, if any, to be allocated to the Account of a Participant as of December 1, 1991, the price per share of common stock of Mark IV shall be deemed to be the average of the closing prices per share of common stock of Mark IV during the month of November, 1991, as determined from the closing prices per share of common stock of Mark IV as reported by the New York Stock Exchange Composite Index for such month. For purposes of determining the number of shares of Phantom Stock, if any, to be allocated to the Account of a Participant, as of the end of any calendar month in connection with the salary or wages deferred by the Participant during such calendar year as provided for by Section 3.02 hereof, the price per share of common stock of Mark IV shall be deemed to be the average of the closing prices per share of common stock of Mark IV 19 during such calendar month as determined from the closing prices per share of common stock of Mark IV. For purposes of determining the number of shares of Phantom Stock, if any, to be allocated to the Account of a Participant as of the end of each Plan Year with respect to the bonus or other incentive compensation deferred by the Participant or Matching Contributions to be made to a Participant's Matching Contributions Account as provided for by Section 3.03 hereof, the price per share of common stock of Mark IV shall be deemed to be the average of the closing prices per share of common stock of Mark IV during the month of February of the Plan Year for which such bonus or other incentive compensation was deferred and the Plan Year with respect to which such Matching Contributions are to be made. For purposes of determining the number of shares of Phantom Stock, if any, to be allocated to the Account of a Participant, as of the end of each Plan Year in connection with any Annual Deferred Compensation Commitment allocated to the Participant's Account as of the end of such Plan Year pursuant to Section 3.05 hereof, the price per share of common stock of Mark IV shall be deemed to be the average of the closing prices per share of common stock of Mark IV during the month of February for the Plan Year for which the Annual Deferred Compensation Commitment is to be made. For purposes of determining the average of the closing prices per share of common stock of Mark IV as required by this paragraph, such closing prices shall be determined from the closing prices per share of common stock of Mark IV reported by the New York Stock Exchange Composite Index for such month. Notwithstanding the foregoing, if any shares of Phantom Stock are to be allocated to the Account of a Participant in connection with any salary or wages deferred by the Participant at any time after December 31, 1998, in connection with any Matching Contributions to be allocated to the Participant's Account at any time after December 31, 1998 or in connection with any Annual Deferred Compensation Commitment to be allocated to the Account of a Participant at any time after December 31, 1998, the price per share of common stock of Mark IV which shall be used to determine the number of shares of Phantom Stock to be allocated to the Participant's Account shall be deemed to be the closing price per share, as reported by the New York Stock Exchange Composite Index on the last day that the New York Stock Exchange is open for trading in the calendar year immediately preceding the calendar year in which any such amounts are to be allocated to the Participant's Account. For purposes of determining the amount of the funds to be transferred to any Trust Fund established pursuant to Section 5.01 hereof, the price per share of common stock of Mark IV shall be the closing price per share of common stock of Mark IV on the day a Change in Control (as defined in Section 5.03 hereof) occurs, as reported by the New York Stock Exchange Composite Index. 20 For purposes of determining the Share Value of a Participant's Account, if the Participant's employment with the Employer is voluntarily or involuntarily terminated for any reason including, but not limited to, the Participant's retirement, death or suffering of a total and permanent disability, the price per share of common stock of Mark IV shall be deemed to be the average of the closing prices per share of common stock of Mark IV as reported by the New York Stock Exchange Composite Index for the thirty (30) day period ending on the day the Participant's employment with the Employer is terminated. If, pursuant to Section 4.05 hereof, a Participant has elected to receive payment of all or any portion of the Participant's Account attributable to Compensation Deferrals while the Participant is still employed by the Employer, for purposes of determining the Share Value of such portion of the Participant's Account, if any, at the time or times for payment of such portion of the Participant's Account, the price per share of the common stock of Mark IV shall be deemed to be the average of the closing prices per share of common stock of Mark IV during the calendar month ending immediately prior to the date for payment of all or any such portion of the Participant's Account as determined by the closing prices per share of common stock of Mark IV for such period as reported by the New York Stock Exchange Composite Index for such month. 3.08 Anti-Dilution Provisions. The aggregate number of shares of Phantom Stock allocated to a Participant's Account shall be adjusted proportionately in the event of any change, increase or decrease in the total number of issued and outstanding shares of common stock of Mark IV or any change in classification of the shares of common stock of Mark IV without the receipt of consideration by Mark IV as a result of any stock split, reverse stock split or other consolidation of shares of common stock of Mark IV or as a result of any payment of a stock dividend, recapitalization, reclassification or other adjustment in the capital of Mark IV without receipt of consideration by Mark IV. 3.09 Fractional Shares and Dividends. In the event that any cash dividends are paid with respect to any Phantom Stock allocated to a Participant's Account, an amount equal to the amount of the cash dividends which would be payable with respect to the number of shares of Phantom Stock contained in the Participant's Account shall be allocated by the Committee to the Participant's Account as of the date for payment of such cash dividends specified by Mark IV in the resolution authorizing the payment of such cash dividends. Such cash dividends shall be allocated among the respective sub-accounts established by the Committee for the Participant in proportion to the number of shares of Phantom Stock contained in such sub-accounts. In addition, if any fractional shares of common stock of Mark IV would result from the allocation of a portion of any Annual Deferred Compensation Commitment to a Participant's Account, from the crediting of any Compensation Deferral to a Participant's Account, from the crediting of any Matching 21 Contributions to the Participant's Matching Contributions Account or in connection with any change in the total number of issued and outstanding shares of common stock of Mark IV without the receipt of compensation by Mark IV, an amount equal to such fractional share of common stock of Mark IV shall be allocated to the Annual Allocation Account, Compensation Deferral Account or Matching Contributions Account, as the case may be, established for the Plan Year in which such fractional share becomes allocable to the Participant's Account. 3.10 Allocation of Interest. Subject to the provisions of the following paragraphs, as of the end of each Plan Year, the Committee shall increase the Dollar Value of each Participant's Account by an amount equal to the Applicable Interest Rate for such Plan Year multiplied by the Dollar Value of such Participant's Account determined as of the end of the immediately preceding Plan Year. In addition, if a Participant has elected to defer the receipt of all or any portion of his salary or wages by making a Compensation Deferral, as of the end of each Plan Year, the Committee shall increase the Dollar Value of each Participant's Account by an amount equal to the amount of interest which would have been earned by applying the Applicable Interest Rate for the immediately preceding Plan Year (adjusted to reflect periods of less than one year) to each of the monthly allocations of the salary or wages deferred by the Participant during the Plan Year but only for the period between the date a monthly allocation of the Participant's salary or wages is made to the Participant's Compensation Deferral Account and the end of the Plan Year. For purposes of this Section 3.10, the amount of the interest to be allocated to the Participant's Account as of the end of such Plan Year (excluding interest to be allocated with respect to Compensation Deferrals made by the Participant during the Plan Year) shall be allocated among the respective sub-accounts established by the Committee for the Participant in proportion to the Dollar Values of such sub-accounts, determined as of the end of the preceding Plan Year. Notwithstanding the foregoing, the proportion of a Participant's Annual Allocation Account, Compensation Deferral Account or Matching Contributions Account, if any, which is attributable to cash dividends which would be payable with respect to the shares of common stock of Mark IV allocated to the Participant's Annual Allocation Account, Compensation Deferral Account or Matching Contributions Account, respectively, shall only be increased by the Applicable Interest Rate for the immediately preceding Plan Year (adjusted for periods of less than one year) for the period between the date such cash dividends would be allocated to the Participant's Annual Allocation Account, Compensation Deferral Account or Matching Contributions Account, respectively, and the end of the Plan Year. If a Participant's employment with the Employer is terminated on account of his death, retirement or suffering of a Total and Permanent Disability, the Committee shall increase the Dollar Value of such a Participant's Account by an amount equal to the amount of interest which would have been earned by the Dollar Value of the Participants' Account determined as of the end of the 22 Plan Year ending prior to the Participant's death, retirement or Total and Permanent Disability and applying the Applicable Interest Rate for such immediately preceding Plan Year (adjusted to reflect periods of less than one year) to such Dollar Value for the period from the end of such Plan Year to the date the Participant's employment with the Employer is terminated on account of the Participant's retirement, death or suffering of a Total and Permanent Disability. In addition, if a Participant has elected to make Compensation Deferrals and the Participant's employment with the Employer is terminated on account of his death, retirement or suffering of a Total and Permanent Disability, the Committee shall increase the Dollar Value of such Participant's Account by an amount equal to the amount of interest which would have been earned by applying the Applicable Interest Rate for the immediately preceding Plan Year (adjusted to reflect periods of less than one year) to each of the monthly allocations of salary or wages made to the Participant's Compensation Deferral Account for the period between the date such monthly allocation is made to the Participant's Compensation Deferral Account, and the date the Participant's employment with the Employer is terminated on account of his retirement, death or suffering of a Total and Permanent Disability. As soon as practicable following the termination of a Participant's employment with the Employer on account of death, retirement or Total and Permanent Disability, the Committee shall compare the Dollar Value of the Participant's Account determined as of the date of the Participant's retirement, death or Total and Permanent Disability (including the amount of any interest thereon as provided for by the preceding paragraph) with the Share Value of the Participant's Account determined as of the date of the Participant's retirement, death or Total and Permanent Disability and the greater of such values shall, thereafter, be deemed the Dollar Value of the Participant's Account determined as of the date the Participant's employment with the Employer is terminated on account of the Participant's death, retirement or Total and Permanent Disability. As of the end of the Plan Year in which the Participant's employment with the Employer is terminated on account of the Participant's retirement, death or Total and Permanent Disability, the Dollar Value of the Participant's Account determined as of the date the Participant's employment with the Employer is terminated as a result of the Participant's retirement, death or Total and Permanent Disability (which Dollar Value is determined pursuant to the preceding sentence) shall be increased by multiplying the Applicable Interest Rate for the immediately preceding Plan Year (adjusted to reflect the period between the date the Participant's employment with the Employer is terminated and the end of the Plan Year) by the Dollar Value of the Participant's Account determined as of the date the Participant's employment with the Employer is terminated as a result of his retirement, death or Total and Permanent Disability. As of the end of each Plan Year thereafter, the Dollar Value of the Account of a Participant whose employment with the Employer has been terminated on account of his death, retirement or 23 suffering of a Total and Permanent Disability, shall be increased by an amount equal to the Dollar Value of the Participant's Account determined as of the end of the immediately preceding Plan Year multiplied by the Applicable Interest Rate for the immediately preceding Plan Year. In addition, in the Plan Year in which the Dollar Value of the Account of a Participant whose employment has been terminated as a result of death, retirement or a Total and Permanent Disability is to be distributed, the Dollar Value of such Participant's Account determined as of the end of the Plan Year ending immediately prior to the distribution of such Participant's Account, shall be increased by an amount equal to the Applicable Interest Rate for the immediately preceding Plan Year, adjusted to reflect the period between the end of the Plan Year and the end of the calendar month immediately preceding the calendar month in which the Participant's Account is to be distributed, multiplied by the Dollar Value of the Participant's Account for the immediately preceding Plan Year. If a Participant's employment with the Employer is terminated for any reason prior to his death, retirement or suffering of a Total and Permanent Disability, the Share Value of the Participant's Account, if any, shall be determined as provided in Section 3.06 hereof, and the Committee shall compare the Dollar Value of the Participant's Account determined as of the end of the immediately preceding calendar month with the Share Value of the Participant's Account as of the end of the immediately preceding calendar month and the greater of such values shall, thereafter, be deemed the Dollar Value of such Participant's Account determined as of the date the Participant's employment with the Employer is terminated. Thereafter, the Participant's Account shall be credited with interest during the period beginning on the date the Participant's employment with the Employer is terminated and ending on the last day of the calendar month ending immediately before the calendar month in which the Participant's Account is distributed. The amount of such interest for any such period shall be equal to the Applicable Interest Rate for the immediately preceding Plan Year multiplied by the Dollar Value of the Participant's Account determined as of the end of the immediately preceding Plan Year. For purposes of this paragraph, the amount of interest to be allocated to the Participant's Account as of the end of a Plan Year shall be allocated among the respective sub-accounts established by the Committee for the Participant in proportion to the Dollar Values of such sub- accounts, determined as of the end of the preceding Plan Year. Upon the occurrence of a Change in Control as defined in Section 5.03 hereof, the Committee shall increase the Dollar Value of each Participant's Account by an amount equal to the amount of interest which would have been earned by the Dollar Value of such Participant's Account determined as of the end of the Plan Year ending prior to the Change in Control and applying the Applicable Interest Rate for such immediately preceding Plan Year to such Dollar Value for the period from the end of such Plan Year to the date on which the Change in Control occurs. In addition, upon the 24 occurrence of a Change in Control, the Committee shall increase the Dollar Value of the Account of a Participant that has elected to make Compensation Deferrals by an amount equal to the amount of interest, if any, which would have been earned by applying the Applicable Interest Rate for the immediately preceding Plan Year (adjusted for periods of less than one year) to each of the monthly allocations of salary or wages, if any, made to the Participant's Compensation Deferral Account for the period between the date such monthly allocation is made to the Participant's Compensation Deferral Account and the date the Change in Control occurs. If a Trust Fund has been established pursuant to Section 5.01 hereof, each Participant's Account in the Trust Fund shall be credited or charged with its proportionate share of the earnings or losses of the Trust Fund. In addition, if a Trust Fund is established pursuant to Section 5.01 hereof, the Committee shall compare the Dollar Value of each Participant's Account determined as of the date the Change in Control occurs (as determined pursuant to the preceding paragraph) with the Share Value of the Participant's Account determined as of the date the Change in Control occurs and the greater of such values shall, thereafter be deemed to be the initial Dollar Value of the Participant's Phantom Account which the Committee is required to continue to maintain pursuant to Section 3.01(f). As of the end of the Plan Year in which the Change in Control occurs, the Dollar Value of the Participant's Phantom Account determined as of the date the Change in Control occurs (which Dollar Value is determined pursuant to the preceding sentence) shall be increased by multiplying the Applicable Interest Rate for the immediately preceding Plan Year (adjusted to reflect the period between the date the Change in Control occurs and the end of the Plan Year) by the Dollar Value of the Participant's Phantom Account determined as of the date the Change in Control occurs. As of the end of each Plan Year thereafter, the Dollar Value of the Phantom Account of each Participant shall be increased by an amount equal to the Dollar Value of the Participant's Phantom Account determined as of the end of the immediately preceding Plan Year multiplied by the Applicable Interest Rate for the immediately preceding Plan Year. In addition, in the Plan Year in which the Dollar Value of the Account of a Participant is to be distributed, the Dollar Value of such Participant's Phantom Account determined as of the end of the Plan Year ending immediately prior to the distribution of such Participant's Account, shall be increased by an amount equal to the Applicable Interest Rate for the immediately preceding Plan Year, adjusted to reflect the period between the end of the Plan Year and the end of the calendar month immediately preceding the calendar month in which the Participant's Account is to be distributed, multiplied by the Dollar Value of the Participant's Phantom Account for the immediately preceding Plan Year. In the event that Mark IV or its successor elects to continue this Plan after the occurrence of a Change in Control, the Committee shall increase the Dollar Value of any Compensation 25 Deferral, any Matching Contributions and any portion of any annual Deferred Compensation Commitment allocated to the Participant's Phantom Account after the occurrence of a Change in Control by the Applicable Interest Rate for the immediately preceding Plan Year in the same manner that the Dollar Value of the Participant's Account is adjusted prior to the occurrence of a Change in Control as provided for in the first paragraph of this Section 3.10. 3.11 Allocation of Forfeitures. As of each Valuation Date, the Committee shall allocate the amounts, if any, forfeited in accordance with Section 4.07 hereof among the Accounts of the several Participants as if said amounts were an additional Annual Deferred Compensation Commitment of Mark IV with respect to the Plan Year of containing such Valuation Date. 3.12 Participants Eligible for Allocation. Except as otherwise provided by Section 3.12 hereof, for purposes of Section 3.04 hereof, the term "Participant" shall only include those Participants who: (a) have completed at least 1,000 Hours of Service with the Employer during the Plan Year for which the allocation of the Annual Deferred Compensation Commitment is to be made; and (b) are employed by the Employer on the last day of the Plan Year for which the allocation of the Annual Deferred Compensation Commitment is to be made. 3.13 Allocation Does Not Vest Any Interest. The fact that an amount is credited to the Account of a Participant shall not vest in such Participant or any Beneficiary any right, title or interest in any assets of Mark IV except at such time or times and upon the terms and conditions herein provided. In addition, in the event a Trust Fund is established pursuant to Section 5.01 hereof, the fact that an amount is credited to the Account of a Participant shall not vest in such Participant or any Beneficiary any right, title or interest in the assets of the Trust Fund except at such time or times and upon the terms and conditions provided herein. 3.14 Contributions. (a) In the event a Trust Fund is established pursuant to Section 5.01 hereof and, following the establishment of such Trust Fund, Mark IV or its successor elects to continue this Plan, for each Plan Year in which an Annual Deferred Compensation Commitment is made under this Plan and not later than the time prescribed by law for filing of the Federal Income Tax Return of Mark IV or its successor, Mark IV or its successor shall make a contribution to the Trust Fund in an amount equal to the Annual Deferred Compensation Commitment for such Plan Year. (b) In the event a Trust Fund is established pursuant to Section 5.01 hereof and, following the establishment of such Trust Fund, Mark IV or its successor elects to continue this Plan, for each Plan Year in which a Participant makes a Compensation Deferral, Mark IV or its successor shall, within fifteen (15) days 26 following the end of the calendar month in which any portion of the Participant's Compensation is to be allocated to his Compensation Deferral Account, contribute to the Trust Fund an amount equal to the Compensation Deferrals made for such calendar month. (c) In the event a Trust Fund is established pursuant to Section 5.01 hereof and, following the establishment of such Trust Fund, Mark IV or its successor elects to continue the Plan, for each Plan Year in which a Participant makes a Compensation Deferral with respect to which the Participant is entitled to receive an allocation of Matching Contributions, Mark IV or its successor shall make a contribution to the Trust Fund in an amount equal to the total amount of the Matching Contributions required to be allocated to the Accounts of Participants that have made Compensation Deferrals for such Plan Year no later than the time prescribed by law for filing of the Federal Income Tax Return of Mark IV or its successor for the fiscal year of Mark IV or its successor with or within which such Plan Year ends. (d) In the event a Trust Fund is established pursuant to Section 5.01 hereof, at the end of each Plan Year following the establishment of such Trust Fund, Mark IV or its successor shall, (whether or not Mark IV or its successor has elected to continue the Plan), make a contribution to the Trust Fund on behalf of each Participant in an amount equal to the amount, if any, by which the Dollar Value of the Participant's Phantom Account, determined as of the end of such Plan Year, exceeds the value of the Participant's Account in the Trust Fund determined (pursuant to Section 3.15 below) as of the end of such Plan Year. Such contribution shall be made no later than the time prescribed by law for the filing of the Federal Income Tax Return of Mark IV or its successor for the fiscal year of Mark IV or its successor with or within which such Plan Year ends. 3.15 Valuation of Trust Fund. In the event a Trust Fund is established pursuant to Section 5.01 hereof, as of each Valuation Date, the Trustee shall determine the net worth of the assets of the Trust Fund and report such value to the Committee in writing. In determining such net worth, the Trustee shall value the assets of the Trust Fund at their fair market value as of such Valuation Date and shall deduct all fees and expenses chargeable to the Trust Fund. Such valuation shall not include the portion of any Compensation Deferral for such Plan Year which is attributable to the Participant's election to defer receipt of his bonus or other incentive compensation (including any earnings of the Trust Fund attributable to the compensation or bonus deferred by the Participant) nor shall such valuation include any Matching Contributions to be made by Mark IV or its successor with respect to Compensation Deferrals made by a Participant nor shall such valuation include any contributions to be made by Mark IV or its successor to reflect the Annual Deferred Compensation Commitment for the Plan Year ending on such Valuation Date. The Committee shall then adjust the net credit balance in the Accounts of all Participants upward or downward, pro rata, so that the total of 27 such net credit balances will equal such net worth of the Trust Fund as of such Valuation Date. Finally, the Committee shall add to the Account of each Participant, the portion of the contribution, if any, to be made by Mark IV or its successor to reflect the Annual Deferred Compensation Commitment for the Plan Year ending on such Valuation Date to which the Participant is entitled pursuant to Section 3.04 hereof, the amount, if any, of the Participant's Compensation Deferral (including any earnings of the Trust Fund attributable to such Compensation Deferral) and the amount, if any, of the Matching Contributions which are required to be credited to the Participants Account with respect to such Compensation Deferral. 3.16 Statement of Account. As soon as practicable following the end of each Plan Year, the Committee shall deliver to each Participant a statement of the Dollar Value and, if applicable, the Share Value of his Account including a statement of: (a) the amount of the Annual Deferred Compensation Commitment to be allocated to his Annual Allocation Account for such Plan Year; (b) the portion of the Participant's Compensation Deferral which is attributable to the Participant's deferral of salary or wages and which has been allocated to the Participant's Compensation Deferral Account for the Plan Year; (c) the portion of the Participant's Compensation Deferral which is attributable to the Participant's deferral of his bonus or other incentive compensation and which is to be allocated to the Participant's Compensation Deferral Account as soon as practicable following the end of such Plan Year; (d) the amount of the Matching Contributions allocated to the Participant's Matching Contributions Account for the Plan Year; (e) the number of shares of Phantom Stock, if any, to be allocated to his Annual Allocation Account and, if applicable, his Compensation Deferral Account, and if applicable, his Matching Contributions Account for such Plan Year; (f) the Dollar Value of the Participant's Account (including the Dollar Value of the vested and non-vested portions of the Participant's Account) together with a statement of the interest to be allocated to such Participant's Account for such Plan Year and the manner in which such interest is to be allocated among the respective sub-accounts established by the Committee for the Participant in connection with its administration of the Plan; and (g) the Share Value, if any, of the Participant's Account (including the Share Value of the vested and non-vested portions of the Participant's Account). In addition, if a Trust Fund has been established pursuant to Section 5.01 hereof, the Committee shall, whether or not Mark IV or its successor has elected to continue this Plan, deliver to each Plan Participant no later than thirty (30) days following the end of each Plan Year, a written statement of the value of each such Participant's Account in the Trust Fund, determined as of the end of the Plan Year and a written statement of the value of each such Participant's Phantom Account determined as of the end of the Plan Year. 28 SECTION 4. Distributions 4.01 Retirement. Every Participant shall retire for purposes of this Plan upon his termination of employment on his normal retirement date or his deferred retirement date, as such dates are defined below, and shall continue to participate until his actual retirement. Notwithstanding anything to the contrary contained in Section 4.04 hereof, upon a Participant's retirement, the Dollar Value and, if applicable, the Share Value of his Account shall become fully and nonforfeitably vested and his participation hereunder shall cease. Subject to the provisions of the following paragraph, as soon as practicable following a Participant's retirement, the Committee shall direct Mark IV to distribute to the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the Dollar Value of the Participant's Account which, as determined pursuant to Section 3.10 hereof, is equal to the greater of the Dollar Value of the Participant's Account and the Share Value of the Participant's Account determined as of the Participant's retirement. Notwithstanding the foregoing, a Participant may, no later than January 31, 1999 or, if later, the date of the Participant's sixty first (61st) birthday, file a written election with the Committee providing that the value of his Account determined as of his retirement date (together with interest thereon as hereinafter provided) shall be paid to him in ten (10) annual installments, the first of which installments shall be paid to the Participant no later than thirty (30) days following the Participant's retirement date. If a Participant makes such an election, such election shall be irrevocable and, upon the approval by the Committee of such election, the Participant's Account shall be paid to him in ten (10) annual installments beginning no later than thirty (30) days following the Participant's retirement date and continuing each year thereafter no later than thirty (30) days following each anniversary of the Participant's retirement date. The amount of such installment payment shall be equal to the portion of the Participant's Account determined as follows: Years Following Portion of Account Retirement to be Distributed 0 1/10 1 1/9 2 1/8 3 1/7 4 1/6 5 1/5 6 1/4 7 1/3 8 1/2 9 1/1 29 If the Participant elects to receive payment of his Account in installments as provide for above, as of the end of each Plan Year following the Participant's retirement in which a distribution is made to the Participant, the Dollar Value of the Participant's Account shall be increased by an amount equal to the sum of: (1) Applicable Interest Rate for the immediately preceding Plan Year, adjusted to reflect the period between the end of the immediately preceding Plan Year and the date on which an installment is distributed to the Participant multiplied by the Dollar Value of the Participant's Account determined as of the end of the immediately preceding Plan Year; and (2) the Applicable Interest Rate for the Plan year in which the installment distribution is made, adjusted to reflect the period from the date of the distribution to the Participant to the end of the Plan Year, multiplied by: (a) the value of the Participant's Account determined as of the end of the immediately preceding Plan Year; plus (b) the amount of interest to be credited to the Dollar Value of the Participant's Account pursuant to (1) above in this paragraph; minus (c) the amount of the distribution made to the Participant for the Plan Year. If a Participant that elects to receive payment of his Account in installments as provided for above dies prior to the distribution to such Participant of the entire amount contained in his Account, the balance of the Participant's Account shall be distributed to the Participant's Beneficiary or, if none, to the Participant's estate within sixty (60) days following the Participant's death. If a Trust Fund has been established pursuant to Section 5.01 hereof, following a Participant's retirement, unless the Participant has elected to receive payment of his Account in installments as provided for above, the Committee shall direct the Trustee to distribute to the Participant in one lump sum payment in cash or immediately available funds, the value of such Participant's Account within the Trust Fund, determined as of the preceding Valuation Date. In addition, if the value of the Participant's Account in the Trust Fund is less than the value of the Participant's Phantom Account, following a Participant's retirement, the Committee shall direct Mark IV or its successor to distribute to the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the amount by which the value of the Participant's Phantom Account, exceeds the value of the Participant's Account in the Trust Fund. The payments required to be made to a Participant pursuant to this paragraph shall be delivered to the Participant no later than sixty (60) days following the date the Participant retires from employment with the Employer. If a Trust Fund has been established pursuant to Section 5.01 hereof and the Participant has elected to receive payment of the value of his Account in installments as permitted above, the 30 Committee shall direct the Trustee to distribute the Participant's Account to the Participant in the manner described above for a distribution of the Participant's Account in installments. In such event, as of the end of each Plan Year following the date of the Participant's retirement, the value of the Participant's Phantom Account shall be increased in the same manner that the value of the Participant's Account is to be increased as provided for above. For purposes of this Plan: (a) Normal Retirement Date means the first day of the first calendar month next following such Participant's fifty-fifth (55th) birthday; and (b) Deferred Retirement Date means the first day of the month after such Participant actually leaves the service of the Employer, provided it is subsequent to his Normal Retirement Date. 4.02 (a) Death Notwithstanding anything to the contrary contained in Section 4.04 hereof, upon the death of a Participant before retirement or other termination of employment, the Dollar Value and, if applicable, the Share Value of his Account shall become fully and nonforfeitably vested. As soon as practicable thereafter, the Committee shall direct Mark IV to distribute to any surviving Beneficiary designated by the Participant, or, if none, to the Participant's surviving spouse, or if neither to the Participant's estate, in one lump sum payment in cash or immediately available funds, an amount equal to the Dollar Value of the deceased Participant's Account which, as determined pursuant to Section 3.10 hereof, is equal to the greater of the Dollar Value of the Participant's Account and the Share Value of the Participant's Account, determined as of the date of the Participant's death. If a Trust Fund has been established pursuant to Section 5.01 hereof, following a Participant's death, the Committee shall direct the Trustee to distribute to any surviving Beneficiary designated by the Participant, or, if none, to the Participant's surviving spouse, or, if neither, to the Participant's estate, in one lump sum payment in cash or immediately available funds, the value of such Participant's Account within the Trust Fund determined as of the preceding Valuation Date. In addition, if the value of the Participant's Account in the Trust Fund is less than the value of the Participant's Phantom Account, following the Participant's death, the Committee shall direct Mark IV or its successor to distribute to the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the amount by which the value of the Participant's Phantom Account, exceeds the value of the Participant's Account in the Trust Fund. The payments required to be made pursuant to this paragraph shall be delivered to the Participant's Beneficiary, or if none to the Participant's surviving spouse, or if neither to the Participant's estate no later than 60 days following the Participant's death. 31 (b) Proof of Death The Committee may require such proper proof of death and such evidence of the right of any person to receive payment of a deceased Participant's Account as the Committee may deem desirable. The Committee's determination shall be conclusive. (c) Designation of Beneficiary Each Eligible Employee, upon becoming a Participant, may designate a Beneficiary of his own choosing and may, in addition, name a contingent Beneficiary. Such designation shall be made in a form satisfactory to the Committee. Any Participant may at any time revoke or change his Beneficiary designation by filing written notice with the Committee. 4.03 (a) Disability. Notwithstanding anything to the contrary contained in Section 4.04 hereof in the event of a Participant's Total and Permanent Disability before retirement or other termination of employment, the Dollar Value and, if applicable, the Share Value of his Account shall become fully and nonforfeitably vested. As soon as practicable following the date it is determined that a Participant suffers from a total and permanent disability, the Committee shall direct Mark IV, to distribute and pay to the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the Dollar Value of the Participant's Account which, as determined pursuant to Section 3.10 hereof, is equal to the greater of the Dollar Value of the Participant's Account and the Share Value of the Participant's Account, determined as of the date the Participant suffers a Total and Permanent Disability. If a Trust Fund has been established pursuant to Section 5.01 hereof, after it is determined that the Participant suffers from a Total and Permanent Disability, the Committee shall direct the Trustee to distribute and pay to the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the value of such Participant's Account within the Trust Fund determined as of the preceding Valuation Date. In addition, if the value of the Participant's Account in the Trust Fund is less than the value of the Participant's Phantom Account, following the date on which it is determined that the Participant suffers from a Total and Permanent Disability, the Committee shall direct Mark IV or its successor to distribute to the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the amount by which the value of the Participant's Phantom Account, exceeds the value of Participant's Phantom Account in the Trust Fund. The payments required to be made pursuant to this paragraph shall be delivered to the Participant no later than 60 days following the date it is determined that the Participant suffers from a Total and Permanent Disability. (b) Total and Permanent Disability. For purposes of this Plan, Total and Permanent Disability shall mean a presumably permanent physical or mental condition of a Participant resulting 32 from a bodily injury or disease or mental disorder which renders him incapable of continuing in the employment of the Employer or any Affiliate. (c) Determination of Total and Permanent Disability. The total and permanent disability of any Participant shall be determined by a licensed physician in accordance with uniform principles consistently applied, upon the basis of independent medically determined evidence. 4.04 Vesting. Each Participant in the employ of the Employer on December 1, 1991 shall at all times have a 100% vested interest in the entire Dollar Value and the entire Share Value, if any, of his Account including the Dollar Value and Share Value, if any, of his Account determined as of December 1, 1991, and the Dollar Value and Share Value, if any, of his Account attributable to amounts credited to each of his Annual Allocation Accounts under the terms of this Plan with respect to any additional allocations made to each of the Participant's Annual Allocation Accounts after December 1, 1991. In addition, each Participant shall at all times have a 100% vested interest in the Dollar Value and the Share Value, if any, of his Account attributable to amounts credited to his Compensation Deferral Account. Each Participant that first performs an Hour of Service for the Employer at any time on or after December 2, 1991 shall, upon completion by such a Participant of five (5) Years of Service, acquire a 100% vested interest in the portion of his Account which is attributable to the Annual Deferred Compensation Commitment made to his Account together with any interest or earnings thereon and the portion of his Account which is attributable to any Matching Contributions made to his Account together with any interest or earnings thereon. Unless a Change in Control shall have occurred prior to the termination of a Participant's employment, if the employment of such a Participant who is first employed by the Employer on or after December 2, 1991, is terminated for any reason other than death or disability prior to the date such Participant completes at least five (5) Years of Service, the portion of such Participant's Account which is attributable to Annual Deferred Compensation Commitments made to his Account together with any interest or earnings thereon and the portion of his Account which is attributable to Matching Contributions made to his Account together with interest or earnings thereon shall be forfeited and applied to the Accounts of all other Participants in the manner provided for in Section 3.11 hereof. In addition to the above, a Participant shall become fully and nonforfeitably vested in the entire Dollar Value and, the entire Share Value, if any, of his Account upon the occurrence of a Change in Control as defined in Section 5.03 hereof, including any Dollar Value or Share Value attributable to amounts credited to the Participant's Account following the Change in Control. 33 For purposes of this Section 4.04, Years of Service shall be determined on the basis of the Plan Year. All Years of Service of an Eligible Employee with the Employer and any Affiliate shall be taken into account. However, in determining a Participant's vested interest in any of his Annual Allocation Accounts subsequent to the rehiring of a terminated Eligible Employee who has incurred a Break in Service, Years of Service completed by a Participant prior to such Break in Service shall not be counted under the following circumstances: (a) if the Eligible Employee fails to complete a Year of Service after his rehiring; or (b) if the Eligible Employee incurred five (5) consecutive Breaks in Service and had no vested interest in the value of his Account at the time of his termination of employment. 4.05 Distribution of Compensation Deferrals. A Participant shall be entitled to receive payment of all or any portion of the amount of his Compensation Deferral for a Plan Year together with any earnings thereon (but not any Matching Contributions attributable to such Compensation Deferral) at the time or times specified in the Deferred Compensation Election Form executed by the Participant with respect to such Plan Year notwithstanding the fact that the Participant is actively employed by the Employer at the time such payment is to be made to the Participant. As soon as practicable following the date specified by the Participant in his Deferred Compensation Election Form (and, in no event later than ten (10) days following such date), the Committee shall distribute and pay to the Participant in one (1) lump sum payment in cash or immediately available funds, the percentage, specified in the Participant's Deferred Compensation Election Form, of the Dollar Value or the Share Value, whichever is greater, of the Participant's Compensation Deferral made in connection with such Deferred Compensation Election Form. If a Participant's Deferred Compensation Election Form provides for the partial payment to a Participant of the Participant's Compensation Deferral, the Dollar Value and the Share Value of the Participant's Compensation Deferral Account shall be reduced in an amount equal to the percentage of the Compensation Deferral that is to be paid to the Participant. Notwithstanding anything to the contrary contained in the Deferred Compensation Election Form of a Participant, if the Dollar Value or the Share Value of a Participant's Compensation Deferral Account exceeds Two Million Dollars ($2,000,000) as of December 31, 1998, the Committee shall, no later than January 30, 1999, distribute and pay to such Participant in one lump sum payment an amount equal to one half of the Dollar Value or the Share Value, whichever is greater, of the Participant's Compensation Deferral Account determined as of December 31, 1998. Following such distribution, the Dollar Value and the Share Value of the Participant's Compensation Deferral Account and the 34 Participant's Account shall be reduced accordingly. If a Trust Fund has been established pursuant to Section 5.01 hereof, at the time a Participant is entitled to payment of all or any portion of his Compensation Deferral for a Plan Year together with any earnings thereon as provided for in the Deferred Compensation Election Form executed by the Participant for such Plan Year, the Committee shall direct the Trustee to distribute to the Participant in one (1) lump sum payment in cash or immediately available funds, the portion of the Participant's Phantom Account which is attributable to the portion of the Compensation Deferral which the Participant is entitled to receive payment of together with any earnings (or less any losses) of the Trust Fund attributable to such amount. In addition, if the value of the portion of the Participant's Compensation Deferral Account in the Trust Fund which is attributable to the Compensation Deferral which is to be distributed to the Participant is less than the value of the portion of the Participant's Phantom Account which is attributable to the Compensation Deferral which is to be distributed to the Participant, following the date on which the Participant is entitled to receive payment of a Compensation Deferral, the Committee shall direct Mark IV or its successor to distribute to the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the amount by which the value of the portion of the Participant's Phantom Account which is attributable to the Compensation Deferral which is to be distributed to the Participant (including the earnings on such Compensation Deferral) exceeds the value of the portion of the Participant's Compensation Deferral Account in the Trust Fund which is attributable to the Compensation Deferral (together with any earnings thereon) which is to be distributed to the Participant. 4.06 Termination of Employment and Distribution of Vested Benefits. Upon a Participant's voluntary or involuntary termination of employment with the Employer and any Affiliate with a vested interest in his Account other than by reason of retirement, death or disability, the Dollar Value, as determined pursuant to Section 3.10 hereof, of the vested portion of such Participant's Account, if any, shall be distributed to, or in the case of the Participant's death, on behalf of, the Participant within sixty (60) days following the date the Participant's employment with the Employer is terminated. As soon as practicable after such former Participant is entitled to distribution as provided in the preceding sentence, the Committee shall direct Mark IV to distribute the Dollar Value of the vested portion of the Participant's Account as determined pursuant to Section 3.10 hereof together with any earnings thereon to such former Participant or his Beneficiary in one lump sum payment in cash or immediately available funds. If a Trust Fund has been established pursuant to Section 5.01 hereof, following the date a former Participant is entitled to a distribution as provided in this Section 4.06, the Committee shall direct the Trustee to 35 distribute to or on behalf of the Participant in one lump sum payment in cash or immediately available funds, an amount equal to the value of the vested portion of the Participant's Account within the Trust Fund. In addition, if the value of the vested portion of the Participant's Account in the Trust Fund is less than the value of the vested portion of the Participant's Phantom Account, the Committee shall direct Mark IV or its successor to distribute to the Participant, in one lump sum payment no later than sixty (60) days following the date the Participant's employment with Mark IV or its successor is terminated, in cash or immediately available funds, an amount equal to the amount by which the value of the vested portion of the Participant's Phantom Account exceeds the vested portion of the Participant's Account in the Trust Fund. Payments required to be made from the Trust Fund to or on behalf of a former Participant as provided in this paragraph shall be made no later than sixty (60) days following the date the Participant's employment with the Employer is terminated. During the period between the date a Participant's employment with the Employer is terminated and the date the Participant's Account is to be distributed, the Participant's Account shall be credited with interest as provided in Section 3.10 or, if a Trust Fund has been established pursuant to Section 5.01, the Participant's Account shall be credited or charged with its proportionate share of the earnings or losses of the Trust Fund. At the time a former Participant is entitled to distribution, according to its records, the Committee shall send, by registered or certified mail directed to his address last known to the Committee, a notice informing him as to his rights with respect to any amounts held for him and requesting confirmation of his address and age. Each Participant and former Participant has the obligation to keep the Committee informed of his address. In the event the Committee is unable to locate such former Participant within four (4) years, the amount held for his benefit shall be forfeited; provided, however, if a claim is made by the Participant or his Beneficiary for the forfeited amount, such amount shall be reinstated into his Account. 4.07 Forfeitures. If a Participant terminates his employment with the Employer before he has acquired a 100% vested interest in any portion of any of his Account attributable to Annual Deferred Compensation Commitments together with interest or earnings thereon and any portion of his Account attributable to Matching Contributions together with interest and earnings thereon, the portion of such Participant's Account which is not vested, shall be forfeited as of the end of the first Plan Year in which the Participant incurs a Break in Service and, as of the end of the first Plan Year in which the Participant incurs a Break in Service, an amount equal to the greater of the Dollar Value or the Share Value of the portion of such Participant's Account which is not vested shall be reallocated among the Accounts of the remaining Participants in accordance with Section 3.11 hereof. For purposes of determining the amount to be reallocated among the 36 Accounts of the remaining Participants, if any portion of an Account which is to be forfeited pursuant to this Section 4.07 was allocated to the purchase of Phantom Stock and the Participant's employment with the Employer is terminated at any time prior to January 1, 1999, the price per share of such Phantom Stock which shall be used for purposes of determining the Share Value of such Participant's Account and for purposes of reallocating the portion of the Participant's Account among the remaining Participants shall equal the average of the closing prices per share of common stock of Mark IV during the month of February for the Plan Year in which such Account is to be forfeited as determined from the closing prices per share of common stock of Mark IV reported by the New York Stock Exchange Composite Index for such month. If any portion of the Account of a Participant which is to be forfeited was allocated to the purchase of Phantom Stock and the Participant's employment with the Employer is terminated at any time after December 31, 1998, the price per share of such Phantom Stock which shall be used for purposes of determining the Share Value of such Participant's Account and for purposes of reallocating the portion of the Participant's Account among the remaining Participants shall equal the average of the closing prices per share of common stock of Mark IV during the month of December if the calendar year ending prior to the calendar year in which the Participant's Account is to be forfeited, as determined for the closing prices per share of common stock of Mark IV reported by the New York Stock Exchange Composite Index for such month. If a Participant's employment with his Employer is terminated before he acquires a one hundred percent (100%) vested interest in the portion of his Account attributable to Annual Deferred Compensation Commitments and the portion of his Account attributable to Matching Contributions, and, at the time of such Participant's termination of employment, a Trust Fund has been established pursuant to Section 5.01 hereof, the value within the Trust Fund portion of his Account attributable to Annual Deferred Compensation Commitments and the portion of his Account attributable to Matching Contributions, shall be maintained in a suspense account within the Trust Fund until the end of the first Plan Year in which the Participant incurs a Break in Service, at which time, the amount of such suspense account shall be forfeited and reallocated among the accounts of the remaining Participants in accordance with Section 3.11. Such suspense account shall be for accounting purposes only, shall not require a segregation of assets within the Trust Fund to such Account and shall not share in the gains, losses, income or expenses of the Trust Fund. The amount of the assets necessary to maintain the suspense account shall be deemed an expense chargeable to the Trust Fund. The Committee shall maintain records so that each former Participant's share of the suspense account is clearly identifiable. If the terminated Participant returns to the employ of the Employer or any Affiliate before he has incurred five (5) 37 consecutive one year Breaks in Service, the amount previously forfeited by the Participant shall not be restored to such Participant's Account. 4.08 Certain Additional Payments by Mark IV. (a) If and to the extent that any payment made to a Participant pursuant to this Plan is attributable to the portion of the Participant's Account which is attributable to the value of each of the Annual Allocation Accounts contained in the Participant's Account or to the value of any Matching Contributions Account contained in the Participant's Account (such portion of such payment or payments being hereinafter referred to individually as a "Top Hat Payment" and collectively as "Top Hat Payments") and the amount of any such Top Hat Payment or Top Hat Payments would be subject to any income taxes, excise taxes or other taxes imposed on such payment under the terms of the Internal Revenue Code or otherwise imposed on any such payment by any state or local government (the aggregate amount of all such income taxes, excise taxes and other taxes, together with any interest or penalties relating to such income taxes, excise taxes or other taxes being hereinafter referred to as "Taxes") then a Participant shall be entitled to receive an additional payment (hereinafter a "Gross Up Payment") in an amount such that after payment by a Participant of all Taxes (including all Taxes payable on the Gross Up Payment), the Participant retains an amount of the Gross Up Payment equal to the Taxes imposed upon the Top Hat Payment. (b) If a Change in Control occurs and, in connection with any payment or distribution made pursuant to this Plan as a result of the occurrence of such Change in Control, any amounts payable to a Participant pursuant to this Plan are subject to payment of an excise tax under Section 4999 of the Code (hereinafter the "Excise Taxes"), the Participant shall, at the time such Participant receives any payment or distribution pursuant to the terms of this Plan, receive an additional payment (in addition to the Gross Up Payment, if any, which is payable to the Participant pursuant to Section 4.08(a) above) (such additional payment being hereinafter referred to as a "Change in Control Gross Up") in an amount such that, after the payment by the Participant of all Taxes (including Excise Taxes) imposed on all payments payable to the Participant under the terms of the Plan (including the Gross Up Payment, the Change in Control Gross Up, any Taxes or Excise Taxes payable on the Gross Up Payment and any Taxes or Excise Taxes payable on the Change in Control Gross Up), the Participant will retain an amount equal to the Taxes imposed on the Top Hat Payment and the Excise Taxes payable on all amounts payable to the Participant pursuant to the Plan. (c) Subject to the provisions of Section 4.08(d) hereof, all determinations required to be made under this Section 4.08, including whether a Gross-Up Payment or a Change in Control Gross Up is required, the amount of such Gross-Up Payment and the amount of any such Change in Control Gross Up, shall be made by PricewaterhouseCoopers or any other nationally recognized firm of 38 certified public accountants (the "Accounting Firm") which shall provide detailed supporting calculations both to Mark IV or its successor and a Participant within 15 business days of termination of a Participant's employment with Mark IV or its successor, if applicable, or such earlier time as is requested by the Participant or Mark IV. When calculating the amount of the Gross- Up Payment and the Change in Control Gross Up, a Participant shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Gross-Up Payment or the Change in Control Gross Up (as the case may be) is to be made, and (ii) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Gross-Up Payment or the Change in Control Gross Up (as the case may be) is to be made, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. If a Change in Control as described in Section 5.03 hereof has occurred and the Accounting Firm has performed services for the person, entity or group who caused the Change of Control, or any affiliate thereof, a Participant may select an alternative accounting firm from any nationally recognized firm of certified public accountants. If the Accounting Firm determines that no excise taxes are payable by a Participant, it shall furnish a Participant with an opinion that he has substantial authority not to report any excise tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon Mark IV and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that a Change in Control Gross Up which will not have been made by Mark IV should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that Mark IV or its successor exhausts it remedies pursuant to Section 4.08(d) hereof, and a Participant thereafter is required to make a payment of any excise tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Mark IV or its successor to or for the benefit of a Participant. (d) The Participant shall notify Mark IV or its successor in writing of any claim by the Internal Revenue Service that, if successful, would require Mark IV or its successor to increase the amount of the Change in Control Gross Up. Such notification shall be given as soon as practicable but no later than ten business days after a Participant knows of such claim and shall apprise Mark IV or its successor of the nature of such claim and the date on which such claim is requested to be paid. A 39 Participant shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to Mark IV or its successor (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Mark IV or its successor notifies a Participant in writing prior to the expiration of such period that it desires to contest such claim, a Participant shall: (i) give Mark IV or its successor any information reasonably requested by Mark IV or its successor relating to such claim; (ii) take such action in connection with contesting such claim as Mark IV or its successor shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by Mark IV or its successor; (iii) cooperate with Mark IV or its successor in good faith in order to effectively contest such claim; and (iv) permit Mark IV or its successor to participate in any proceedings relating to such claim; provided, however, that Mark IV or its successor shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold a Participant harmless, on an after-tax basis, for any excise tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4.08(d), Mark IV or its successor shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct a Participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and a Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Mark IV or its successor shall determine; provided, however, that if Mark IV or its successor directs the Participant to pay such claim and sue for a refund, Mark IV or its successor shall advance the amount of such payment to the Participant, on an interest free basis and shall indemnify and hold the Participant harmless, on an after-tax basis, from any excise tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statue of limitations relating to payment of taxes for the taxable 40 year of a Participant with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the control by Mark IV or its successor of the contest shall be limited to issues with respect to which a Change in Control Gross Up would be payable hereunder and a Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (e) If, after the receipt by a Participant of an amount advanced by Mark IV or its successor pursuant to Section 4.08(d) hereof, a Participant becomes entitled to receive any refund with respect to such claim, a Participant shall (subject to the compliance by Mark IV or its successor with the requirements of Section 4.08(d)) promptly pay to Mark IV or its successor the amount of such refund (together with any interest paid or credited thereon by the taxing authority after deducting any taxes applicable thereto). If, after the receipt by a Participant of an amount advanced by Mark IV or its successor pursuant to Section 4.08(d) hereof, a determination is made that a Participant shall not be entitled to any refund with respect to such claim and Mark IV or its successor does not notify a Participant in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Change in Control Gross Up required to be paid under Section 4.08(a) or Section 4.08(b) hereof. The forgiveness of such advance shall be considered part of the Change in Control Gross Up and subject to gross-up for any taxes (including interest or penalties) associated therewith. 4.09 Effects of Vesting. Each Participant, upon: (a) acquiring a vested interest in his Account pursuant to the terms of this Plan; and (b) otherwise satisfying the requirements for payment and distribution of his Account pursuant to the terms of this Plan, shall have a valid and enforceable claim against Mark IV for payment of the amount described in the applicable provisions of this Plan together with the amount of any applicable Gross-Up Payment. Notwithstanding the foregoing, no Participant, spouse or Beneficiary shall have any interest in any particular assets of Mark IV by reason of the right to receive deferred compensation under this Plan until such time that the Participant's spouse or Beneficiary obtains a judgment against Mark IV or its successor requiring payment of amounts described in the Plan, and any such Participant, spouse or Beneficiary shall have only the rights of a general unsecured creditor of Mark IV with respect to any deferred compensation payable under this Plan. 4.10 No Duplication of Benefits. It is the intent of Mark IV and each Employer that the deferred compensation to be provided under this Plan shall, with respect to the employment of an Eligible Employee by the Employer during the periods this Plan is in effect, supersede any other deferred compensation to which an 41 Eligible Employee is entitled under the terms of any written employment agreement between any Employer and such Eligible Employee, covering periods of such Eligible Employee's employment with the Employer during the periods with respect to which this Plan is in effect except for deferred compensation which is or may be provided to the Employee under the terms of any "tax qualified" pension, profit sharing or 401(k) plan and any compensation which a Participant may be deemed to earn by virtue of stock option and restricted stock awards which may be granted to the Participant. 42 SECTION 5. Trust Established Upon Change in Control 5.01 Establishment of Trust. Upon the occurrence of a Change in Control (as hereinafter defined), Mark IV or its successor shall establish a Trust Fund for the purpose of holding and investing assets of Mark IV to be used for payment of the deferred compensation to be provided to Participants under this Plan. The terms and conditions of the agreement containing the terms of the Trust Fund shall be consistent with the terms and conditions required by rulings and regulations of the Internal Revenue Service for a trust to be classified as a "Rabbi Trust" within the scope of Internal Revenue Service Private Letter Ruling No. 8113017 and Internal Revenue Service Private Letter Ruling No. 8907034 such that the amounts payable under this Plan will not be immediately taxable to the Participants to whom such amounts are payable under the terms of this Plan by virtue of the establishment of such Trust Fund and contribution of assets thereto or by virtue of the acquisition by any such Participants of a vested interest in the deferred compensation payable hereunder. 5.02 Contributions to Trust. Promptly following the occurrence of a Change in Control (as hereinafter defined), but in any event not later than sixty (60) days following the occurrence of the Change in Control, Mark IV or its successor shall determine for each Participant, the Dollar Value and the Share Value of the Participant's Account as of the date the Change in Control occurs. Thereafter, no later than ten (10) days following the date on which the Dollar Value and the Share Value of a Participant's Account are determined, Mark IV or its successor shall pay to the Trustee, to be held pursuant to the Trust Fund, cash or immediately available funds in an amount which, for each Participant, is equal to the greater of the Dollar Value and the Share Value of the Participant's Account determined as of the date the Change in Control occurs. In addition, following the occurrence of a Change in Control, Mark IV or its successor shall make the contributions to the Trust Fund required by Section 3.15 hereof. 5.03 Change in Control. For purposes of this Plan, a Change in Control shall occur if: (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act) of more than twenty percent (20%) of the then outstanding voting stock of Mark IV, otherwise than through a transaction arranged by, or consummated with the prior approval of its Board of Directors; or (b) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors (and any new director whose election to the Board of Directors or whose nomination for election by Mark IV's shareholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at 43 the beginning of such period or whose election or nomination for election was previously so approved) (hereinafter referred to as the "Continuing Directors") cease for any reason to constitute a majority thereof; or (c) the shareholders of Mark IV approve a merger or consolidation of Mark IV with any other corporation, other than a merger or consolidation which would result in the voting securities of Mark IV immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least eighty percent (80%) of the combined voting power of the voting securities of Mark IV or such surviving entity outstanding immediately after such merger or consolidation (provided, however, that if prior to the merger or consolidation, the Board of Directors adopts a resolution that is approved by a majority of the Continuing Directors providing that such merger or consolidation shall not constitute a "change in control" for purposes of the Plan, then such a merger or consolidation shall not constitute a "change in control"), or (d) the shareholders of Mark IV approve an agreement for the sale or disposition by Mark IV or all or substantially all the assets of Mark IV. Notwithstanding the provisions of Sections 7.01 and 7.02 hereof, the foregoing provisions of Sections 5.01, 5.02 and 5.03 hereof may not be amended within three (3) years following a "change in control" without the written consent of a majority in both number and interest of the Participants who are actively employed by the Employer, both immediately prior to the "change in control" and at the date of such amendment. 5.04 Investment Policy. In determining its investments hereunder, the Trustee or any duly appointed Investment Manager shall consider the short and long range needs of the Plan communicated to them by the Committee. Benefits may be provided through any combination of investment media designated to provide the requisite liquidity, growth and security appropriate to this Plan. 5.05 Trustee Responsibilities. Following the establishment of a Trust pursuant to Section 5.01 hereof, the Trustee appointed to administer the Trust Fund shall be deemed a Fiduciary and shall discharge his duties for the exclusive benefit of Participants in the Plan. 44 SECTION 6. Administration 6.01 The Committee. The Compensation Committee of the Board of Directors of Mark IV shall be the administrative committee which administers the Plan as the plan administrator. The Committee shall be the named fiduciary of the Plan with respect to Plan administration and, if a Trust Fund is established pursuant to Section 5.01 hereof, the Committee shall be a named fiduciary with respect to the appointment of an Investment Manager to manage any assets of the Plan. Any member of the Committee may resign by delivering his written resignation to the Board of Directors. Vacancies arising by resignation, death, removal or otherwise shall be filled by the Board of Directors of Mark IV. If at any time no members are currently serving as the Committee, or if no Committee is appointed, the Board of Directors of Mark IV shall be deemed to be the Committee. 6.02 General Duties and Responsibilities. The Committee shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan. Any interpretation, construction or determination made in good faith shall be final and conclusive. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of this Plan. The Committee as named fiduciary may employ attorneys, accountants and such other advisors to advise it with respect to its duties and obligations as it deems appropriate. 6.03 Funding Policy. In the event a Trust Fund is established pursuant to Section 5.01 hereof, the Committee shall establish a funding policy and method consistent with the requirements of law and designed to protect the interests of Plan Participants. The Committee shall thereafter review, and if necessary, change such funding policy and method. 6.04 Allocation and Delegation of Responsibilities. As the named fiduciary, the Committee may engage agents to assist it in carrying out its functions hereunder. The Committee members are expressly authorized to allocate among themselves and/or delegate to other named persons or parties, fiduciary responsibilities, other than Trustee responsibilities. In the event a Trust Fund is established pursuant to Section 5.01 hereof, the Committee may appoint an Investment Manager and delegate to him the authority to manage, acquire, invest or dispose of all or any part of the Trust Fund assets. With regard to the assets entrusted to his care, the Investment Manager shall provide written instructions and directions to the Trustee, who shall in turn, be entitled to rely thereon. Appointments and delegations shall be evidenced by a signed written document, which must be retained with the other Plan documents. 45 6.05 Bonding. The Committee shall be responsible for procuring bonding for any persons dealing with the Plan or its assets as may be required by law or by this Plan. 6.06 Records, Reporting and Disclosure. The Committee shall maintain all the records necessary for the administration of the Plan. The Committee shall also be responsible for preparing and filing such annual reports and tax forms as may be required by law. The Committee shall furnish and/or make available for inspection by each Participant covered under the Plan and to each Beneficiary who is entitled to receive benefits under the Plan, such information and reports as may be required by law. 6.07 Expenses and Compensation. The expenses necessary to administer the Plan shall be borne by Mark IV and, if necessary, shall be reimbursed to the Plan. In the event a Trust Fund is established pursuant to Section 5.01 hereof, upon the failure of Mark IV to pay said expenses, the Trustee shall pay said expenses out of the Plan assets. Expenses include, but are not limited to, those involved in retaining necessary professional assistance from an attorney, an accountant, an actuary, or an investment advisor. The Employer shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties. The Committee, with the approval of Mark IV, may receive reasonable compensation for services rendered in administering this Plan, provided the member performing the services is not a full-time employee of any Employer whose employees are participants in this Plan. 6.08 Information from Mark IV. To enable the Committee to perform its functions, Mark IV shall supply full and timely information to the Committee on all matters relating to the Compensation of all Participants, their employment, their retirement, death, disability or termination of employment, and such other pertinent facts as the Committee may require. The Committee shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties under the Plan. The Committee is entitled to rely on such information as is supplied by Mark IV and shall have no duty or responsibility to verify such information. 6.09 Multiple Signatures. In the event that more than one person has been duly nominated to serve on the Committee, one signature may be relied upon by any interested party as conclusive evidence that the Committee has duly authorized the action therein set forth and as representing the will of and binding upon the whole Committee. No person receiving such documents or written instructions and acting in good faith and in reliance thereon shall be obliged to ascertain the validity of such action under the terms of this Plan and Trust. The Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. 46 6.10 General Fiduciary Liability. Mark IV, its Board of Directors, the Committee, the Trustee and any Fiduciary with respect to this Plan and, if applicable, the Trust Fund created pursuant hereto shall not be liable for any actions taken or omitted by any of them except for such acts involving gross negligence or willful misconduct of the party to be charged and except as required by ERISA. Nothing contained in this Section 6.10 shall be deemed to release, discharge or otherwise limit the liability of Mark IV, or, if a Trust Fund is established pursuant to Section 5.01 hereof, the liability of the Trust Fund and any successor in interest to Mark IV for payment to Participants of the amounts described in this Plan. 6.11 Liability Insurance. The Committee may purchase, as an authorized expense of the Plan, liability insurance for the Plan and/or for its Fiduciaries to cover liability or losses occurring by reason of the act or omission of a Fiduciary, providing such insurance contract permits recourse by an Insurer against the Fiduciary in the case of breach of fiduciary obligation by such Fiduciary. Any Fiduciary may purchase on behalf of himself, insurance to protect himself in the event of a breach of fiduciary duty and Mark IV may also purchase insurance to cover the potential liability of one or more persons who serve in a fiduciary capacity with regard to this Plan. 6.12 Benefit Claims Procedures. The Committee shall establish a benefit claims procedure. Such procedure shall provide for the filing of claims for benefits, adequate notice in writing to any Participant or Beneficiary whose claim for benefits has been denied, setting forth the specific reasons for such denial and written in a manner calculated to be understood by the Participant, and afford a reasonable opportunity to any Participant whose claim for benefits has been denied for a full and fair review by the Committee of the decision denying the claim. 47 SECTION 7. Amendment, Termination and Merger 7.01 Amendment. Subject to the limitation on the right to amend this Plan contained in Section 5.03 hereof, the Board of Directors of Mark IV shall have the right at any time and from time to time without the consent of any Participant or Beneficiary to amend, in whole or in part, any or all of the provisions of this Plan. Notwithstanding the foregoing, no amendment to the Plan shall be effective to the extent that it has the effect of decreasing the value of a Participant's Account or depriving any Participant or the Beneficiary of any Participant of any amount payable (whether immediately or in the future) to such Participant or Beneficiary under the terms of this Plan as in effect on the date on which such amendment is executed. 7.02 Termination. Subject to the limitation on the right to amend this Plan contained in Section 5.03 hereof, Mark IV, by action of its Board of Directors shall have the right at any time to discontinue its contributions hereunder and to terminate this Plan. Upon complete termination of the Plan or upon the occurrence of any event which constitutes a partial termination pursuant to IRC Section 411(d)(3), whether by action of the Board of Directors or otherwise, all Participants shall become fully and nonforfeitably vested in the value of their respective Accounts; provided, however, in the case of a partial termination, full vesting shall only be applicable to that part of the Plan and the Participants covered thereunder that is terminated. 7.03 Continuation of Plan by Successor. Mark IV will require any person, firm, corporation or other entity that becomes a successor to Mark IV, (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Mark IV to expressly assume and agree to perform the provisions of this Plan as in effect at the time any such person, firm, corporation or other entity becomes a successor to Mark IV, in the same manner and to the same extent that Mark IV would be required to perform it if no such succession had taken place. Unless this Plan be sooner terminated, a successor to the business of Mark IV by whatever form or manner resulting, may continue this Plan after such person, firm, corporation or entity becomes a successor to Mark IV by executing an appropriate supplemental agreement. In the event any successor to the business of Mark IV shall not elect to continue this Plan within ninety days after such person, firm, corporation or other entity becomes a successor to Mark IV (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise), this Plan shall be deemed to be terminated and the obligation to pay to each Participant the amounts described herein at the times provided for herein shall become fixed and binding obligations of such successor. 48 SECTION 8. Miscellaneous 8.01 No Rights Created by Plan and Trust - Terms of Employment Not Affected. Neither the establishment of the Plan or Trust nor any modification hereof, nor the creation of any fund or account, nor the payment of any benefits, shall be construed as giving to any Participant, Beneficiary or other person any legal or equitable right against the Employer or any officer or Employee thereof, or the Trustee, or the Committee, except as herein provided. Under no circumstances shall participation in this Plan by an Employee constitute a contract of continuing employment or in any manner obligate the Employer to continue the services of an Employee. 8.02 Participants Rights Unsecured. Unless the establishment of a Trust Fund is required pursuant to Section 5.01 hereof, the Plan shall at all times be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of Mark IV for payment of any distributions hereunder. The rights of a Participant or his Beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of Mark IV and neither the Participant nor his Beneficiary shall have any rights in or against any specific assets of Mark IV including, but not limited to, any assets contained in any Trust Fund established pursuant to Section 5.01 hereof. 8.03 No Guaranty of Benefits. Nothing contained in this Plan shall be deemed to constitute a guaranty by Mark IV or any other entity or person that the assets of Mark IV will be sufficient to pay the benefits hereunder. 8.04 Execution of Receipts and Releases. Any payment to any Participant, or to his legal representatives or Beneficiary, in accordance with the provisions of this Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against the Plan, and the Committee may require such Participant, legal representative, or Beneficiary, as a condition precedent to such payment, to execute a receipt and release therefor in such form as it shall determine. 8.05 Benefits Non-Assignable. No benefit which shall be payable to any person under this Plan, (including a Participant or his Beneficiary), whether payable out of the general assets of Mark IV or payable out of the Trust Fund, shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Committee or the Trustee, except to such extent as may be required by law. 49 8.06 Construed Under Applicable Federal Law and New York Law. This Plan shall be construed according to applicable Federal Law and the laws of the State of New York and all provisions hereof shall be administered according to such laws. 8.07 Masculine Gender to Include Feminine; Singular to Include Plural. Wherever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply. 8.08 Heading No Part of Plan. Heading of sections and subsections of this instrument are inserted for convenience of reference only. They constitute no part of this Plan are not to be construed in the construction hereof. 8.09 Counterparts. This instrument may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument and may be sufficiently evidenced by any one counterpart. IN WITNESS WHEREOF, the Mark IV Industries, Inc. has caused this Plan to be executed as of the ____ day of _______________, 1999. MARK IV INDUSTRIES, INC. By________________________ EX-21 4 EXHIBIT 21 SUBSIDIARIES The following is a list of the subsidiaries of Mark IV Industries, Inc. ("the Company") at May 27, 1999. Except as otherwise indicated, the names of indirectly-owned subsidiaries are indented under the names of their immediate parent. Dayco Products, Inc. (Delaware) Controladora Dayco SA de C.V. (Mexico) Dayco Products S.A. de C.V. (Mexico) Mark IV Industries Canada Inc. (Canada) Mark IV Air Intake Systems Partnership (Canada) (100% owned in the aggregate by Mark IV Industries Canada Inc. and Mark IV Systemes Moteurs S.A.) Mark IV Industries Limited (Canada) Mark IV Luxembourg Sarl (Luxembourg) Dayco Europe SrL (Italy) Nuova Eletta S.p.A. (Italy) CTM Cinotto Tecnomeccanica S.p.A. (Italy) (99% ownership) Dayco SACIC S.A. (Belgium) Dayco PTI S.A. (Spain) Dayco PTI GmbH (Germany) Lunkoflex Iberica S.A. (Spain) (53% ownership) Dayco F.C. S.R.L. (Italy) Lombardini FIM S.p.A. (Italy) Lombardini UK Limited (UK) Lombardini Modoren GmbH (Germany) Anonima Construzione Motori Endotermici-A.C.M.E. S.P.A. Motoreps C.A. Barquisimento (Venezuela) (15.33% ownership) ACME Motori S.A.- Ltd (South Africa) (15.07% ownership) Lombardini Marine S.p.A. (Italy) Lombardini Espana S.A. (Spain) Dayco Ireland Holdings Limited (Ireland) Mark IV Automotive AB (Sweden) Dayco Sweden AB (Sweden) Mark IV (Gibralter) Limited (Gibralter) (100% owned in the aggregate, by Dayco Products, Inc. and Facet Holding Co., Inc.) Mark IV Automotive Pty Ltd. (Australia) Dayco Products Singapore Pte. Ltd (Singapore) Dayco TSA Singapore Pte Ltd (Singapore) Imperial Eastman LLC (Delaware) Dayco Distributing, Inc. (Kentucky) Woods Liquidating Corporation (Delaware) Luminator Holding L.P. (Delaware) (100% owned, in the aggregate, by the Company and Woods Liquidating Corporation) Luminator Service, Inc. (New York) Mark IV Holdings, S.A. (Belgium) Mark IV PLC (United Kingdom) Mark IV Ventures Ltd (United Kingdom) Pietranera S.r.L. (Italy) (100% owned, in the aggregate, by the Company and Armtek International Holding Company, Inc.) F-P Technologies Holding Corp. (Delaware) (100% owned, in the aggregate, by the Company and Mark IV Industries Ltd.) GS Costa Mesa, Inc. (Delaware) F-P Displays, Inc. (Massachusetts) Mark IV Holding AG (Switzerland) F-P Displays AG (Switzerland) Mark IV France S.A.S. (France) Dayco Europe S.A.R.L. (France) Mark IV Systems Moteurs SA (France) Gulton S.A. (France) SLE S.A.R.L. (France) Lombardini France S.A. (France) Genelec S.A. (France) K/G of Amherst, Inc. (Delaware) Armtek International Holding Company, Inc. (Delaware) Dayco Pacific Pty. Limited (Australia) (100% owned, in the aggregate, by Armtek Int'l Holding Company,Inc. and Dayco Products, Inc.) Rubicon Industrial (Australia) Pty. Ltd (Australia) Adelaide Flexibles PTY Limited (Australia) EN-U Technology PTY Limited (Australia) Inter-Arc Industrial Products PTY Limited (Australia) Novahose Industrial PTY Limited (Australia) Seal-Tite Couplings PTY Limited (Australia) Rubicon Industrial PTY Ltd. (Australia) WA Industrial Rubber PTY Limited (Australia) Imperial Eastman Pty Limited (Australia) Mark IV Industries GmbH (Germany) Mark IV Vertriebs GmbH (Germany) Dayco Europe GmbH (Germany) (100% owned, in the aggregate, by Mark IV Industries GmbH and Mark IV Industries Canada, Inc.) Mark IV Audio Deutschland GmbH (Germany) Eagle Funding Corporation (Delaware) Automatic Signal/Eagle Signal Corp.(Delaware) Mark IV Holdings Inc. (Delaware) Mark IV Industries Overseas, Ltd. (Barbados) Aerospace Sub, Inc. (Delaware) Mark IV Acquisition Corp. (Delaware) Mark IV Industries Ireland (Ireland) (100% owned, in the aggregate, by the Company and Mark IV Holdings Inc.) Mark IV IVHS, Inc. (Delaware) NRD, LLC (Delaware) NRD Inc. (New York) Lum-Eag Holdings (Ireland) Mark IV Automotive do Brasil Ltda. (Brasil) (100% owned, in the aggregate, by the Company and Dayco Europe SrL) Daytec S.A. (Brazil) Techold Ltda (Brazil) Tecalon Brasileira de Auto Pecas S.A. (Brazil) (100% owned in the aggregate by Techold Ltda. and Mark IV Auto do Brazil Ltda.) Dayco do Brasil Industria E Comercio Ltda. (Brazil) (99.9% ownership) Dayco Argentina (Argentina) (100% owned, in the aggregate, by the Company and Dayco Europe SrL) Facet Holding Co., Inc. (Delaware) Facet Industrial B.V. (Netherlands) Purolator Filter GmbH (Germany) (100% owned, in the aggregate, by Facet Industrial B.V. and Facet Holding Co., Inc.) Facet Italiana S.p.A (Italy) Facet FCE S.A.R.L. (France) (100% owned, in the aggregate, by Facet Italiana SpA and Facet Industrial U.K. Limited) Facet Iberica, S.A. (Spain) (100% owned, in the aggregate, by Facet Holding Co., Inc.; Facet Italiana SpA, and Facet Industrial U.K.) Motor Components, LLC (Delaware) Facet Industrial U.K. Limited (United Kingdom) Dayco Europe Ltd (United Kingdom) Dayco PTI Ltd (United Kingdom) Caplugs Ltd (United Kingdom) (50% owned by Dayco PTI Ltd.) Purolator Products Air Filtration Company (Delaware) FACET USA, Inc. (Delaware) George W. Dahl Company, Inc. (Delaware) Facet Enterprises, Inc. (Delaware) Facet Export Corporation (Delaware) Facet Fuel Systems, Inc. (Delaware) Mark IV Pay Agent, Inc. (Delaware) Mark IV Acquisition Corp. (Delaware Facet International S.A. (Switzerland) (99.7% ownership) Lombardini U.S.A., Inc. EX-23 5 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements on Form S-4 (File No. 333-36013) and Form S-8 (File Nos. 33-55367, 33-56515 and 33-38425 and 33-38426) of Mark IV Industries, Inc. and Subsidiaries of our report dated March 22, 1999, on our audits of the consolidated financial statements and financial statement schedule of Mark IV Industries, Inc. and Subsidiaries as of February 28, 1999 and for each of the three fiscal years in the period ended February 28, 1999, which reports are included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Rochester, New York May 28, 1999 EX-27 6
5 This schedule contains summary financial information extracted from the financial statements of Mark IV Industries, Inc. and is qualified in its entirety by reference to such financial statments. 1,000 12-MOS FEB-28-1999 FEB-28-1999 125,700 0 415,600 9,600 297,600 962,600 798,800 236,500 2,079,700 472,000 797,500 0 0 500 596,200 2,079,700 1,948,600 1,948,600 1,376,700 1,816,200 0 0 53,900 78,500 26,100 52,400 2,200 2,600 0 47,600 .84 .85
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