-----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, VBV6EFZfXAF61OoYDWcE3+qLyrLPCxXxB5CRlyea9ONKB7nrHrQqHDoiRqHOCvgj GlObY1b7yXirepJOCf3slQ== 0000950124-00-001686.txt : 20000411 0000950124-00-001686.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950124-00-001686 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCOTECH INC CENTRAL INDEX KEY: 0000745448 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 382513957 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12068 FILM NUMBER: 581842 BUSINESS ADDRESS: STREET 1: 21001 VAN BORN RD CITY: TAYLOR STATE: MI ZIP: 48180 BUSINESS PHONE: 3132747405 MAIL ADDRESS: STREET 1: 21001 VAN BORN ROAD CITY: TAYLOR STATE: MI ZIP: 48180 FORMER COMPANY: FORMER CONFORMED NAME: MASCO INDUSTRIES INC DATE OF NAME CHANGE: 19930629 10-K405 1 FORM 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-12068 MASCOTECH, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 38-2513957 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 313-274-7405 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE, INC. 4 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 NEW YORK STOCK EXCHANGE, INC. SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE, INC. PURCHASE RIGHTS
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, 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 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 REGISTRANT'S COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT ON MARCH 15, 2000 (BASED ON THE CLOSING SALE PRICE OF $12 1/8 OF THE REGISTRANT'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE ON SUCH DATE) WAS APPROXIMATELY $358,103,000. NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AT MARCH 15, 2000: 44,689,000 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED FOR ITS 2000 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I 1. Business.................................................... 2 2. Properties.................................................. 6 3. Legal Proceedings........................................... 7 4. Submission of Matters to a Vote of Security Holders......... 7 Supplementary Item. Executive Officers of Registrant........ 8 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 9 6. Selected Financial Data..................................... 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 8. Financial Statements and Supplementary Data................. 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 43 PART III 10. Directors and Executive Officers of the Registrant.......... 43 11. Executive Compensation...................................... 43 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 43 13. Certain Relationships and Related Transactions.............. 43 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 44 Signatures.................................................. 47 FINANCIAL STATEMENT SCHEDULES MascoTech, Inc. Financial Statement Schedules............... F-1 TriMas Corporation and Subsidiaries Consolidated Financial Statements.................................................. F-3
1 3 PART I ITEM 1. BUSINESS. MascoTech, Inc. (the "Company") is a diversified industrial manufacturing company utilizing advanced metalworking capabilities to supply metal formed components used in vehicle engine and drivetrain applications, specialty fasteners, towing systems, packaging and sealing products and other industrial products. Except as the context otherwise indicates, the terms "MascoTech" and the "Company" refer to MascoTech, Inc. and its consolidated subsidiaries. BACKGROUND MascoTech was incorporated in Delaware in 1984 as a wholly-owned subsidiary of Masco Corporation, which in May 1984 transferred its industrial businesses to MascoTech. The Company became a separate public company in July, 1984 when Masco Corporation distributed shares of Company common stock as a special dividend to its stockholders. Masco Corporation currently owns approximately 17 percent of the Company's common stock. In early 1997, the Company completed the sale of its engineering and technical services businesses to MSX International, Inc. As part of that transaction, the Company acquired an approximate 45 percent common equity interest in MSX International, Inc. See "Equity Investments -- Other Equity Investments," elsewhere in Item 1 of this Report. In 1999, the Company completed the planned sale of certain of its automotive aftermarket businesses and vacuum metalizing operation for total proceeds of approximately $105 million. Pursuant to a plan adopted in 1999, the Company's specialty tubing business was sold for approximately $6 million in January 2000. The cash portion of the proceeds from these sales was applied to reduce the Company's indebtedness. The disposition of these businesses did not meet the criteria for discontinued operations treatment for accounting purposes; accordingly, the sales and results of operations of these businesses are included in the results of continuing operations through the respective dates of disposition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Disposition of Businesses," included in Item 7 of this Report. In January 1998, the Company completed the acquisition of TriMas Corporation ("TriMas") by purchasing all of the outstanding shares of TriMas not already owned by the Company for approximately $920 million. In connection with the TriMas acquisition, the Company entered into a $1.3 billion credit facility which is collateralized by a pledge of the stock of TriMas. See the Note to the Company's Consolidated Financial Statements captioned "Long-Term Debt," included in Item 8 of this Report. During 1999, the Company acquired Windfall Products, Inc., a manufacturer of transportation-related components that utilizes powder metal technology, significantly expanding the Company's powder metal manufacturing operations. 2 4 OPERATING SEGMENTS The following table sets forth for the three years ended December 31, the net sales and operating profit for MascoTech's operating segments. Information for 1998 is presented on a pro forma basis, as though TriMas had been acquired at January 1, 1998.
(IN THOUSANDS) NET SALES(1) ------------------------------------ 1999 1998 1997 ---------- ---------- -------- Specialty Metal Formed Products.................... $ 817,000 $ 760,000 $711,000 Towing Systems..................................... 260,000 238,000 -- Specialty Fasteners................................ 241,000 226,000 44,000 Specialty Packaging and Sealing Products........... 216,000 223,000 -- Specialty Industrial Products...................... 107,000 110,000 37,000 Companies Sold or Held for Sale.................... 39,000 115,000 130,000 ---------- ---------- -------- $1,680,000 $1,672,000 $922,000 ========== ========== ========
OPERATING PROFIT(2)(3)(4) ------------------------------------ 1999 1998 1997 ---------- ---------- -------- Specialty Metal Formed Products.................... $ 112,000 $ 106,000 $ 88,000 Towing Systems..................................... 37,000 34,000 -- Specialty Fasteners................................ 35,000 38,000 8,000 Specialty Packaging and Sealing Products........... 41,000 46,000 -- Specialty Industrial Products...................... 14,000 16,000 7,000 Companies Sold or Held for Sale.................... 4,000 12,000 16,000 ---------- ---------- -------- $ 243,000 $ 252,000 $119,000 ========== ========== ========
(1) The 1998 net sales amounts include TriMas sales occurring before the acquisition date of January 22, 1998. These sales amounted to approximately $36 million. (2) Amounts are before General Corporate Expense. (3) Segment operating profit in 1997 includes approximately $17 million of nonrecurring charges. (4) The 1998 operating profit amounts include TriMas operating profit occurring before the acquisition date of January 22, 1998. This operating profit amounted to approximately $5 million. Additional financial information concerning the Company's operations by operating segments as of and for the three years ended December 31, 1999 is set forth in the Note to the Company's Consolidated Financial Statements captioned "Segment Information," included in Item 8 of this Report. Advanced technology plays a significant role in MascoTech's businesses and in the design, engineering and manufacturing of many of its products. Products are manufactured utilizing a variety of metalworking and other process technologies. Although published industry statistics are not available, the Company believes that it is a leading independent producer of many of the component parts that it produces using cold, warm or hot forming processes. The Company manufactures a broad range of semi-finished components, subassemblies and assembled products for the original equipment and aftermarket segments of the global transportation industry. Approximately 85 percent of the Company's 1999 sales were from operations involving metalworking technologies, including cold, warm or hot metal forming, and machining and fabricating. The Company provides components and products for which reliability, quality and certainty of supply are major factors in customers' selection of suppliers. 3 5 The Company manufactures specialty metal formed products for engine and drivetrain applications, including semi-finished transmission shafts, drive gears, engine connecting rods, wheel spindles and front wheel drive components. The Company's metal formed products are manufactured using various process technologies, including cold, warm and hot forming, powder metalworking, value-added machining and tubular steel fabricating. The Company believes that its recent acquisition of Windfall Products, Inc. has reinforced its position as a leading U. S. producer of powder metal components. The Company believes that its metal forming technologies provide cost-competitive, high-performance, quality components required to meet the increasing demands of the automotive and truck markets it serves. Approximately 46 percent of the Company's 1999 sales were of original equipment automotive products and services. Sales to original equipment manufacturers are made through factory sales personnel and independent sales representatives. During 1999, sales to various divisions and subsidiaries of New Venture Gear, Inc. accounted for approximately 12 percent of the Company's net sales. The Company manufactures towing systems products, including vehicle hitches, jacks, winches, couplers and related accessories for the passenger car, light truck, recreational vehicle, marine, agricultural and industrial markets. Towing systems products are sold to independent installers, distributors, manufacturers and aftermarket retailers by the Company's sales organization and independent sales representatives. The Company's specialty fasteners products include standard- and custom-designed ferrous, nonferrous and special alloy fasteners for the building construction, farm implement, medium- and heavy-duty truck, appliance, aerospace, electronics and other industries. The Company also provides metal treating services for manufacturers of fasteners and similar products. Specialty fasteners are sold through the Company's own sales personnel and independent sales representatives to both distributors and manufacturers in these industries. The Company also manufactures specialty packaging and sealing products, including industrial and consumer container closures and dispensing products primarily for the chemical, agricultural, refining, food, petrochemical and health care industries; high-pressure seamless compressed gas cylinders primarily used for shipping, storing and dispensing oxygen, nitrogen, argon and helium and a complete line of low-pressure welded cylinders used to contain and dispense acetylene gas for the welding and cutting industries; and specialty industrial gaskets for refining, petrochemical and other industrial applications. Sales of specialty packaging and sealing products are made by the Company's own sales staff primarily to container manufacturers, industrial gas producers, refineries and independent distributors. The Company's specialty industrial products include flame-retardant facings and jacketings used in conjunction with fiberglass insulation, principally for commercial and industrial construction applications, pressure-sensitive specialty tape products and a variety of specialty precision tools such as center drills, cutters, end mills, reamers, master gears, gages and punches. These products are marketed to manufacturers and distributors by both Company sales personnel and independent sales representatives. GENERAL INFORMATION CONCERNING OPERATING SEGMENTS No material portion of MascoTech's business has special working capital requirements. Sales by the Company's Towing Systems segment are generally stronger during the spring and summer periods; no other operating segment experiences significant seasonal fluctuation in its business. The Company does not consider backlog orders to be a material factor in its operating segments. Except as noted above under "Operating Segments," no material portion of its business is dependent upon any one customer or subject to renegotiation of profits or termination of contracts at the election of the federal government. Compliance with federal, state and local regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to result in material capital expenditures by the Company or to have a material effect on the Company's earnings or competitive position. 4 6 See, however, "Legal Proceedings," included as Item 3 of this Report, for a discussion of certain pending proceedings concerning environmental matters. In general, raw materials required by the Company are obtainable from various sources and in the quantities desired. INTERNATIONAL OPERATIONS The Company has operations located in Australia, Brazil, Canada, Czech Republic, England, Germany, Italy, Mexico and Spain. Products manufactured by the Company outside of the United States include forged automotive component parts, constant-velocity joints, specialty packaging and sealing products and towing systems products. See the Note to the Company's Consolidated Financial Statements captioned "Segment Information," included in Item 8 of this Report for a discussion of the Company's foreign operations and export sales. The Company's foreign operations are subject to political, monetary, economic and other risks attendant generally to international businesses. These risks generally vary from country to country. EQUITY INVESTMENTS Information regarding the Company's equity investments is also set forth in the Note to the Company's Consolidated Financial Statements captioned "Equity and Other Investments in Affiliates," included in Item 8 of this Report. Titan International, Inc. The Company owns approximately 16 percent of the outstanding common stock of Titan International, Inc. ("Titan"). Titan is a manufacturer of wheels, tires and other products for agricultural, construction and other off-highway equipment markets. Titan's sales for the year ended December 31, 1999 were approximately $588 million. Delco Remy International, Inc. In December 1997, Delco Remy International, Inc. ("DRI") completed an initial public offering of its common stock, reducing the Company's equity ownership interest to approximately 12 percent on a fully diluted basis (the Company currently owns approximately 17 percent of the voting common stock). DRI is a manufacturer of automotive electric motors and other components. DRI's sales for the year ended July 31, 1999 were approximately $954 million. Other Equity Investments In addition to its equity investments in the publicly traded affiliates described in the preceding paragraphs, the Company has investments in privately held companies, including MSX International, Inc., a provider of technology-based business services and product development services. MSX International, Inc. was formed in 1997 by an investor group consisting of the Company, Citicorp Venture Capital, Ltd. and the senior management of MSX International to purchase the assets of the Company's engineering and technical services businesses. The Company also has investments in Saturn Electronics & Engineering, Inc., a manufacturer of electromechanical and electronic automotive components, and in Qualitor, Inc., a supplier of automotive aftermarket products. PATENTS AND TRADEMARKS The Company holds a number of patents, patent applications, licenses, trademarks and trade names. The Company considers its patents, patent applications, licenses, trademarks and trade names to be valuable, 5 7 but does not believe that there is any reasonable likelihood of a loss of such rights that would have a material adverse effect on the Company's operating segments or on its present business as a whole. COMPETITION The major domestic and foreign markets for the Company's products are highly competitive. Competition is based primarily on price, product engineering, performance, technology, quality and overall customer service, with the relative importance of such factors varying among products. The Company's global competitors include a large number of other well-established independent manufacturers as well as certain customers who have their own internal manufacturing capabilities. Although a number of companies of varying size compete with the Company, no single competitor is in substantial competition with the Company with respect to more than a few of its product lines and services. EMPLOYEES The Company employs approximately 9,500 people. Satisfactory relations have generally prevailed between the Company and its employees. ITEM 2. PROPERTIES. The following list sets forth the location of the Company's principal manufacturing facilities and identifies the principal operating segment utilizing such facilities. California.................. Commerce (4) Illinois.................... Wheeling (4) and Wood Dale (4) Indiana..................... Auburn (5), Elkhart (2)(2), Fort Wayne (1), Frankfort (4), Goshen (2), North Vernon (1) and Peru (2)(2) Louisiana................... Baton Rouge (5) Massachusetts............... Plymouth (3) Michigan.................... Canton (1) (2), Detroit (1) (4), Farmington Hills (1), Fraser (1), Green Oak Township (1), Hamburg (1), Livonia (4), Royal Oak (1), Troy (1), Warren (1) (3) (3) and Ypsilanti (4) New Jersey.................. Edison (3) and Netcong (3) Ohio........................ Canal Fulton (1), Lakewood (4), Minerva (1), Newburgh Heights (4) and Port Clinton (1) Oklahoma.................... Tulsa (3) Pennsylvania................ Ridgway (1) (1) and St. Marys (1) Texas....................... Houston (5) and Longview (5) Wisconsin................... Mosinee (2) and West Bend (2) Australia................... Hampton Park, Victoria (2), Rhodes, New South Wales (2) and Wakerley, Queensland (2) Brazil...................... Sao Paolo(1) Canada...................... Fort Erie (5) and Oakville (2), Ontario Czech Republic.............. Oslavany (1) England..................... Leicester (5) and Wolverhampton (1) Germany..................... Neunkirchen (5), Nurnberg (1) and Zell am Harmersbach (1) Italy....................... Poggio Rusco (1) and Valmadrera (5) Mexico...................... Mexico City (5) and Ramos Arispe (1) Spain....................... Almusaffes (1)
6 8 Operating segments in the preceding table are identified as follows: (1) Specialty Metal Formed Products, (2) Towing Systems, (3) Specialty Industrial Products, (4) Specialty Fasteners and (5) Specialty Packaging and Sealing Products. Multiple footnotes to the same municipality denote separate facilities in that location. The Company's principal manufacturing facilities range in size from approximately 10,000 square feet to 420,000 square feet, substantially all of which are owned by the Company and are not subject to significant encumbrances. The Company's executive offices are located in Taylor, Michigan, and are provided by Masco Corporation to the Company under a corporate services agreement. The Company's buildings, machinery and equipment have been generally well maintained, are in good operating condition, and are adequate for current production requirements. ITEM 3. LEGAL PROCEEDINGS. A civil suit was filed in the United States District Court for the Central District of California in April, 1983 by the United States of America and the State of California against over 30 defendants, including a subsidiary of the Company, for alleged release into the environment of hazardous waste disposed of at the Stringfellow Disposal Site in California. The plaintiffs have requested, among other things, that the defendants clean up the contamination at that site. A consent decree has been entered into by the plaintiffs and the defendants, including the Company, providing that the consenting parties perform partial remediation at the site. Another civil suit was filed in the United States District Court for the Central District of California in December, 1988 by the United States of America and the State of California against more than 180 defendants, including the Company, for alleged release into the environment of hazardous waste disposed of at the Operating Industries, Inc. site in California. This site served for many years as a depository for municipal and industrial waste. The plaintiffs have requested, among other things, that the defendants clean up the contamination at that site. Consent decrees have been entered into by the plaintiffs and a group of the defendants, including the Company, providing that the consenting parties perform certain remedial work at the site and reimburse the plaintiffs for certain past costs incurred by the plaintiffs at the site. Based upon its present knowledge and subject to future legal and factual developments, the Company does not believe that any of this litigation will have a material adverse effect on its consolidated financial position, results of operations or cash flow. The Company is subject to other claims and litigation in the ordinary course of its business, but does not believe that any such claim or litigation will have a material adverse effect on its consolidated financial position, results of operations or cash flow. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 7 9 SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF REGISTRANT (PURSUANT TO INSTRUCTION 3 TO ITEM 401(b) OF REGULATION S-K).
OFFICER NAME POSITION AGE SINCE - ---- -------- --- ------- Richard A. Manoogian................. Chairman of the Board 63 1984 Frank M. Hennessey................... Vice Chairman and Chief Executive Officer 61 1998 Lee M. Gardner....................... President and Chief Operating Officer 53 1992 Timothy Wadhams...................... Executive Vice President, Finance and Administration, and Chief Financial Officer 51 1984 William T. Anderson.................. Vice President and Controller 52 1998 Eugene A. Gargaro, Jr. .............. Secretary 57 1984 David B. Liner....................... Vice President and General Counsel and Assistant Secretary 44 1997 James F. Tompkins.................... Treasurer and Assistant Secretary 44 1998
Executive officers are elected to a term of one year or less and serve at the discretion of the Board of Directors. Each elected executive officer has been employed in a managerial capacity with the Company for over five years, except Messrs. Hennessey and Liner. Prior to joining MascoTech in 1998, Mr. Hennessey served Masco Corporation for more than five years in various managerial positions and most recently as Executive Vice President. He continues to provide services to Masco Corporation as a part-time employee (for no more than 20 percent of his time) in connection with matters with which he was involved as Executive Vice President of Masco Corporation. Mr. Liner had served as Associate Corporate Counsel of Masco Corporation for more than five years prior to joining the Company in 1997 as its Vice President and Corporate Counsel. He was elected to his current position in September, 1998. 8 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "MSX." The following table sets forth for the periods indicated the high and low sale prices of the Company's Common Stock as reported on the NYSE Composite Tape and Common Stock dividends declared for the periods indicated:
DIVIDENDS HIGH LOW DECLARED ------ ------ --------- 1998 First Quarter................................ $23 1/4 $17 11/16 --(1) Second Quarter............................... $26 7/16 $22 5/16 $.06 Third Quarter................................ $24 1/8 $16 1/4 .07 Fourth Quarter............................... $18 3/4 $15 1/4 .07 ---- $.20 ====
DIVIDENDS HIGH LOW DECLARED ------ ------ --------- 1999 First Quarter................................ $17 $14 $.07 Second Quarter............................... $17 3/4 $15 1/8 .07 Third Quarter................................ $17 11/16 $15 9/16 .08 Fourth Quarter............................... $17 1/16 $10 5/8 .08 ---- $.30 ====
(1) A dividend of $.06 per share declared in the fourth quarter of 1997 was paid in the first quarter of 1998. Future declarations of dividends on the Company's Common Stock are discretionary with the Board of Directors and will depend upon the Company's earnings, capital requirements, financial condition and other factors. In addition, certain of the Company's long-term debt instruments contain provisions that restrict the dividends that the Company may pay on its capital stock. Under the most restrictive of these provisions, approximately $26 million would have been available at December 31, 1999 for the payment of cash dividends and the acquisition of Company stock. See the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Position and Liquidity," included in Item 7 of this Report and the Note to the Company's Consolidated Financial Statements captioned "Long-Term Debt," included in Item 8 of this Report. On March 15, 2000, there were 3,892 holders of record of the Company's Common Stock. 9 11 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth summary consolidated financial information of the Company, for the years and dates indicated:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- Net sales............ $1,679,690 $1,635,500 $ 922,130 $1,281,220 $1,678,210 From continuing operations before accounting change: Income.......... $ 92,430 $ 97,470 $ 115,240 $ 39,920 $ 59,190 Earnings per common share........ $1.84 $1.83 $2.12 $.50 $.81 Dividends declared per common share... $ .30 $ .20 $ .28 $.18 $.11 At December 31: Total assets....... $2,101,270 $2,090,540 $1,144,680 $1,202,840 $1,421,720 Long-term debt..... $1,372,890 $1,388,240 $ 592,000 $ 752,400 $ 701,910
Results in 1999 include the completion of the sale of the Company's aftermarket-related and vacuum metalizing businesses which resulted in a pre-tax gain of approximately $26 million. Results in 1999 include a non-cash pre-tax charge of approximately $17.5 million related to impairment of certain long-lived assets, which included its hydroforming equipment and related intellectual property. Results in 1999 include pre-tax charges aggregating approximately $18 million, principally related to the closure of a plant, the sale of a business and the decline in value of equity affiliates. Results in 1998 include sales and operating profits from TriMas Corporation, which was purchased in January 1998. Results for 1998 include a pre-tax charge related to the disposition of certain businesses aggregating approximately $41 million. In addition, the Company recorded a pre-tax gain of approximately $25 million related to the receipt of additional consideration based on the operating performance of the Company's stamping businesses sold in 1996. Also, the Company recognized a gain (deferred at time of sale pending receipt of cash) of $7 million pre-tax related to the disposition of the Company's Technical Services Group in 1997. Results for 1997 include pre-tax gains approximating $83 million principally related to the sale by the Company of its common stock holdings of an equity affiliate, gains from the Company's marketable securities portfolio and income resulting from equity transactions by affiliates. These gains were partially offset by costs and expenses of approximately $24 million pre-tax related to plant closure costs, the Company's share of special charges recorded by equity affiliates, write-off of deferred charges and employee termination and other expenses. Results for 1996 include an after-tax charge of approximately $26 million related to the sale of MascoTech Stamping Technologies, Inc. ("MSTI"). Results for 1995 include net gains of approximately $5 million pre-tax related to the dispositions of businesses, and a gain of approximately $5 million pre-tax resulting from the issuance of stock through a public offering by an equity affiliate. 10 12 Income from continuing operations before accounting change attributable to common stock was $92.4 million, $97.5 million, $109.0 million, $27.0 million and $46.2 million after preferred stock dividends in 1999, 1998, 1997, 1996 and 1995, respectively. Earnings per common share, from continuing operations before accounting change, are presented on a diluted basis. Basic earnings per common share, from continuing operations before accounting change, were $2.25, $2.23, $2.70, $.54 and $.85 in 1999, 1998, 1997, 1996 and 1995, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CORPORATE DEVELOPMENT RECENT DEVELOPMENTS In August 1999, the Company acquired a manufacturer of transportation-related powder metal components with annual sales of approximately $80 million. This business complements the Company's specialty metal formed businesses. In January 1998, the Company completed the acquisition of TriMas Corporation ("TriMas") by purchasing all the outstanding shares of TriMas not already owned by the Company for approximately $920 million. The Company previously owned 37 percent of TriMas. In addition to the TriMas acquisition, the Company in 1998 also acquired three companies and a product line with combined annual sales of approximately $60 million. These businesses complement the Company's specialty fasteners and specialty packaging and sealing products businesses. SHARE REPURCHASE In late 1996, the Company purchased from Masco Corporation 17 million shares of MascoTech common stock and warrants to acquire 10 million shares of MascoTech common stock, for approximately $266 million. In addition, as part of this transaction, Masco Corporation also agreed that MascoTech will have the right of first refusal to purchase the approximate 7.8 million shares of MascoTech common stock that Masco Corporation continues to hold, should Masco Corporation decide to dispose of such shares prior to September 30, 2000. At December 31, 1999, Masco Corporation owned approximately 17 percent of the MascoTech common stock outstanding. DISPOSITION OF BUSINESSES In early 1997, the Company completed the sale of its Technical Services Group (comprised of the Company's engineering and technical business services units) to MSX International, Inc. ("MSXI"). Also included in this transaction were the net assets of APX International ("APX") which were acquired by the Company in November 1996. The sale resulted in total proceeds to the Company of approximately $145 million, consisting of cash, subordinated debentures, preferred stock and an approximate 45 percent common equity interest in MSXI. Net proceeds to the Company approximated $90 million, after taking into account the purchase price for APX and taxes payable in connection with this transaction. In January 1998, the Company received $48 million of cash from MSXI in payment of certain amounts due MascoTech, resulting in a realized pre-tax gain in the first quarter 1998 of approximately $7 million (gain recognition was deferred at the time of the transaction pending cash receipt). In mid-1998, the Company adopted a plan to sell certain of its aftermarket-related businesses and its vacuum metalizing operation and recorded a pre-tax loss of approximately $41 million. In early 1999, the Company completed the sale of these businesses for total proceeds aggregating approximately $105 million, consisting of cash of $90 million, a note receivable of $6 million and retained equity interests in the ongoing 11 13 businesses. The Company recognized a pre-tax gain of approximately $26 million related to the disposition of these businesses. The businesses sold had net sales of $39 million, $115 million and $130 million in 1999, 1998 and 1997, respectively, and operating profit of $4 million, $12 million and $16 million in 1999, 1998 and 1997, respectively. In 1999, the Company adopted a plan to sell its specialty tubing business, resulting in a pre-tax loss of approximately $7 million and an after-tax gain of approximately $5.5 million, due to the tax basis in the net assets of the business exceeding book carrying values. This business, which had annual sales of approximately $14 million, was sold in January 2000 for proceeds of approximately $6 million. PROFIT MARGINS Operating profit margins, excluding net charges in 1999 and 1998 and net gains in 1997, were approximately 13.0 percent in 1999, 13.6 percent in 1998 and 10.5 percent in 1997. Operating profit margin in 1999 was negatively impacted by decreased sales for certain products including tubular, aftermarket constant-velocity joints, cylinders, certain fastener applications including aerospace, agricultural and off-highway, and certain products impacted by oil and gas prices. Margins were also negatively impacted by higher than expected costs associated with capacity expansions, launches of new product and process capabilities and other growth initiatives. In addition, margins were hampered by disruptions associated with the integration of acquisitions, the divestiture of businesses and the restructuring of certain operations. CASH FLOWS AND CAPITAL EXPENDITURES Net cash flows from operating activities decreased to approximately $153 million in 1999 from approximately $200 million in 1998. In 1998, net cash from operating activities included approximately $46 million from the liquidation of marketable securities. Reflecting the favorable long-term prospects for MascoTech, the Company's Board of Directors authorized in 1994 the repurchase of 10 million shares of Company Common Stock and Convertible Preferred Stock (converted into common stock in 1997). This repurchase authorization was completed in 1998 and the Board of Directors in late 1998 authorized an additional repurchase of five million shares of Company Common Stock. During 1998, the Company repurchased 3.6 million shares for approximately $64 million, including .4 million shares pursuant to the 1998 Board authorization. The Company repurchased and retired approximately 1.3 million shares of its common stock in 1999. The Company in 1999 increased the quarterly dividend on its common stock to $.08 per share from $.07. Capital expenditures in 1999 were approximately $136 million as compared with $106 million and $55 million in 1998 and 1997, respectively. The increase in capital expenditures from 1998 is related to product line extensions, capacity expansions and expenditures for new advanced manufacturing technologies. The increase in capital expenditures from 1997 is principally related to the businesses acquired in 1998. INVENTORIES The Company's investment in inventories for its businesses decreased to approximately $184 million at December 31, 1999 as compared with $198 million in 1998. The decrease is principally the result of the disposition of the aftermarket-related businesses and vacuum metalizing operation. 12 14 FINANCIAL POSITION AND LIQUIDITY In connection with the TriMas acquisition in January 1998, the Company entered into a new $1.3 billion credit facility. The Company's credit facility includes a $500 million term loan and an $800 million revolver, both of which terminate in 2003. The interest rates applicable to the credit facility are principally at alternative floating rates which approximated seven percent at December 31, 1999. Interest rate swap agreements covering a notional amount of $400 million of the Company's floating rate debt were entered into in 1998 at an aggregate interest rate of approximately seven percent, including the current borrowing spread under the Company's revolving credit agreement. The credit facility requires the maintenance of a specified level of shareholders' equity plus subordinated debt, with limitations on the ratios of total debt to cash flow (as defined) and cash flow less capital expenditures (as defined) to interest plus scheduled debt payments. In addition, there are limitations on dividends, share repurchases and subordinated debt repurchases. Under the most restrictive of these provisions, approximately $26 million would have been available at December 31, 1999 for the payment of cash dividends and the acquisition of Company stock. Although the Company incurred increased debt with the purchase of TriMas, the Company's interest coverage ratio and debt to cash flow ratio remain strong. The Company expects that its ratio of debt to total debt plus equity will improve from the operating performance of its businesses and from the disposition of certain financial assets. The Company's financial assets include equity ownership positions in two publicly traded companies with an aggregate carrying value of approximately $56 million. On September 30, 1997, the Company exchanged its equity holdings in Emco Limited and approximately $46 million in cash to Masco Corporation to satisfy the indebtedness to Masco incurred in 1996 in connection with the Company's purchase and retirement of certain of its common shares and warrants held by Masco. At December 31, 1999, current assets, which aggregated approximately $470 million, were approximately two times current liabilities. Additional borrowings available under the Company's revolving credit agreement and otherwise, anticipated internal cash flows, and to the extent necessary, future financings in the financial markets are expected to provide sufficient liquidity to fund the Company's foreseeable working capital, capital expansion programs and other investment needs subject to compliance with bank covenants. GENERAL FINANCIAL ANALYSIS 1999 VERSUS 1998 Sales increased approximately three percent in 1999 from 1998. Sales, excluding the impact of the sale of the aftermarket-related and vacuum metalizing businesses, aided by acquisitions, would have increased approximately eight percent in 1999 over 1998. Net income in 1999 was $92.4 million or $1.84 per common share. Results in 1999 include a net gain of $14.4 million pre-tax related to the sale of the aftermarket-related and vacuum metalizing businesses partially offset by charges related to the disposition of certain other operations and a plant closure. In addition, 1999 results include charges of approximately $17.5 million pre-tax related to impairment of certain long-lived assets, which include the Company's hydroforming equipment and related intellectual property. Other income and expense was negatively impacted by pre-tax charges aggregating approximately $5.2 million (net of $1 million of nonrecurring income) which were principally related to equity affiliate investments. Excluding these gains and the charges, net income in 1999 would have been approximately $89 million or $1.78 per common share. Net income in 1998 was $97.5 million or $1.83 per common share. Results in 1998 include a charge related to the disposition of certain businesses aggregating approximately $41 million pre-tax. In addition, the Company recorded a pre-tax gain of approximately $25 million related to the receipt of additional 13 15 consideration based on the operating performance of the Company's stamping businesses which were sold in 1996. Results in 1998 also benefitted from a gain (deferred at time of sale pending receipt of cash) of $7 million pre-tax related to the disposition of the Company's Technical Services Group in 1997 and gains from the Company's marketable securities portfolio. Excluding these gains and the charge, net income in 1998 would have been approximately $89 million or $1.68 per common share. The following information is presented on a pro forma basis as though TriMas was acquired on January 1, 1998 and excludes the unusual pre-tax income and charges mentioned above. Sales for the Company's Specialty Metal Formed Products, aided by acquisitions, increased approximately eight percent in 1999 as compared to 1998. Towing Systems sales increased approximately nine percent. Sales of Specialty Fasteners, aided by acquisitions, increased approximately seven percent. Sales of Specialty Packaging and Sealing Products declined approximately three percent as a 15 percent increase in sales of closures and dispensing systems was offset by a 25 percent decline in sales of compressed gas cylinders principally as a result of market conditions and an 11 percent decline in sales of specialty gaskets and related products principally as a result of reduced activity in the oil and gas industry. Sales of Specialty Industrial Products declined approximately three percent from 1998 levels. Operating margins approximated 13.0 percent and 13.5 percent for the years ended December 31, 1999 and 1998, respectively. Margins were negatively impacted by sales declines for certain products and start-up costs related to the launch of new products and new manufacturing facilities. Operating margins in 1999 for the Company's Specialty Metal Formed Products and Towing Systems approximated 1998 levels. Operating margins for Specialty Fasteners declined from 16.8 percent in 1998 to 14.5 percent in 1999 principally due to reduced sales for aerospace, agricultural, off- highway and certain other fastener applications. Operating margins for Specialty Packaging and Sealing Products declined from 20.6 percent in 1998 to 19.0 percent in 1999 due to sales declines resulting from decreased demand for compressed gas cylinders and specialty gaskets as a result of depressed market conditions. Specialty Industrial Products profit margins were down slightly in 1999 versus 1998. The unusual relationship between income before taxes and income taxes relates to the unusual gains and charges discussed above. Excluding the impact of the unusual gains and charges for the full year, 1999 would result in an effective tax rate of approximately 40 percent. Other income (expense), net in 1999 was expense of $76 million as compared with $62 million of expense in 1998. Results for 1999 include pre-tax charges principally related to equity affiliate investments aggregating approximately $5 million, net of $1 million of nonrecurring income. Results for 1998 benefitted from a gain (deferred at time of sale pending receipt of cash) of $7 million pre-tax related to the disposition of the Company's Technical Services Group in 1997 and gains of approximately $3 million pre-tax from the Company's marketable securities portfolio. 1998 VERSUS 1997 Sales increased to $1.6 billion in 1998 from $922 million in 1997 principally as a result of acquisitions. Excluding acquisitions, sales would have increased approximately three percent over 1997. Net income in 1998 was $97.5 million or $1.83 per common share. Results in 1998 include a charge related to the disposition of certain businesses aggregating approximately $41 million pre-tax. In addition, the Company recorded a pre-tax gain of approximately $25 million related to the receipt of additional consideration based on the operating performance of the Company's stamping businesses which were sold in 1996. Results in 1998 also benefitted from a gain (deferred at time of sale pending receipt of cash) of 14 16 $7 million pre-tax related to the disposition of the Company's Technical Services Group in 1997 and gains from the Company's marketable securities portfolio. Excluding these gains and the charge, net income in 1998 would have been approximately $89 million or $1.68 per common share. Income after preferred stock dividends in 1997 was $109 million or $2.12 per common share. Results in 1997 include pre-tax gains approximating $83 million principally related to the disposition of the Company's equity ownership interest in Emco Limited, gains from the Company's marketable securities portfolio and income resulting from equity transactions by affiliates. These gains were partially offset by costs and expenses of approximately $24 million pre-tax related to plant closure costs, the Company's share of special charges recorded by equity affiliates, write-off of deferred charges, and employee termination and other expenses. Excluding these gains and unusual costs, income after preferred stock dividends in 1997 would have been approximately $73 million or $1.50 per common share. The following information is presented on a pro forma basis as though TriMas was acquired on January 1, 1997. Sales increased approximately five percent to $1.7 billion in 1998 from $1.6 billion in 1997. Excluding acquisitions other than TriMas, sales would have increased approximately four percent in 1998 as compared to 1997. Sales of Specialty Metal Formed Products increased approximately six percent in 1998 as compared to 1997. Towing Systems sales, driven by demand for new products, increased by 13 percent over 1997 levels. Sales of Specialty Packaging and Sealing Products and Specialty Fasteners, aided by acquisitions, increased modestly in 1998. Sales of Specialty Industrial Products approximated 1997 levels. Sales for certain of the Company's aftermarket-related businesses that were being held for sale declined by 13 percent. Although 1998 results benefitted from increased sales, operating margins for the Company's Specialty Metal Formed Products in 1998 were slightly below 1997 levels (excluding 1997 nonrecurring charges). Operating results for both 1998 and 1997 were hampered by work stoppages at major customers and at one of the Company's manufacturing facilities. In addition, operating results for both 1998 and 1997 were adversely impacted by start-up costs associated with the Company's hydroforming manufacturing process. Specialty Metal Formed Products' operating margins were also negatively impacted by launch costs related to a new facility in Spain to manufacture powder metal connecting rods. Operating margins in 1998 for the Company's Specialty Fasteners, Towing Systems, Specialty Packaging and Sealing Products and Specialty Industrial Products approximated or slightly exceeded 1997 levels, while operating margins for aftermarket-related products decreased in 1998 from 1997 principally as a result of decreased sales volumes. Operating margins on a pro forma basis including increased amortization expense and before general corporate expense and gain (charge) on dispositions approximated 15 percent for the years 1998 and 1997. The Company's lower effective tax rate for 1998 is the result of the recognition of a non-taxable gain from the sale of MSTI and tax benefits from additional tax losses in excess of book losses related to the disposition of certain businesses. On a pro forma basis, excluding both the gain and charge, the effective tax rate would approximate 40 percent. The Company, through acquisitions and growth, has increased its foreign presence, principally in Europe. In the future, if the Company's foreign operations contribute an increased percentage of pre-tax income, the Company's effective tax rate could increase as a result of higher foreign tax rates versus the U.S. domestic tax rate. 15 17 OTHER MATTERS YEAR 2000 The Company did not experience any significant disruptions to its operating systems or lose any revenues as a result of the date change to year 2000. The Company has in place an internal review team that has been and is continuing to address the Year 2000 issues that encompass operating and administrative areas of the Company. Also, executive management and the Board of Directors continue to monitor the status of the Company's Year 2000 remediation plans. The process includes an assessment of issues and the development of remediation plans, where necessary, as they relate to internally used software, computer hardware and the use of computer applications in the Company's manufacturing processes. Additionally, contingency plans were designed to address either internal or external Year 2000 problems. The cost of Year 2000 compliance for the Company approximated $12 million, including: replacement costs of $7 million which are normal and recurring; upgrades of $2 million which are normal and recurring; repair/programming costs of $2 million; and other costs of $1 million, which are not material to the Company's consolidated results of operations, financial position or cash flow. The majority of the replacement and upgrade costs would have been incurred by the Company over time as part of its regular information system replacement process. FORWARD-LOOKING STATEMENTS This discussion and other sections of this Report contain statements reflecting the Company's views about its future performance and constitute "forward-looking statements." These views involve risks and uncertainties that are difficult to predict and may cause the Company's actual results to differ significantly from the results discussed in such forward-looking statements. Readers should consider that various factors may affect the Company's ability to attain the projected performance, including: conditions within the markets in which the Company competes, the cyclical nature of the automobile industry in general, changes in the costs of raw materials, labor relations of the Company and certain of its customers, the ability to supply new and existing products on a timely, cost-effective basis, financial results of the Company's equity investments and general economic conditions. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 16 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of MascoTech, Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of MascoTech, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2)(i) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, 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 Detroit, Michigan February 25, 2000 17 19 MASCOTECH, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 AND 1998 ASSETS
1999 1998 -------------- -------------- Current assets: Cash and cash investments........................... $ 4,490,000 $ 29,390,000 Receivables......................................... 218,960,000 223,340,000 Inventories......................................... 183,600,000 198,350,000 Deferred and refundable income taxes................ 46,750,000 26,590,000 Prepaid expenses and other assets................... 16,320,000 23,710,000 -------------- -------------- Total current assets....................... 470,120,000 501,380,000 Equity and other investments in affiliates............ 110,730,000 93,560,000 Property and equipment, net........................... 722,680,000 678,130,000 Excess of cost over net assets of acquired companies........................................... 759,330,000 764,220,000 Notes receivable and other assets..................... 38,410,000 53,250,000 -------------- -------------- Total assets............................... $2,101,270,000 $2,090,540,000 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................... $ 114,490,000 $ 114,830,000 Accrued liabilities................................. 113,910,000 135,230,000 -------------- -------------- Total current liabilities.................. 228,400,000 250,060,000 Convertible subordinated debentures................... 305,000,000 310,000,000 Other long-term debt.................................. 1,067,890,000 1,078,240,000 Deferred income taxes................................. 100,680,000 88,140,000 Other long-term liabilities........................... 98,920,000 110,220,000 -------------- -------------- Total liabilities.......................... 1,800,890,000 1,836,660,000 -------------- -------------- Shareholders' equity: Preferred stock, $1 par: Authorized: 25 million; Outstanding: None................................ -- -- Common stock, $1 par: Authorized: 250 million; Outstanding: 44.6 million and 45.8 million....... 44,640,000 45,780,000 Paid-in capital..................................... -- 16,820,000 Retained earnings................................... 324,290,000 245,860,000 Accumulated other comprehensive loss................ (24,870,000) (7,460,000) Less: Restricted stock awards....................... (43,680,000) (47,120,000) -------------- -------------- Total shareholders' equity................. 300,380,000 253,880,000 -------------- -------------- Total liabilities and shareholders' equity................................... $2,101,270,000 $2,090,540,000 ============== ==============
The accompanying notes are an integral part of the consolidated financial statements. 18 20 MASCOTECH, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 --------------- --------------- ------------- Net sales.............................. $ 1,679,690,000 $ 1,635,500,000 $ 922,130,000 Cost of sales.......................... (1,246,660,000) (1,208,930,000) (735,470,000) --------------- --------------- ------------- Gross profit...................... 433,030,000 426,570,000 186,660,000 Selling, general and administrative expenses............................. (214,530,000) (204,180,000) (89,930,000) Gains (charge) on disposition of businesses, net...................... 14,440,000 (15,580,000) 4,980,000 Charge for asset impairment............ (17,510,000) -- -- --------------- --------------- ------------- Operating profit.................. 215,430,000 206,810,000 101,710,000 --------------- --------------- ------------- Other income (expense), net: Interest expense, Masco Corporation....................... -- -- (7,500,000) Other interest expense............... (80,820,000) (81,500,000) (29,030,000) Equity and other income from affiliates........................ 13,230,000 10,150,000 43,360,000 Gain (charge) from disposition of, or changes in, investments in equity affiliates........................ (3,150,000) -- 64,350,000 Deferred gain recognized from disposition of business........... -- 7,000,000 -- Other, net........................... (5,220,000) 2,060,000 17,400,000 --------------- --------------- ------------- (75,960,000) (62,290,000) 88,580,000 --------------- --------------- ------------- Income before income taxes........ 139,470,000 144,520,000 190,290,000 Income taxes........................... 47,040,000 47,050,000 75,050,000 --------------- --------------- ------------- Net income........................ $ 92,430,000 $ 97,470,000 $ 115,240,000 =============== =============== ============= Preferred stock dividends.............. -- -- $ 6,240,000 =============== =============== ============= Earnings attributable to common stock.......................... $ 92,430,000 $ 97,470,000 $ 109,000,000 =============== =============== =============
BASIC DILUTED BASIC DILUTED BASIC DILUTED ----- ------- ----- ------- ----- ------- Earnings per common share: Earnings attributable to common stock.......................... $2.25 $1.84 $2.23 $1.83 $2.70 $2.12 ===== ===== ===== ===== ===== =====
The accompanying notes are an integral part of the consolidated financial statements. 19 21 MASCOTECH, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ------------- -------------- ------------- CASH FROM (USED FOR): OPERATING ACTIVITIES: Net income.................................. $ 92,430,000 $ 97,470,000 $ 115,240,000 Adjustments to reconcile net income to net cash provided by operating activities: (Gains) charge on disposition of businesses, net........................ (14,440,000) 15,580,000 (4,980,000) Charges (gains) from disposition or other changes in investments in equity affiliates............................. 6,270,000 (7,000,000) (64,350,000) Charge for asset impairment............... 17,510,000 -- -- Depreciation and amortization............. 83,300,000 83,640,000 43,460,000 Equity earnings, net of dividends......... (10,100,000) (6,080,000) (27,180,000) Deferred income taxes..................... 9,560,000 (110,000) 17,520,000 Decrease (increase) in marketable securities, net........................ -- 45,970,000 (8,210,000) (Increase) decrease in receivables........ (3,500,000) (6,700,000) 2,670,000 Decrease (increase) in inventories........ 400,000 (19,640,000) 1,950,000 (Increase) decrease in prepaid expenses and other current assets............... (14,390,000) 1,240,000 (1,280,000) (Decrease) increase in accounts payable and accrued liabilities................ (5,150,000) (6,060,000) 11,140,000 Other, net................................ (9,260,000) 2,290,000 (7,480,000) ------------- -------------- ------------- Net cash from operating activities...................... 152,630,000 200,600,000 78,500,000 ------------- -------------- ------------- FINANCING ACTIVITIES: Increase in debt............................ 28,540,000 1,162,670,000 7,080,000 Payment of debt............................. (40,150,000) (410,660,000) (16,590,000) Payment of note due to Masco Corporation.... -- -- (45,580,000) Retirement of preferred stock............... -- -- (8,360,000) Retirement of Company Common Stock.......... (19,530,000) (63,550,000) (6,610,000) Payment of dividends........................ (13,470,000) (12,240,000) (15,900,000) Other, net.................................. (5,490,000) (13,480,000) (9,070,000) ------------- -------------- ------------- Net cash (used for) from financing activities...................... (50,100,000) 662,740,000 (95,030,000) ------------- -------------- ------------- INVESTING ACTIVITIES: Cash received from sale of businesses, net....................................... 92,620,000 25,020,000 76,560,000 Acquisition of businesses, net of cash acquired.................................. (88,550,000) (879,370,000) (11,100,000) Capital expenditures........................ (135,740,000) (106,300,000) (54,780,000) Receipt of cash from notes receivable....... 2,180,000 4,880,000 17,330,000 Proceeds from redemptions of debt by affiliates................................ -- 80,500,000 -- Other, net.................................. 2,060,000 210,000 10,230,000 ------------- -------------- ------------- Net cash (used for) from investing activities...................... (127,430,000) (875,060,000) 38,240,000 ------------- -------------- ------------- CASH AND CASH INVESTMENTS: (Decrease) increase for the year............ (24,900,000) (11,720,000) 21,710,000 At January 1................................ 29,390,000 41,110,000 19,400,000 ------------- -------------- ------------- At December 31.................... $ 4,490,000 $ 29,390,000 $ 41,110,000 ============= ============== =============
The accompanying notes are an integral part of the consolidated financial statements. 20 22 MASCOTECH, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS) OTHER COMPREHENSIVE INCOME ----------------------- FOREIGN CURRENCY MINIMUM RESTRICTED TOTAL PREFERRED COMMON PAID-IN RETAINED TRANSLATION PENSION STOCK SHAREHOLDERS' STOCK STOCK CAPITAL EARNINGS AND OTHER LIABILITY AWARDS EQUITY --------- ------- -------- -------- ----------- --------- ---------- -------------- Balances, January 1, 1997..... $ 10,800 $37,250 $ 47,800 $ 61,060 $ 8,050 $ -- $(26,140) $138,820 Comprehensive income: Net income................ 115,240 115,240 Foreign currency translation............. (9,220) (9,220) Unrealized gain (loss) on securities (net of tax benefit, $(920))........ (1,390) (1,390) -------- Total comprehensive income............. 104,630 Preferred stock dividends... 150 2,850 (6,240) (3,240) Common stock dividends...... (12,270) (12,270) Retirement of common stock..................... (330) (6,280) (6,610) Retirement of preferred stock..................... (450) (7,910) (8,360) Conversion of outstanding preferred stock........... (10,350) 9,750 600 -- Exercise of stock options... 430 4,000 4,430 Restricted stock awards, net of amortization........... (6,740) (6,740) -------- ------- -------- -------- -------- -------- -------- -------- Balances, December 31, 1997... -- 47,250 41,060 157,790 (2,560) -- (32,880) 210,660 Comprehensive income: Net income................ 97,470 97,470 Foreign currency translation............. 6,410 6,410 Minimum pension liability (net of tax benefit $(6,700))............... (10,700) (10,700) Unrealized gain (loss) on securities (net of tax benefit, $(420))........ (610) (610) -------- Total comprehensive income............. 92,570 Common stock dividends...... (9,400) (9,400) Retirement of common stock..................... (3,640) (60,170) (63,810) Exercise of stock options... 1,160 14,750 15,910 Restricted stock awards, net of amortization........... (14,240) (14,240) Common stock issued for acquisition of business... 1,010 21,180 22,190 -------- ------- -------- -------- -------- -------- -------- -------- Balances, December 31, 1998... -- 45,780 16,820 245,860 3,240 (10,700) (47,120) 253,880 Comprehensive income: Net income................ 92,430 92,430 Foreign currency translation............. (18,110) (18,110) Minimum pension liability (net of tax, $450)...... 700 700 -------- Total comprehensive income............. 75,020 Common stock dividends...... (13,470) (13,470) Retirement of common stock..................... (1,280) (18,580) (19,860) Exercise of stock options... 140 1,760 (530) 1,370 Restricted stock awards, net of amortization........... 3,440 3,440 -------- ------- -------- -------- -------- -------- -------- -------- Balances, December 31, 1999... -- $44,640 -- $324,290 $(14,870) $(10,000) $(43,680) $300,380 ======== ======= ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 21 23 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES: Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Corporations that are 20 to 50 percent owned are accounted for by the equity method of accounting; ownership less than 20 percent is accounted for on the cost basis unless the Company exercises significant influence over the investee. Capital transactions by equity affiliates, which change the Company's ownership interest at amounts differing from the Company's carrying amount, are reflected in other income or expense and the investment in affiliates account. The Company has a corporate services agreement with Masco Corporation, which at December 31, 1999 owned approximately 17 percent of the Company's Common Stock. Under the terms of the agreement, the Company pays fees to Masco Corporation for various corporate staff support and administrative services, research and development and facilities. Such fees aggregated approximately $6.4 million in 1999, $8.7 million in 1998 and $5.5 million in 1997. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from such estimates and assumptions. Cash and Cash Investments. The Company considers all highly liquid debt instruments with an initial maturity of three months or less to be cash and cash investments. Marketable Securities and Derivative Financial Instruments. In prior years, the Company had marketable equity securities holdings which were categorized as trading and, as a result, were stated at fair value. Changes in the fair value of trading securities were recognized in earnings. The Company may enter into futures contracts which are held for purposes other than trading and are carried at market value. Changes in market value of outstanding futures contracts are recognized in earnings. The Company may enter into interest rate swap agreements to limit the effect of changes in the interest rates on any floating rate debt. For interest rate instruments that effectively hedge interest rate exposures, the net cash amounts paid or received on the agreements are recognized as an adjustment to interest expense. Receivables. Receivables are presented net of allowances for doubtful accounts of approximately $4.3 million and $3.4 million at December 31, 1999 and 1998, respectively. The Company does a significant amount of business with a number of individual customers in the transportation industry. The Company monitors its exposure for credit losses and maintains adequate allowances for doubtful accounts; the Company does not believe that significant credit risk exists. Inventories. Inventories are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method. Property and Equipment, Net. Property and equipment additions, including significant betterments, are recorded at cost. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. Repair and maintenance costs are charged to expense as incurred. Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land 22 24 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) improvements, 2 1/2 to 10 percent, and machinery and equipment, 6 2/3 to 33 1/3 percent. Deferred financing costs are amortized over the lives of the related debt securities. The excess of cost over net assets of acquired companies is amortized using the straight-line method over the period estimated to be benefitted, not exceeding 40 years. At each balance sheet date, management assesses whether there has been a permanent impairment of the excess of cost over net assets of acquired companies by comparing anticipated undiscounted future cash flows from operating activities with the carrying amount of the excess of cost over net assets of acquired companies. The factors considered by management in performing this assessment include current operating results, business prospects, market trends, potential product obsolescence, competitive activities and other economic factors. Based on this assessment, there was no permanent impairment related to the excess of cost over net assets of acquired companies at December 31, 1999. At December 31, 1999 and 1998, accumulated amortization of the excess of cost over net assets of acquired companies and patents was $68.5 million and $56.4 million, respectively. Amortization expense was $28.4 million, $31.8 million and $9.3 million in 1999, 1998 and 1997, respectively. New Accounting Pronouncements and Reclassifications. On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In June 1999, FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective adoption date of SFAS No. 133 to January 1, 2001. The Company is currently evaluating the impact SFAS No. 133 will have on its financial statements, if any. The American Institute of Certified Public Accountants' Statement of Position No. 98-5, "Reporting on the Costs of Start-up Activities," became effective on January 1, 1999 and did not have a material impact on the Company's financial statements. 23 25 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) EARNINGS PER SHARE: The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 -------- -------- -------- Weighted average number of shares outstanding......... 41,110 43,630 40,300 ======== ======== ======== Net income............................................ $ 92,430 $ 97,470 $115,240 Less: Preferred stock dividends....................... -- -- (6,240) -------- -------- -------- Earnings used for basic earnings per share computation....................................... $ 92,430 $ 97,470 $109,000 ======== ======== ======== Basic earnings per share.............................. $2.25 $2.23 $2.70 ======== ======== ======== Total shares used for basic earnings per share computation......................................... 41,110 43,630 40,300 Dilutive securities: Stock options....................................... 530 1,060 1,250 Assumed conversion of preferred stock at January 1, 1997............................................. -- -- 5,210 Convertible debentures.............................. 9,840 10,000 10,000 Contingently issuable shares........................ 3,720 3,830 2,160 -------- -------- -------- Total shares used for diluted earnings per share computation.......................... 55,200 58,520 58,920 ======== ======== ======== Earnings used for basic earnings per share computation......................................... $ 92,430 $ 97,470 $109,000 Add back of preferred stock dividends................. -- -- 6,240 Add back of debenture interest........................ 9,310 9,530 9,530 -------- -------- -------- Earnings used for diluted earnings per share computation....................................... $101,740 $107,000 $124,770 ======== ======== ======== Diluted earnings per share....................... $1.84 $1.83 $2.12 ======== ======== ========
Diluted earnings per share reflect the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. SUPPLEMENTARY CASH FLOWS INFORMATION: Significant transactions not affecting cash were: in 1999, the assumption of approximately $10 million of liabilities in an acquisition; in 1998, the issuance of $22 million of Company Common Stock in partial exchange for the assets of an acquired company; the acquisition of TriMas for cash and the assumption of liabilities of approximately $179 million; and in 1997, the conversion of the Company's outstanding shares of Dividend Enhanced Convertible Preferred Stock for approximately 10 million shares of Company Common Stock (see "Shareholders' Equity" note); the exchange of approximately 9.9 million shares of the outstanding common stock of Emco Limited ("Emco") with a value of approximately $106 million, in addition to the cash payment of approximately $46 million, in payment of a promissory note due to Masco Corporation. Income taxes paid were $54 million, $38 million and $44 million in 1999, 1998 and 1997, respectively. Interest paid was $79 million, $79 million and $39 million in 1999, 1998 and 1997, respectively. 24 26 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACQUISITIONS: In January 1998, the Company completed the acquisition of TriMas Corporation ("TriMas") by purchasing all the outstanding shares of TriMas not already owned by the Company for approximately $920 million. The Company previously owned 37 percent of TriMas. The results for 1998 reflect TriMas' sales and operating results from the date of acquisition. The acquisition has been accounted for as a purchase and the excess of the aggregate purchase price over the fair value of net assets acquired of approximately $680 million is being amortized over 40 years. The Company acquired a business operation and a product line extension in 1999, which will provide annual sales of approximately $85 million, for an aggregate purchase price of approximately $93 million. These transactions have been accounted for as purchases and the excess of the aggregate purchase price over the fair value of net assets acquired of approximately $51 million is being amortized over 40 years. The results for 1999 reflect sales and operating results from the dates of acquisition. DISPOSITIONS OF BUSINESSES: The Company received approximately $30 million of contingent consideration ($5 million in 1997 and $25 million in 1998) based on the subsequent operating performance of certain businesses sold in 1996. This gain, which is non-taxable, is included in the caption "gains (charge) on disposition of businesses, net" in the consolidated statement of income. On January 3, 1997, the Company sold its Technical Services Group (comprised of the Company's engineering and technical business services units) to MSX International, Inc. Also included in this transaction were the net assets of APX International which were acquired by the Company in November 1996 for approximately $44 million. The sale resulted in total proceeds to the Company of approximately $145 million, subject to certain adjustments, consisting of cash, $30 million of subordinated debentures, $18 million of preferred stock and an approximate 45 percent common equity interest in MSX International, Inc. valued at $2 million. In January 1998, the Company received $48 million of cash from MSX International, Inc. in payment of the subordinated debentures and other amounts due MascoTech, resulting in a realized gain in the first quarter 1998 of $7 million. The remaining deferred gain of approximately $20 million will be recognized upon the liquidation of the common and preferred stock holdings for cash. In the second quarter of 1998, the Company recorded a non-cash charge aggregating approximately $41 million pre-tax (approximately $22 million after-tax) to reflect the write-down of certain long-lived assets principally related to the plan to dispose of certain businesses and to accrue exit costs of approximately $8 million. In April 1999, the Company completed the sale of these aftermarket-related and vacuum metalizing businesses for total proceeds aggregating approximately $105 million, including $90 million of cash which was applied to reduce the Company's indebtedness, a note receivable of $6 million and retained equity interests in the ongoing businesses. These transactions resulted in a pre-tax gain of approximately $26 million ($15 million after-tax). In 1999, management adopted a plan to sell its specialty tubing business which resulted in a pre-tax loss of approximately $7 million and an after-tax gain of approximately $5.5 million, due to the tax basis in the net assets of the businesses exceeding book carrying values. This business was sold in January 2000 for proceeds of approximately $6 million consisting of cash and notes. 25 27 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In addition, the Company recorded in the second quarter 1999 a non-cash pre-tax charge of approximately $17.5 million related to impairment of certain long-lived assets, which included its hydroforming equipment and related intellectual property. In the fourth quarter 1999, the Company announced the closure of a plant and recorded a non-cash pre-tax charge of approximately $4 million ($2 million after-tax) related principally to employee benefit costs and asset impairments. Accrued exit costs at January 1, 1999 were approximately $12 million, new accruals in 1999 were approximately $2 million, payments and adjustments to accrued estimates approximated $2 million and the accrual at December 31, 1999 was approximately $12 million. INVENTORIES:
(IN THOUSANDS) AT DECEMBER 31 ------------------- 1999 1998 -------- -------- Finished goods.................................... $ 86,240 $ 87,810 Work in process................................... 45,940 47,960 Raw material...................................... 51,420 62,580 -------- -------- $183,600 $198,350 ======== ========
EQUITY AND OTHER INVESTMENTS IN AFFILIATES: Equity and other investments in affiliates consist of the following common stock interests in publicly traded affiliates:
AT DECEMBER 31 ------------------ 1999 1998 1997 ---- ---- ---- TriMas Corporation.................................. -- -- 37% Titan International, Inc. .......................... 16% 16% 15% Delco Remy International, Inc. (voting)............. 17% 17% 18%
Titan International, Inc. ("Titan") is a manufacturer of wheels, tires and other products for agricultural, construction and off-highway equipment markets. Delco Remy International, Inc. ("DRI") is a manufacturer of automotive electronic motors and other components. The above companies are accounted for under the equity method. 26 28 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The carrying amount of investments in affiliates at December 31, 1999 and 1998 and quoted market values at December 31, 1999 for publicly traded affiliates (which may differ from the amounts that could have been realized upon disposition) are as follows:
(IN THOUSANDS) 1999 QUOTED 1999 1998 MARKET CARRYING CARRYING VALUE AMOUNT AMOUNT ------- -------- -------- Common stock: Titan International, Inc. .............. $21,550 $ 40,880 $46,900 Delco Remy International, Inc. ......... 24,960 15,300 10,920 ------- -------- ------- Investments in publicly traded affiliates.............................. $46,510 56,180 57,820 ======= Other non-public affiliates............... 54,550 35,740 -------- ------- Total..................................... $110,730 $93,560 ======== =======
The Company's carrying value in common stock of these equity affiliates exceeded its equity in the underlying net book value by approximately $12 million at December 31, 1999. This excess is being amortized over 40 years. In March 1997, TriMas called for redemption its 5% Convertible Subordinated Debentures which resulted in the issuance of approximately 4.7 million common shares, reducing the Company's common equity ownership in TriMas to approximately 37 percent. The Company recognized pre-tax income of approximately $13 million as a result of the change in the Company's common equity ownership interest in TriMas. In September 1997, the Company exchanged its equity holdings in Emco Limited, with a value approximating $106 million (resulting in a pre-tax gain of approximately $46 million), and approximately $46 million in cash to satisfy an indebtedness to Masco Corporation. In December 1997, DRI completed an initial public offering reducing the Company's common equity ownership interest in DRI to approximately 12 percent on a diluted basis. As a result of the change in the Company's common equity ownership interest in DRI, the Company recognized a pre-tax gain of approximately $5 million. In addition to its equity investments in publicly traded affiliates, the Company has equity and other investment interests in privately held automotive-related companies, including the Company's 36 percent common equity ownership in Saturn Electronics & Engineering, Inc., a manufacturer of electromechanical and electronic automotive components; a 45 percent common equity ownership in MSX International, Inc., a provider of technology-based business services and product development services; and a 16 percent common equity ownership in Qualitor, Inc., a supplier of automotive aftermarket products. Equity in undistributed earnings of affiliates of $15 million at December 31, 1999, $6 million at December 31, 1998 and $68 million at December 31, 1997 are included in consolidated retained earnings. 27 29 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Approximate combined condensed financial data of the Company's equity affiliates (including TriMas through the date of acquisition in early 1998, Qualitor since its formation in early 1999, and Emco through the date of disposition September 30, 1997) accounted for under the equity method are as follows:
(IN THOUSANDS) AT DECEMBER 31 ----------------------- 1999 1998 ----------- --------- Current assets.................................... $ 1,180,990 $ 948,370 Current liabilities............................... (708,150) (451,200) ----------- --------- Working capital................................. 472,840 497,170 Property and equipment, net....................... 632,530 473,460 Excess of cost over net assets of acquired companies and other assets...................... 499,040 349,060 Long-term debt.................................... (1,087,650) (846,330) Deferred income taxes and other long-term liabilities..................................... (70,250) (52,030) ----------- --------- Shareholders' equity............................ $ 446,510 $ 421,330 =========== =========
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31 ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Net sales........................................... $3,304,610 $2,764,860 $3,484,540 ========== ========== ========== Operating profit.................................... $ 177,220 $ 125,730 $ 264,590 ========== ========== ========== Earnings attributable to common stock............... $ 41,070 $ 32,480 $ 108,230 ========== ========== ==========
Equity and other income from affiliates consists of the following:
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31 --------------------------------- 1999 1998 1997 ------- ------- ------- The Company's equity in affiliates' earnings available for common shareholders........ $10,300 $ 7,340 $31,330 Interest and dividend income........................ 2,930 2,810 12,030 ------- ------- ------- Equity and other income from affiliates............. $13,230 $10,150 $43,360 ======= ======= =======
PROPERTY AND EQUIPMENT, NET:
(IN THOUSANDS) AT DECEMBER 31 --------------------- 1999 1998 ---------- -------- Cost: Land and land improvements..................... $ 30,650 $ 33,160 Buildings...................................... 184,170 179,870 Machinery and equipment........................ 830,400 777,710 ---------- -------- 1,045,220 990,740 Less: Accumulated depreciation................... 322,540 312,610 ---------- -------- $ 722,680 $678,130 ========== ========
Depreciation expense totalled $55 million, $52 million and $34 million in 1999, 1998 and 1997, respectively. 28 30 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACCRUED LIABILITIES:
(IN THOUSANDS) AT DECEMBER 31 ------------------- 1999 1998 -------- -------- Salaries, wages and commissions................... $ 8,800 $ 16,550 Vacation, holiday and bonus....................... 18,550 19,420 Income taxes...................................... 3,940 8,790 Interest.......................................... 5,250 4,300 Insurance......................................... 24,130 22,470 Property, payroll and other taxes................. 5,380 5,490 Pension........................................... 20,850 13,600 Other............................................. 27,010 44,610 -------- -------- $113,910 $135,230 ======== ========
LONG-TERM DEBT:
(IN THOUSANDS) AT DECEMBER 31 ----------------------- 1999 1998 ---------- ---------- 4 1/2% Convertible Subordinated Debentures, due 2003 and convertible into Company Common Stock at $31 per share....................... $ 305,000 $ 310,000 Bank revolving credit agreement................ 606,000 500,000 Bank term loan................................. 383,000 475,000 Other.......................................... 85,660 108,060 ---------- ---------- 1,379,660 1,393,060 Less: Current portion of long-term debt........ 6,770 4,820 ---------- ---------- Long-term debt................................. $1,372,890 $1,388,240 ========== ==========
In connection with the TriMas acquisition in early 1998 (see "Acquisitions" note), the Company entered into a new $1.3 billion credit facility. This facility includes a $500 million term loan with remaining principal payments as follows: 2000 -- $60 million; 2001 -- $75 million; 2002 -- $138 million; and 2003 -- $110 million. The credit facility also includes an $800 million revolver which terminates in 2003. The Company has recorded the $60 million principal payment due in 2000 as long-term because the Company has the ability and intent to refinance amounts due in 2000 on a long-term basis utilizing the revolver. Other debt at December 31, 1999 principally consists of borrowings denominated in foreign currencies under the revolving credit agreement by the Company's subsidiaries. At December 31, 1999, there was approximately $120 million unused under the revolving credit agreement. The interest rates applicable to the revolver and term loan are principally at alternative floating rates which approximated seven percent at December 31, 1999. Interest rate swaps covering a notional amount 29 31 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of $400 million of the Company's floating rate debt were entered into in 1998 at an aggregate interest rate of approximately seven percent including the current borrowing spread under the Company's revolving credit agreement. These swap agreements expire at various dates in 2000 through 2007. The credit facility requires the maintenance of a specified level of shareholders' equity plus subordinated debt, with limitations on the ratios of total debt to cash flow (as defined) and cash flow less capital expenditures (as defined) to interest plus taxes and scheduled debt payments. In addition, there are limitations on dividends, share repurchases and subordinated debt repurchases. Under the most restrictive of these provisions, approximately $26 million would have been available at December 31, 1999 for the payment of cash dividends and the acquisition of Company capital stock. The facility is collateralized by a pledge of the stock of TriMas. Masco Corporation has agreed to purchase from the Company, at the Company's option, up to $200 million of subordinated debentures through 2002. The maturities of debt as at December 31, 1999 during the next five years are as follows (in millions): 2000 -- $67; 2001 -- $84; 2002 -- $141; 2003 -- $1,033; and 2004 -- $2. SHAREHOLDERS' EQUITY: On June 27, 1997, the Company completed the conversion of all remaining issued and outstanding shares of its Dividend Enhanced Convertible Preferred Stock (DECS). Holders of DECS received in exchange for each share of DECS .955 of a share of the Company's Common Stock, par value $1.00 per share, resulting in the issuance of approximately 10 million shares of Company Common Stock. The Company repurchased and retired approximately 1.3 million shares of its common stock in 1999, 3.6 million shares of its common stock in 1998 and approximately .3 million shares of its common stock and approximately .5 million shares of its preferred stock in 1997, pursuant to Board of Directors' authorized repurchase programs. At December 31, 1999, the Company may repurchase approximately 3.3 million additional shares of Company Common Stock pursuant to the repurchase authorization. In 1996, the Company purchased from Masco Corporation 17 million shares of MascoTech common stock and warrants to purchase 10 million shares of MascoTech common stock for cash and notes approximating $266 million. In addition, Masco Corporation has agreed to purchase from the Company, at the Company's option, up to $200 million of subordinated debentures through 2002. MascoTech has the right of first refusal to purchase the approximate 7.8 million shares of MascoTech common stock that Masco Corporation continues to hold, should Masco Corporation decide to dispose of such shares. On the basis of amounts paid (declared), cash dividends per common share were $.30 ($.30) in 1999, $.26 ($.20) in 1998 and $.22 ($.28) in 1997. STOCK OPTIONS AND AWARDS: The Company's Long Term Stock Incentive Plan (the "Plan") provides for the issuance of stock-based incentives in various forms. At December 31, 1999, outstanding stock-based incentives are in the form of restricted long-term stock awards and stock options. 30 32 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Pursuant to the Plan, the Company granted long-term stock awards, net, for 622,000, 908,000 and 565,000 shares of Company Common Stock during 1999, 1998 and 1997, respectively, to key employees of the Company. The weighted average fair value per share of long-term stock awards granted during 1999, 1998 and 1997 on the date of grant was $14, $19 and $19, respectively. Compensation expense for the vesting of long-term stock awards was approximately $4.7 million, $5.2 million and $4.7 million in 1999, 1998 and 1997, respectively. The unamortized value of unvested stock awards, aggregating approximately $44 million at December 31, 1999, are generally amortized over ten-year vesting periods and are recorded in the financial statements as a deduction from shareholders' equity. Fixed stock options are granted to key employees of the Company and have a maximum term of ten years. The exercise price of each fixed option equals the market price of Company Common Stock on the date of grant. These options either vest no later than ten years after grant or in installments beginning in the third year and extending through the eighth year after grant. A summary of the status of the Company's stock options granted under the Plan or prior plans for the three years ended December 31, 1999 is presented below.
(SHARES IN THOUSANDS) 1999 1998 1997 ----- ------ ----- Option shares outstanding, January 1....................... 3,950 3,770 4,290 Weighted average exercise price.......................... $14 $10 $10 Option shares granted...................................... 180 1,480 80 Weighted average exercise price.......................... $14 $19 $20 Option shares exercised.................................... (140) (1,160) (500) Weighted average exercise price.......................... $5 $10 $8 Option shares canceled..................................... (110) (140) (100) Weighted average exercise price.......................... $18 $15 $16 Option shares outstanding, December 31..................... 3,880 3,950 3,770 Weighted average exercise price.......................... $14 $14 $10 Weighted average remaining option term (in years)........ 5.9 6.6 4.7 Option shares exercisable, December 31..................... 1,200 750 1,430 Weighted average exercise price.......................... $9 $9 $9
The following table summarizes information about stock options outstanding at December 31, 1999:
(SHARES IN THOUSANDS) NUMBER NUMBER RANGE OF OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICES AT 12/31/99 REMAINING LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE - ----------------- ----------- ---------------- ----------------- ----------- ---------------- $4.50 -- $14 1,060 1.6 $ 5.46 790 $ 5.06 $14 -- $18 1,380 7.0 $14.51 360 $14.58 $18 -- $25 1,440 7.9 $19.20 50 $22.16 ----- ----- Total Outstanding 3,880 Total Exercisable 1,200 ===== =====
31 33 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1999, 1998 and 1997, a combined total of 3,450,000, 3,820,000 and 5,223,000 shares, respectively, of Company Common Stock were available for the granting of options and incentive awards under the above plans. The Company has elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25 and, accordingly, no stock option compensation expense is included in the determination of net income in the statement of income. The weighted average fair value on the date of grant of options granted was $3.60, $6.30 and $7.70 in 1999, 1998 and 1997, respectively. Had stock option compensation expense been determined pursuant to the methodology of SFAS No. 123, "Accounting for Stock-Based Compensation," the pro forma effects on the Company's earnings per share would have been a reduction of approximately $.04, $.04 and $.02 in 1999, 1998 and 1997, respectively. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
1999 1998 1997 ----- ----- ----- Risk-free interest rate.......................... 5.1% 5.5% 6.5% Dividend yield................................... 1.9% 1.3% 1.4% Volatility factor................................ 26.2% 28.8% 35.0% Expected option life (in years).................. 5.5 5.5 5.5
EMPLOYEE BENEFIT PLANS: Pension and Profit-Sharing Benefits. The Company sponsors defined-benefit pension plans for most of its employees. In addition, substantially all salaried employees participate in noncontributory profit-sharing plans, to which payments are approved annually by the Board of Directors. Aggregate charges to income under these plans were $21 million in 1999, $15 million in 1998 and $9 million in 1997. Net periodic pension cost for the Company's defined-benefit pension plans includes the following components for the three years ended December 31, 1999:
(IN THOUSANDS) 1999 1998 1997 ------- -------- ------- Service cost.................................... $ 7,590 $ 6,470 $ 3,480 Interest cost................................... 12,640 11,380 6,650 Expected return on assets....................... (9,670) (11,430) (6,600) Amortization of transition obligation (asset)... 130 (170) (120) Amortization of prior-service cost.............. 650 750 690 Amortization of net loss........................ 1,440 670 410 ------- -------- ------- Net periodic pension cost....................... $12,780 $ 7,670 $ 4,510 ======= ======== =======
Major assumptions used in accounting for the Company's defined-benefit pension plans are as follows:
1999 1998 1997 ----- ------ ------ Discount rate for obligations....................... 7.75% 6.75% 7.25% Rate of increase in compensation levels............. 5.00% 5.00% 5.00% Expected long-term rate of return on plan assets.... 9.00% 11.00% 11.00%
32 34 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following provides a reconciliation of the changes in the defined-benefit pension plans' projected benefit obligations and fair value of assets for each of the two years ended December 31, 1999, and the funded status as of December 31, 1999 and 1998:
(IN THOUSANDS) 1999 1998 --------- --------- CHANGES IN PROJECTED BENEFIT OBLIGATIONS Benefit obligations at January 1................. $(184,030) $ (99,150) Acquisitions................................... -- (63,720) Service cost................................... (7,130) (5,900) Interest cost.................................. (12,640) (11,380) Plan amendments................................ (1,460) (650) Actuarial gain (loss).......................... 22,830 (9,580) Benefit payments............................... 8,660 6,350 --------- --------- Projected benefit obligations at December 31..... $(173,770) $(184,030) --------- --------- CHANGES IN PLAN ASSETS Fair value of plan assets at January 1........... $ 110,760 $ 63,020 Actual return on plan assets................... (12,110) 1,890 Acquisitions................................... -- 46,420 Contributions.................................. 11,520 6,430 Benefit payments............................... (8,480) (6,350) Expenses/Other................................. (430) (650) --------- --------- Fair value of plan assets at December 31......... $ 101,260 $ 110,760 ========= ========= FUNDED STATUS Plan assets less than projected benefits at December 31.................................... $ (72,510) $ (73,270) Unamortized transition obligation (asset)...... 270 (1,100) Unamortized prior-service cost................. 7,500 7,640 Unamortized net loss........................... 29,340 36,600 --------- --------- Net liability recognized at December 31.......... $ (35,400) $ (30,130) ========= =========
The following provides the amounts related to the plans at December 31, 1999 and 1998:
(IN THOUSANDS) 1999 1998 -------- -------- Accrued benefit liability.......................... $(56,650) $(51,370) Intangible asset................................... 11,250 10,540 Accumulated other comprehensive income............. 10,000 10,700 -------- -------- Net liability recognized......................... $(35,400) $(30,130) ======== ========
33 35 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Postretirement Benefits. The Company provides postretirement medical and life insurance benefits, none of which are funded, for certain of its active and retired employees. Net periodic postretirement benefit cost includes the following components for the years ended December 31, 1999, 1998 and 1997:
(IN THOUSANDS) 1999 1998 1997 ------ ------ ------ Service cost.................................. $ 400 $ 300 $ 300 Interest cost................................. 1,200 1,200 1,400 Net amortization.............................. 500 (100) 700 ------ ------ ------ Net periodic postretirement benefit cost...... $2,100 $1,400 $2,400 ====== ====== ======
The following provides a reconciliation of the changes in the postretirement benefit plans' benefit obligations for each of the two years ended December 31, 1999 and the status as of December 31, 1999 and 1998:
(IN THOUSANDS) 1999 1998 -------- -------- CHANGES IN BENEFIT OBLIGATIONS Benefit obligations at January 1................... $(18,900) $(12,400) Acquisitions..................................... -- (4,400) Service cost..................................... (400) (300) Interest cost.................................... (1,200) (1,200) Employee contributions........................... (100) (100) Actuarial gain (loss)............................ 1,000 (1,900) Benefit payments................................. 1,300 1,200 Curtailment...................................... 100 200 -------- -------- Benefit obligations at December 31................. $(18,200) $(18,900) ======== ======== STATUS Benefit obligations at December 31................. $(18,200) $(18,900) Unamortized transition obligation................ 8,400 9,300 Unrecognized prior-service cost.................. 400 500 Unrecognized net gain............................ (6,700) (6,200) -------- -------- Net liability at December 31....................... $(16,100) $(15,300) ======== ========
The discount rate used in determining the accumulated postretirement benefit obligation increased from 6.75 percent in 1998 to 7.75 percent in 1999. The assumed health care cost trend rate in 1999 was eight percent, decreasing to an ultimate rate in the year 2007 of five percent. If the assumed medical cost trend rates were increased by one percent, the accumulated postretirement benefit obligations would increase by $1.3 million and the aggregate of the service and interest cost components of net periodic postretirement benefit obligations cost would increase by $.1 million. If the assumed medical cost trend rates were decreased by one percent, the accumulated postretirement benefit obligations would decrease by $1.1 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost would decrease by $.1 million. 34 36 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEGMENT INFORMATION: The Company has defined a segment as a component, with business activity resulting in revenue and expense, that has separate financial information evaluated regularly by the Company's chief operating decision maker in determining resource allocation and assessing performance. The Company has five operating segments involving the manufacture and sale of the following: Specialty Metal Formed Products -- Precision products, principally engine and drivetrain components and subassemblies, generally produced using advanced metalworking technologies with significant proprietary content for the transportation industry. Towing Systems -- Vehicle hitches, jacks, winches, couplers and related towing accessories. Specialty Fasteners -- Cold formed fasteners and related metallurgical processing. Specialty Packaging and Sealing Products -- Industrial container closures, pressurized gas cylinders and metallic and nonmetallic gaskets. Specialty Industrial Products -- Specialty drills, cutters and specialized metal finishing services, and flame-retardant facings and jacketings and pressure-sensitive tapes. The Company purchased TriMas in January 1998 and the segment data for 1998 reflects TriMas as though the transaction had occurred on January 1, 1998, consistent with the Company's internal management reporting. Included in the Specialty Metal Formed Products segment are sales to one customer of $197 million, $184 million and $156 million in 1999, 1998 and 1997, respectively; sales to another customer, attributed mainly to the Specialty Metal Formed Products segment, of $140 million in 1997; sales to a third customer, attributed mainly to the Specialty Metal Formed Products segment, of $79 million in 1997; and sales to a fourth customer, attributed mainly to the Specialty Metal Formed Products segment, of $62 million in 1997. Specialty Metal Formed Products' operating profit for 1997 was reduced by $17 million of nonrecurring charges. The Company's export sales approximated $143 million, $142 million and $71 million in 1999, 1998 and 1997, respectively. 35 37 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Intersegment transactions represent principally transactions occurring in the ordinary course of business.
SPECIALTY (IN THOUSANDS) SPECIALTY PACKAGING SPECIALTY COMPANIES METAL FORMED TOWING SPECIALTY AND SEALING INDUSTRIAL SOLD OR HELD PRODUCTS SYSTEMS FASTENERS PRODUCTS PRODUCTS FOR SALE TOTAL ------------ -------- --------- ----------- ---------- ------------ ---------- 1999 - --------------------- Revenue from external customers.......... $817,000 $260,000 $241,000 $216,000 $107,000 $ 39,000 $1,680,000 Intersegment revenue............ 9,000 8,000 4,000 -- 1,000 1,000 23,000 Depreciation and amortization....... 35,000 10,000 12,000 13,000 5,000 2,000 77,000 Segment operating profit............. 112,000 37,000 35,000 41,000 14,000 4,000 243,000 Segment net assets... 602,000 289,000 329,000 422,000 140,000 -- 1,782,000 Capital expenditures....... 87,000 9,000 12,000 19,000 7,000 -- 134,000 1998 - --------------------- Revenue from external customers.......... $760,000 $238,000 $226,000 $223,000 $110,000 $115,000 $1,672,000 Intersegment revenue............ 5,000 6,000 3,000 -- 1,000 3,000 18,000 Depreciation and amortization....... 34,000 9,000 10,000 11,000 5,000 6,000 75,000 Segment operating profit............. 106,000 34,000 38,000 46,000 16,000 12,000 252,000 Segment net assets... 494,000 281,000 328,000 423,000 140,000 102,000 1,768,000 Capital expenditures....... 63,000 8,000 14,000 16,000 4,000 3,000 108,000 1997 - --------------------- Revenue from external customers.......... $711,000 -- $ 44,000 -- $ 37,000 $130,000 $ 922,000 Intersegment revenue............ 9,000 -- 1,000 -- -- 2,000 12,000 Depreciation and amortization....... 29,000 -- 1,000 -- 2,000 6,000 38,000 Segment operating profit............. 88,000 -- 8,000 -- 7,000 16,000 119,000 Segment net assets... 444,000 -- 17,000 -- 18,000 109,000 588,000 Capital expenditures....... 46,000 -- 1,000 -- 2,000 5,000 54,000
The following table presents the Company's revenues for each of the years ended December 31 and net assets at each year ended December 31 by geographic area, attributed to each subsidiary's continent of domicile. Revenue and net assets from no single foreign country was material to the consolidated revenues and net assets of the Company.
(IN THOUSANDS) 1999 1998 1997 ---------------------- ---------------------- ---------------------- SALES NET ASSETS SALES NET ASSETS SALES NET ASSETS -------- ---------- -------- ---------- -------- ---------- Europe................... $165,000 $182,000 $149,000 $171,000 $100,000 $111,000 Australia................ 23,000 14,000 18,000 10,000 -- -- Other North America...... 12,000 18,000 16,000 12,000 -- -- -------- -------- -------- -------- -------- -------- Total foreign.......... $200,000 $214,000 $183,000 $193,000 $100,000 $111,000 ======== ======== ======== ======== ======== ========
36 38 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following is a reconciliation of reportable segment revenue from external customers, segment operating profit and segment net assets to the Company's consolidated totals:
(IN THOUSANDS) 1999 1998 1997 ---------- ---------- -------- REVENUE FROM EXTERNAL CUSTOMERS Revenue from external customers for reportable segments......................................... $1,680,000 $1,672,000 $922,000 TriMas sales prior to acquisition.................. -- (36,000) -- ---------- ---------- -------- Total net sales......................... $1,680,000 $1,636,000 $922,000 ========== ========== ========
(IN THOUSANDS) 1999 1998 1997 ---------- ---------- -------- OPERATING PROFIT Total operating profit for reportable segments..... $ 243,000 $ 252,000 $119,000 General corporate expense.......................... (24,000) (24,000) (22,000) Gain (loss) on disposition of businesses........... 14,000 (41,000) -- Charge for asset impairment........................ (18,000) -- -- MSTI earnout....................................... -- 25,000 5,000 TriMas operating profit prior to acquisition....... -- (5,000) -- ---------- ---------- -------- Total operating profit.................. $ 215,000 $ 207,000 $102,000 ========== ========== ========
(IN THOUSANDS) 1999 1998 1997 ---------- ---------- -------- NET ASSETS AT DECEMBER 31 Total net operating assets for reportable segments......................................... $1,782,000 $1,768,000 $588,000 Corporate net assets............................... 91,000 72,000 372,000 ---------- ---------- -------- Total net assets........................ $1,873,000 $1,840,000 $960,000 ========== ========== ========
The information that the chief operating decision maker utilizes includes total net assets as presented in the table above. Total net assets is defined by the Company as total assets less current liabilities. Included in corporate net assets for 1999 were capital expenditures of $2 million. OTHER SIGNIFICANT ITEMS
(IN THOUSANDS) 1999 1998 1997 ------- ------- ------- DEPRECIATION AND AMORTIZATION Segment totals........................................... $77,000 $75,000 $38,000 Adjustments.............................................. 6,000 9,000 5,000 ------- ------- ------- Consolidated totals........................... $83,000 $84,000 $43,000 ======= ======= =======
The above adjustments to depreciation and amortization are principally the result of compensation expense related to stock award amortization and prepaid debenture expense amortization. 37 39 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OTHER INCOME (EXPENSE), NET:
(IN THOUSANDS) 1999 1998 1997 ------- ------- ------- Other, net: Net realized and unrealized gains from marketable securities................... $ -- $ 3,330 $13,130 Interest income............................ 2,170 4,180 3,440 Other, net................................. (7,390) (5,450) 830 ------- ------- ------- $(5,220) $ 2,060 $17,400 ======= ======= =======
INCOME TAXES:
(IN THOUSANDS) 1999 1998 1997 -------- -------- -------- Income before income taxes: Domestic............................... $123,610 $115,630 $173,410 Foreign................................ 15,860 28,890 16,880 -------- -------- -------- $139,470 $144,520 $190,290 ======== ======== ======== Provision for income taxes: Currently payable: Federal............................. $ 26,810 $ 28,210 $ 40,290 State and local..................... 5,450 3,950 6,810 Foreign............................. 5,220 15,000 10,430 Deferred: Federal............................. 7,390 590 18,840 Foreign............................. 2,170 (700) (1,320) -------- -------- -------- Income taxes........................ $ 47,040 $ 47,050 $ 75,050 ======== ======== ========
The components of deferred taxes at December 31, 1999 and 1998 are as follows:
(IN THOUSANDS) 1999 1998 -------- -------- Deferred tax assets: Inventories...................................... $ 2,920 $ 2,990 Accrued liabilities and other long-term liabilities................................... 47,880 51,910 Expected capital loss benefit from disposition of businesses.................................... 8,900 7,910 -------- -------- 59,700 62,810 -------- -------- Deferred tax liabilities: Property and equipment........................... 111,680 101,640 Other, principally equity investments in affiliates.................................... 26,710 26,170 -------- -------- 138,390 127,810 -------- -------- Net deferred tax liability......................... $ 78,690 $ 65,000 ======== ========
38 40 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following is a reconciliation of tax computed at the U.S. federal statutory rate to the provision for income taxes allocated to income before income taxes:
(IN THOUSANDS) 1999 1998 1997 ------- ------- ------- U.S. federal statutory rate................. 35% 35% 35% ------- ------- ------- Tax at U.S. federal statutory rate.......... $48,810 $50,580 $66,600 State and local taxes, net of federal tax benefit................................... 3,540 2,570 4,430 Higher effective foreign tax rate........... 1,840 4,210 3,200 Non-taxable additional consideration from previously sold business.................. -- (8,190) (1,710) Disposition of businesses................... (7,870) (2,400) -- Amortization in excess of tax, net.......... 2,950 1,390 (760) Other, net.................................. (2,230) (1,110) 3,290 ------- ------- ------- Income taxes.............................. $47,040 $47,050 $75,050 ======= ======= =======
A provision has not been made at December 31, 1999 for U.S. or additional foreign withholding taxes on approximately $93 million of undistributed earnings of foreign subsidiaries as those earnings are intended to be permanently reinvested. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability on such undistributed earnings. FAIR VALUE OF FINANCIAL INSTRUMENTS: In accordance with Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the following methods were used to estimate the fair value of each class of financial instruments: CASH AND CASH INVESTMENTS The carrying amount reported in the balance sheet for cash and cash investments approximates fair value. MARKETABLE SECURITIES, NOTES RECEIVABLE AND OTHER ASSETS Fair values of financial instruments included in marketable securities, notes receivable and other assets were estimated using various methods including quoted market prices and discounted future cash flows based on the incremental borrowing rates for similar types of investments. In addition, for variable-rate notes receivable that fluctuate with the prime rate, the carrying amounts approximate fair value. LONG-TERM DEBT The carrying amount of bank debt and certain other long-term debt instruments approximate fair value as the floating rates inherent in this debt reflect changes in overall market interest rates. The fair values of the Company's subordinated debt instruments are based on quoted market prices. The fair values of certain other debt instruments are estimated by discounting future cash flows based on the Company's incremental borrowing rate for similar types of debt instruments. 39 41 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DERIVATIVES The Company has limited involvement with derivative financial instruments, and does not use derivatives for trading purposes. The derivatives, principally consisting of futures contracts and interest rate swap agreements, are intended to reduce the market risk associated with the Company's marketable equity securities portfolio and floating rate debt. The Company's investment in futures contracts increases in value as a result of decreases in the underlying index and decreases in value when the underlying index increases. The contracts are financial instruments (with off-balance sheet market risk), as they are required to be settled in cash. The Company's market risk is subject to the price differential between the contract market value and contract cost. The average monthly notional amount of futures contracts in 1997 was approximately $17 million. Futures contracts trade on organized exchanges, and as a result, settlement of such contracts has little credit risk. Initial margin requirements are met in cash or other instruments, and changes in the contract values are settled periodically. Initial margin requirements are recorded as cash investments in the balance sheet. Futures contracts are short-term in nature, usually less than six months. There were no contracts outstanding at December 31, 1999 or 1998. Interest rate swap agreements covering a notional amount of $400 million of the Company's floating rate debt were entered into in 1998 at an aggregate interest rate of approximately seven percent including the current borrowing spread under the Company's revolving credit agreement. The fair value of the swap agreements was not recognized in the consolidated financial statements since they are accounted for as hedges of the floating rate exposure. These swap agreements expire at various dates in 2000 to 2007. The estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net receivable of $13 million at December 31, 1999. Exposure to credit loss occurs when the fair value of the agreements is a net receivable. The interest rate swaps are with major banks of high credit quality; therefore, the risk of non-performance by the counterparties is considered to be negligible. The carrying amounts and fair values of the Company's financial instruments at December 31, 1999 and 1998 are as follows:
(IN THOUSANDS) 1999 1998 ----------------------- ----------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- Cash and cash investments........... $ 4,490 $ 4,490 $ 29,390 $ 29,390 Notes receivable and other assets... $ 4,180 $ 4,560 $ 5,290 $ 4,480 Long-term debt: Bank debt......................... $1,039,890 $1,039,890 $1,051,260 $1,051,260 4 1/2% Convertible Subordinated Debentures..................... $ 305,000 $ 225,700 $ 310,000 $ 251,100 Other long-term debt.............. $ 28,000 $ 27,850 $ 26,980 $ 25,580
40 42 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INTERIM AND OTHER SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) FOR THE QUARTERS ENDED ------------------------------------------------------------------------ DECEMBER SEPTEMBER JUNE MARCH 31ST 30TH 30TH 31ST -------- --------- -------- -------- 1999: - ------------------------------------ Net sales........................... $395,220 $399,300 $436,510 $448,660 Gross profit........................ $103,980 $ 99,340 $113,690 $116,020 Net income.......................... $ 22,260 $ 20,200 $ 26,110 $ 23,860 Per common share: Basic.................... $.54 $.49 $.64 $.58 Diluted.................. $.45 $.41 $.51 $.47 Market price per common share: High.............................. $17 1/16 $17 11/16 $17 3/4 $17 Low............................... $10 5/8 $15 9/16 $15 1/8 $14 1998: - ------------------------------------ Net sales........................... $401,760 $399,500 $433,480 $400,760 Gross profit........................ $104,960 $100,150 $117,070 $104,390 Net income.......................... $ 18,120 $ 16,790 $ 29,820 $ 32,740 Per common share: Basic.................... $.43 $.38 $.68 $.74 Diluted.................. $.36 $.33 $.54 $.60 Market price per common share: High.............................. $18 3/4 $24 1/8 $26 7/16 $23 1/4 Low............................... $15 1/4 $16 1/4 $22 5/16 $17 11/16
In the first quarter and second quarter of 1999, the Company recognized non-cash charges aggregating approximately $6 million pre-tax to reflect the other than temporary decline in value of equity affiliates of the Company. In 1999, the Company completed the sale of its aftermarket-related and vacuum metalizing businesses. These transactions resulted in a pre-tax gain of approximately $26 million, of which approximately $10 million was recognized in the first quarter 1999 and approximately $16 million in the second quarter 1999. In the second quarter 1999, the Company recorded a non-cash pre-tax charge of approximately $17.5 million related to impairment of certain long-lived assets, which included its hydroforming equipment and related intellectual property. In the fourth quarter 1999, the Company recognized pre-tax charges aggregating approximately $12 million, principally related to the closure of a plant and the sale of a business. In January 1998, the Company completed the acquisition of TriMas Corporation ("TriMas") by purchasing all the outstanding shares of TriMas not already owned by the Company for approximately $920 million. The results for 1998 reflect TriMas' sales and operating results from the date of acquisition. 41 43 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) Results for first quarter 1998 benefitted from pre-tax gains aggregating approximately $12 million which resulted from partial recognition of a deferred gain related to the 1997 divestiture of a business and gains from the Company's marketable securities portfolio. Second quarter results for 1998 were impacted by a charge (approximately $41 million pre-tax) principally related to the disposition of certain businesses. This charge more than offset the gain related to additional consideration received by the Company in the second quarter of 1998 resulting from the disposition of MascoTech Stamping Technologies, Inc. in 1996. 42 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding executive officers required by this Item is set forth as a Supplementary Item at the end of Part I hereof (pursuant to Instruction 3 to Item 401(b) of Regulation S-K). Other information required by this Item will be contained in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, to be filed on or before April 29, 2000, and such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information required by this Item will be contained in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, to be filed on or before April 29, 2000, and such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by this Item will be contained in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, to be filed on or before April 29, 2000, and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required by this Item will be contained in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, to be filed on or before April 29, 2000, and such information is incorporated herein by reference. 43 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) LISTING OF DOCUMENTS. (1) Financial Statements. The Company's Consolidated Financial Statements included in Item 8 hereof, as required at December 31, 1999 and 1998, and for the years ended December 31, 1999, 1998 and 1997, consist of the following: Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Equity Notes to Consolidated Financial Statements (2) Financial Statement Schedules. (i) Financial Statement Schedule of the Company appended hereto, as required for the years ended December 31, 1999, 1998 and 1997, consists of the following: II. Valuation and Qualifying Accounts (ii) TriMas Corporation and Subsidiaries Consolidated Financial Statements appended hereto, as required at December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, consist of the following: Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements (3) Exhibits. 3.i Restated Certificate of Incorporation of MascoTech, Inc. and amendments thereto.(7) 3.ii Bylaws of MascoTech, Inc., as amended.(filed herewith) 4.a Indenture dated as of November 1, 1986 between Masco Industries, Inc. (now known as MascoTech, Inc.) and Morgan Guaranty Trust Company of New York, as Trustee; Agreement of Appointment and Acceptance of Successor Trustee dated as of August 4, 1994 among MascoTech, Inc., Morgan Guaranty Trust Company of New York and The First National Bank of Chicago; Supplemental Indenture dated as of August 5, 1994 between MascoTech, Inc. and The First National Bank of Chicago, as Trustee; Directors' resolutions establishing the Company's 4 1/2% Convertible Subordinated Debentures Due 2003(7); and Form of Note. (filed herewith) 4.b $1,300,000,000 Credit Agreement dated as of January 16, 1998 among MascoTech, Inc., MascoTech Acquisition, Inc., the banks party thereto from time to time, The First National Bank of Chicago, as Administrative Agent, Bank of America NT&SA and NationsBank N.A., as Syndication Agents(4) and Amendment No. 1 thereto dated as of February 10, 1998.(3) 4.c Rights Agreement dated as of February 20, 1998, between MascoTech, Inc. and The Bank of New York, as Rights Agent(5) and Amendment No. 1 to Rights Agreement dated as of September 22, 1998.(6)
44 46 NOTE: Other instruments, notes or extracts from agreements defining the rights of holders of long-term MascoTech, Inc. or its subsidiaries have not been filed since (i) in each case the total amount of long-term debt permitted thereunder does not exceed 10 percent of MascoTech, Inc.'s consolidated assets, and (ii) such instruments, notes and extracts will be furnished by MascoTech, Inc. to the Securities and Exchange Commission upon request. 10.a Assumption and Indemnification Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.).(1) 10.b Corporate Services Agreement and Annex dated as of January 1, 1987 between Masco Industries, Inc. (now known as MascoTech, Inc.) and Masco Corporation, Amendment No. 1 dated as of October 31, 1996 and related letter agreements dated January 22, 1998 and June 17, 1998. (all filed herewith) 10.c Corporate Opportunities Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.)(1) and Amendment No. 1 dated as of October 31, 1996.(2) 10.d Stock Repurchase Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.) and related letter dated September 20, 1985, Amendment to Stock Repurchase Agreement dated as of December 20, 1990 and Amendment to Stock Repurchase Agreement included in Agreement dated as of November 23, 1993.(7) 10.e Amended and Restated Securities Purchase Agreement dated as of November 23, 1993 ("Securities Purchase Agreement") between MascoTech, Inc. and Masco Corporation, including form of Note, Agreement dated as of November 23, 1993 relating thereto, and Amendment No. 1 to the Securities Purchase Agreement dated as of October 31, 1996.(7) 10.f Registration Agreement dated as of March 31, 1993, between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.). (filed herewith) 10.g Stock Purchase Agreement dated as of October 15, 1996 between Masco Corporation and MascoTech, Inc.(2) NOTE: Exhibits 10.h through 10.q constitute the management contracts and executive compensatory plans or arrangements in which certain of the Directors and executive officers of the Company participate. 10.h MascoTech, Inc. 1991 Long Term Stock Incentive Plan (Restated July 15, 1998).(7) 10.i MascoTech, Inc. 1984 Restricted Stock Incentive Plan (Restated December 6, 1995).(1) 10.j MascoTech, Inc. 1984 Stock Option Plan (Restated September 21, 1999). (filed herewith) 10.k Masco Corporation 1991 Long Term Stock Incentive Plan (Amended and Restated July 10, 1998). (filed herewith) 10.l Masco Corporation 1988 Restricted Stock Incentive Plan (Restated December 6, 1995).(1) 10.m Masco Corporation 1988 Stock Option Plan (Restated September 22, 1999). (filed herewith) 10.n MascoTech, Inc. Supplemental Executive Retirement and Disability Plan. (filed herewith) 10.o MascoTech, Inc. 1997 Non-Employee Directors Stock Plan.(3)
45 47 10.p Description of the MascoTech, Inc. Program for Estate, Financial Planning and Tax Assistance.(3) 10.q Masco Corporation 1997 Non-Employee Directors Stock Plan (Amended July 10, 1998). (filed herewith) 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. (filed herewith) 21 List of Subsidiaries. (filed herewith) 23 Consent of PricewaterhouseCoopers LLP relating to MascoTech, Inc.'s Financial Statements and Financial Statement Schedule. (filed herewith) 27 Financial Data Schedule as of and for the year ended December 31, 1999. (filed herewith)
- ------------------------- (1) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995. (2) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Current Report on Form 8-K dated November 13, 1996. (3) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Current Report on Form 8-K dated January 30, 1998. (5) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Registration Statement on Form 8-A dated February 23, 1998. (6) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1998. (7) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. THE COMPANY WILL FURNISH ANY OF ITS STOCKHOLDERS A COPY OF ANY OF THE ABOVE EXHIBITS NOT INCLUDED HEREIN UPON THE WRITTEN REQUEST OF SUCH STOCKHOLDER AND THE PAYMENT TO THE COMPANY OF THE REASONABLE EXPENSES INCURRED BY THE COMPANY IN FURNISHING SUCH COPY OR COPIES. (B) REPORTS ON FORM 8-K. None. 46 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MASCOTECH, INC. By: /s/ TIMOTHY WADHAMS ------------------------------------ TIMOTHY WADHAMS Executive Vice President -- Finance and Administration and Chief Financial Officer March 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. PRINCIPAL EXECUTIVE OFFICER: /s/ FRANK M. HENNESSEY Vice Chairman and Chief - --------------------------------------------- Executive Officer FRANK M. HENNESSEY PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER: /s/ TIMOTHY WADHAMS Executive Vice President -- - --------------------------------------------- Finance and Administration and TIMOTHY WADHAMS Chief Financial Officer /s/ RICHARD A. MANOOGIAN Chairman of the Board - --------------------------------------------- RICHARD A. MANOOGIAN /s/ PETER A. DOW Director - --------------------------------------------- PETER A. DOW /s/ ROGER T. FRIDHOLM Director - --------------------------------------------- ROGER T. FRIDHOLM /s/ WILLIAM K. HOWENSTEIN Director - --------------------------------------------- WILLIAM K. HOWENSTEIN /s/ JOHN A. MORGAN Director - --------------------------------------------- JOHN A. MORGAN /s/ HELMUT F. STERN Director - --------------------------------------------- HELMUT F. STERN
March 29, 2000 47 49 MASCOTECH, INC. FINANCIAL STATEMENT SCHEDULES PURSUANT TO ITEM 14(a)(2) OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1999 Schedules, as required for the years ended December 31, 1999, 1998 and 1997:
PAGE ---- II. Valuation and Qualifying Accounts....................... F-2 TriMas Corporation and Subsidiaries Consolidated Financial Statements................................................ F-3
F-1 50 MASCOTECH, INC. SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------ ---------- ------------------------- ---------- ------------- ADDITIONS ------------------------- CHARGED BALANCE AT CHARGED (CREDITED) BEGINNING TO COSTS TO OTHER BALANCE AT DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD - ------------------------ ---------- ------------ ---------- ---------- ------------- (A) (B) Allowance for doubtful accounts, deducted from accounts receivable in the balance sheet: 1999.................. $3,410,000 $1,080,000 $ 20,000 $ 220,000 $4,290,000 ========== ========== ========== ========== ========== 1998.................. $1,180,000 $ 750,000 $2,590,000 $1,110,000 $3,410,000 ========== ========== ========== ========== ========== 1997.................. $2,000,000 $ 500,000 $ 60,000 $1,380,000 $1,180,000 ========== ========== ========== ========== ==========
NOTES: (A) Allowance of companies acquired, and other adjustments, net. (B) Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years. F-2 51 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of MascoTech, Inc.: We have audited the consolidated balance sheet of TriMas Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1997 as listed in Item 14(a)(2)(ii) of this Form 10-K. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TriMas Corporation and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, substantially all the outstanding shares of the Company not already owned by MascoTech, Inc. were acquired by them in January 1998. The Company is now a wholly owned subsidiary of MascoTech, Inc. COOPERS & LYBRAND L.L.P. Detroit, Michigan February 17, 1998 F-3 52 TRIMAS CORPORATION CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 1997 1996 1995 ------------- ------------- ------------- Net sales................................. $ 667,910,000 $ 600,230,000 $ 553,490,000 Cost of sales............................. (447,940,000) (403,380,000) (371,470,000) Selling, general and administrative expenses................................ (106,270,000) (92,560,000) (83,340,000) ------------- ------------- ------------- Operating profit........................ 113,700,000 104,290,000 98,680,000 Interest expense.......................... (5,420,000) (10,810,000) (13,530,000) Other, net (principally interest income)................................. 6,790,000 7,110,000 6,690,000 ------------- ------------- ------------- Income before income taxes and extraordinary charge............................... 115,070,000 100,590,000 91,840,000 Income taxes.............................. 43,730,000 39,230,000 35,820,000 ------------- ------------- ------------- Income before extraordinary charge...... 71,340,000 61,360,000 56,020,000 Extraordinary charge related to becoming a private company......................... (4,970,000) ------------- ------------- ------------- Net income.............................. $ 66,370,000 $ 61,360,000 $ 56,020,000 ============= ============= =============
The accompanying notes are an integral part of the consolidated financial statements. F-4 53 TRIMAS CORPORATION CONSOLIDATED BALANCE SHEET
DECEMBER 31, ---------------------------- 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.............................. $105,380,000 $105,890,000 Receivables............................................ 83,340,000 80,390,000 Inventories............................................ 97,060,000 92,210,000 Other current assets................................... 4,850,000 4,130,000 ------------ ------------ Total current assets.......................... 290,630,000 282,620,000 Property and equipment................................... 200,490,000 194,540,000 Excess of cost over net assets of acquired companies..... 177,770,000 174,710,000 Other assets............................................. 39,570,000 44,800,000 ------------ ------------ Total assets................................ $708,460,000 $696,670,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable....................................... $ 31,430,000 $ 33,750,000 Other current liabilities.............................. 36,710,000 45,430,000 ------------ ------------ Total current liabilities..................... 68,140,000 79,180,000 Deferred income taxes and other.......................... 44,950,000 39,920,000 Long-term debt........................................... 45,970,000 187,120,000 ------------ ------------ Total liabilities............................. 159,060,000 306,220,000 ------------ ------------ Shareholders' equity: Common stock, $.01 par value, authorized 100 million shares, outstanding 41.3 million shares in 1997; 36.6 million shares in 1996......................... 410,000 370,000 Paid-in capital........................................ 260,310,000 155,690,000 Retained earnings...................................... 293,500,000 238,290,000 Cumulative translation adjustments..................... (4,820,000) (3,900,000) ------------ ------------ Total shareholders' equity.................... 549,400,000 390,450,000 ------------ ------------ Total liabilities and shareholders' equity................................... $708,460,000 $696,670,000 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-5 54 TRIMAS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ CASH FROM (USED FOR): OPERATIONS: Net income............................ $ 66,370,000 $ 61,360,000 $ 56,020,000 Adjustments to reconcile net income to net cash from operations: Extraordinary charge............ 4,970,000 Depreciation and amortization... 25,680,000 22,930,000 21,480,000 Deferred income taxes........... 4,830,000 2,100,000 5,560,000 (Increase) decrease in receivables................... (1,360,000) (1,460,000) (4,670,000) (Increase) decrease in inventories................... (5,050,000) (2,430,000) (5,930,000) Increase (decrease) in accounts payable and other current liabilities................... (9,900,000) 7,320,000 (2,500,000) Other, net...................... (1,720,000) 1,260,000 (3,710,000) ------------ ------------ ------------ Net cash from operations...... 83,820,000 91,080,000 66,250,000 ------------ ------------ ------------ INVESTMENTS: Capital expenditures.................. (28,560,000) (26,670,000) (23,470,000) Acquisitions, net of cash acquired.... (27,490,000) Contingent acquisition price paid (including $7.0 million to MascoTech, Inc.)................... (11,250,000) ------------ ------------ ------------ Net cash from (used for) investments................ (39,810,000) (54,160,000) (23,470,000) ------------ ------------ ------------ FINANCING: Long-term debt: Issuance........................ 23,750,000 27,920,000 Retirement...................... (55,980,000) (43,280,000) (51,470,000) Fees related to becoming a private company............................ (1,820,000) Common stock dividends paid........... (10,470,000) (8,060,000) (6,590,000) ------------ ------------ ------------ Net cash from (used for) financing.................. (44,520,000) (23,420,000) (58,060,000) ------------ ------------ ------------ CASH AND CASH EQUIVALENTS: Increase (decrease) for the year...... (510,000) 13,500,000 (15,280,000) At beginning of the year.............. 105,890,000 92,390,000 107,670,000 ------------ ------------ ------------ At end of the year................. $105,380,000 $105,890,000 $ 92,390,000 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-6 55 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of TriMas Corporation and its wholly owned subsidiaries (the "Company"). All significant intercompany transactions have been eliminated. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. AFFILIATES As of December 31, 1997 MascoTech, Inc.'s common stock ownership in the Company approximated 36.8 percent (see "Subsequent Event" note), and Masco Corporation's common stock ownership approximated 3.8 percent. The Company has a corporate services agreement with Masco Corporation. Under the terms of the agreement, the Company pays a fee to Masco Corporation for various corporate support staff, administrative services, and research and development services. Such fee equals .8 percent of the Company's net sales, subject to certain adjustments, and totaled $4.0 million, $3.3 million and $3.1 million in 1997, 1996 and 1995. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At December 31, 1997 the Company had $81.4 million invested in prime commercial paper of several United States issuers having the highest rating given by one of the two principal rating agencies. RECEIVABLES Receivables are presented net of an allowance for doubtful accounts of $2.0 million and $1.9 million at December 31, 1997 and 1996. INVENTORIES Inventories are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment additions, including significant betterments, are recorded at cost. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Maintenance and repair costs are charged to expense as incurred. F-7 56 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1. ACCOUNTING POLICIES (CONTINUED) DEPRECIATION AND AMORTIZATION Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 1/2 to 5 percent, and machinery and equipment, 6 2/3 to 33 1/3 percent. The excess of cost over net assets of acquired companies is being amortized using the straight-line method over the periods estimated to be benefited, not exceeding 40 years. At December 31, 1997 and 1996, accumulated amortization of the excess of cost over net assets of acquired companies and other intangible assets was $42.7 million and $36.6 million. Amortization expense was $6.1 million, $5.3 million and $5.0 million in 1997, 1996 and 1995. As of each balance sheet date management assesses whether there has been an impairment in the value of excess of cost over net assets of acquired companies by comparing anticipated undiscounted future cash flows from the related operating activities with the carrying value. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment at December 31, 1997. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of financial instruments classified in the balance sheet as current assets and current liabilities approximate fair values. The fair value of notes receivable, a portion of which is included in both receivables and other assets, based on discounted cash flows using current interest rates, approximates the carrying value of $7.8 million at December 31, 1997. The carrying amount of borrowings from banks approximates fair value as the floating rates applicable to this debt generally reflect changes in overall market interest rates. FOREIGN CURRENCY TRANSLATION Net assets of the Company's operations outside of the United States are translated into U.S. dollars using current exchange rates with the effects of translation adjustments deferred and included as a separate component of shareholders' equity. Revenues, expenses and cash flows are translated at the average rates of exchange during the period. NOTE 2. SUBSEQUENT EVENT On December 17, 1997 MascoTech Inc.("MascoTech"), through its wholly owned subsidiary MascoTech Acquisition, Inc.("MascoTech Acquisition"), commenced a tender offer to acquire all of the outstanding shares of the Company not already owned by MascoTech. The tender offer was made in accordance with the terms of a merger agreement between the Company, MascoTech and MascoTech Acquisition. The tender offer expired on January 16, 1998 after approximately 95 percent of the Company's outstanding shares not owned by MascoTech had been tendered. On January 22, 1998 MascoTech Acquisition made payment on the tendered shares and was merged with and into the Company, with the Company surviving as a private and wholly owned subsidiary of MascoTech. During 1997 the Company recognized a $5.0 million (pre-tax and after tax) extraordinary charge related to the expenses incurred in connection with this going private transaction. F-8 57 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. ACQUISITIONS During 1996 the Company acquired Queensland Towbars Pty. Ltd., The Englass Group Limited, Heinrich Stolz GmbH and Beaumont Bolt & Gasket Co., all for an aggregate $54.2 million of cash and assumed liabilities. The acquisitions were accounted for as purchases. The aggregate excess of cost over net assets acquired of $28.8 million is being amortized on a straight-line basis over 40 years. The results of operations of the acquired businesses have been included in the consolidated financial statements from the respective acquisition dates. During 1997 the Company paid $11.3 million to the former owners of businesses acquired in previous years, including $7.0 million to MascoTech, Inc. These payments resulted from the acquired businesses having achieved specified levels of profitability during designated periods subsequent to the acquisition. These payments were recorded as additional excess of cost over net assets of acquired companies and are being amortized over the remainder of the original 40 year amortization period. NOTE 4. SUPPLEMENTAL CASH FLOWS INFORMATION
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- --------- --------- Interest paid........................................... $ 7,420 $10,610 $13,560 ======== ======= ======= Income taxes paid....................................... $ 41,080 $33,180 $30,690 ======== ======= ======= Significant noncash transactions: Conversion of convertible subordinated debentures into common stock....................................... $106,000 ======== Accrued fees related to becoming a private company.... $ 3,150 ======== Common stock dividends declared, payable in subsequent year............................................... $ 2,890 $ 2,200 $ 1,830 ======== ======= ======= Assumption of liabilities as partial consideration for the assets of companies acquired................... $26,720 ======= Increase in obligation, including accrued interest, to former owner, MascoTech, Inc., of business acquired, recorded as additional excess of cost over net assets of acquired companies.............. $ 5,850 =======
NOTE 5. INVENTORIES
(IN THOUSANDS) AT DECEMBER 31, ----------------- 1997 1996 ------- ------- Finished goods.............................................. $53,260 $53,380 Work in process............................................. 15,430 14,340 Raw material................................................ 28,370 24,490 ------- ------- $97,060 $92,210 ======= =======
F-9 58 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. PROPERTY AND EQUIPMENT
(IN THOUSANDS) AT DECEMBER 31, -------------------- 1997 1996 -------- -------- Cost: Land and land improvements................................ $ 14,080 $ 14,010 Buildings................................................. 71,420 71,260 Machinery and equipment................................... 261,070 240,960 -------- -------- 346,570 326,230 Less accumulated depreciation............................... 146,080 131,690 -------- -------- $200,490 $194,540 ======== ========
Depreciation expense was $19.5 million, $17.7 million and $16.4 million in 1997, 1996 and 1995. NOTE 7. OTHER CURRENT LIABILITIES
(IN THOUSANDS) AT DECEMBER 31, ------------------ 1997 1996 ------- ------- Employee wages and benefits................................. $19,890 $18,570 Dividends................................................... 2,890 2,200 Property taxes.............................................. 2,070 1,930 Current income taxes........................................ 1,690 3,810 Interest.................................................... 720 2,710 Amount due former owner, MascoTech, Inc., of business acquired.................................................. 5,850 Other....................................................... 9,450 10,360 ------- ------- $36,710 $45,430 ======= =======
NOTE 8. LONG-TERM DEBT
(IN THOUSANDS) AT DECEMBER 31, ------------------ 1997 1996 ------- -------- Borrowings from banks....................................... $42,130 $ 68,030 5% convertible subordinated debentures...................... 115,000 Other....................................................... 4,840 4,260 ------- -------- 46,970 187,290 Less current maturities..................................... 1,000 170 ------- -------- $45,970 $187,120 ======= ========
At December 31, 1997 borrowings from banks are owing under the Company's L20.0 million revolving credit facility in England ($25.8 million) and its DM 30.0 million revolving credit facility in Germany ($16.3 million). At December 31, 1996 borrowings from banks are owing under the Company's domestic $350.0 million revolving credit facility ($33.0 million), its L20.0 million revolving credit facility in England ($19.3 F-10 59 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. LONG-TERM DEBT (CONTINUED) million), its DM 30.0 million revolving credit facility in Germany ($9.0 million) and other borrowing arrangements in Germany ($6.7 million). The domestic facility, which was terminated in January, 1998 as a result of the acquisition of the Company by MascoTech, Inc., permitted the Company to borrow under several different interest rate options, while the foreign facilities base interest rates on the London Interbank Offered Rate (LIBOR). At December 31, 1997 the blended interest rate on bank borrowings equaled 6.4 percent. The facilities contain certain restrictive covenants, the most restrictive of which, at December 31, 1997, required $381.5 million of shareholders' equity. The Company had available credit of $8.6 million under its foreign revolving credit facilities at December 31, 1997. During 1997 the Company redeemed, for cash, $9.0 million of its $115.0 million of 5% Convertible Subordinated Debentures Due 2003. The remaining $106.0 million of debentures were converted into 4.7 million shares of TriMas Corporation common stock at the conversion price of $22 5/8 per share. NOTE 9. SHAREHOLDERS' EQUITY
(IN THOUSANDS) CUMULATIVE COMMON PAID-IN RETAINED TRANSLATION STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL ------ -------- -------- ----------- -------- Balance, January 1, 1995............ $370 $155,210 $136,310 $(1,290) $290,600 Net income........................ 56,020 56,020 Common stock dividends............ (6,960) (6,960) Other............................. 220 (1,210) (990) ---- -------- -------- ------- -------- Balance, December 31, 1995.......... 370 155,430 185,370 (2,500) 338,670 Net income........................ 61,360 61,360 Common stock dividends............ (8,440) (8,440) Other............................. 260 (1,400) (1,140) ---- -------- -------- ------- -------- Balance, December 31, 1996.......... 370 155,690 238,290 (3,900) 390,450 Net income........................ 66,370 66,370 Common stock dividends............ (11,160) (11,160) Convertible debt conversion....... 40 104,160 104,200 Other............................. 460 (920) (460) ---- -------- -------- ------- -------- Balance, December 31, 1997.......... $410 $260,310 $293,500 $(4,820) $549,400 ==== ======== ======== ======= ========
During 1997 $106.0 million of the Company's $115.0 million of 5% Convertible Subordinated Debentures Due 2003 were converted into 4.7 million shares of TriMas Corporation common stock at the conversion price of $22 5/8 per share. As a result of the conversion, $1.8 million of costs associated with the issuance of the debentures was charged against Paid-In-Capital. F-11 60 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. STOCK OPTIONS AND AWARDS The Company's stock incentive plans include the TriMas Corporation 1995 Long Term Stock Incentive Plan, the 1988 Restricted Stock Incentive Plan and the 1988 Stock Option Plan. Company common stock available for grant under these plans includes the 2,000,000 shares initially established under the 1995 plan, plus additional shares resulting from certain reacquisitions of shares by the Company. The Company granted long-term incentive awards of Company common stock, net, for 64,815 shares in 1997, 159,071 shares in 1996 and 290,588 shares in 1995, to key employees of the Company. The weighted average fair value per share, on date of grant, of long-term incentive awards granted in 1997, 1996 and 1995 was $24.15, $19.66 and $23.21. Compensation expense recorded in 1997, 1996 and 1995 related to long-term incentive awards was $2.4 million, $2.2 million and $1.6 million. The unamortized costs of incentive awards, aggregating $13.2 million at December 31, 1997, are being amortized over the vesting periods, which are typically ten years. Fixed stock options are granted to key employees of the Company and have a maximum term of ten years. The exercise price of each fixed option equals the market price of the Company's common stock on the date of grant. The options generally vest in installments beginning in the second year and extending through the eighth year after grant. For the three years ended December 31, 1997 stock option information is as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 --------- --------- --------- Options outstanding, January 1......................... 538,557 576,064 594,200 Options granted: At option prices per share of $18.38-$25.50.......... 890 16,154 4,864 Weighted average option price per share.............. $23.89 $22.12 $23.35 Options exercised: At option price per share of $8.88................... 33,400 53,661 23,000 Options outstanding, December 31: At option prices per share of $7.50-$8.88............ 484,139 517,539 571,200 Weighted average option price per share........... $8.42 $8.45 $8.49 Weighted average remaining term................... 2.5 years 3.5 years 4.6 years At option prices per share of $18.38-$25.50.......... 21,908 21,018 4,864 Weighted average option price per share........... $22.46 $22.40 $23.35 Weighted average remaining term................... 3.3 years 4.3 years 5.3 years Exercisable, December 31............................... 327,647 312,552 260,464 Weighted average option price per share.............. $9.11 $8.94
The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock based compensation. Accordingly, no compensation expense has been charged against income for fixed stock option grants. Had compensation expense been determined based on the fair value at the 1997, 1996 and 1995 grant dates, consistent with the methodology of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the pro forma effect on the Company's net income would not have been material. F-12 61 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. STOCK OPTIONS AND AWARDS (CONTINUED) At December 31, 1997 and 1996, a combined total of 1,952,669 and 2,011,642 shares of Company common stock were available for the granting of options and incentive awards under the aforementioned plans. NOTE 11. RETIREMENT PLANS The Company has noncontributory retirement benefit plans, both defined benefit plans and profit-sharing and other defined contribution plans, for most of its employees. The annual expense for all plans was:
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ------ ------ ------ Defined contribution plans.............................. $3,040 $2,480 $3,470 Defined benefit plans................................... 2,290 2,660 1,690 ------ ------ ------ $5,330 $5,140 $5,160 ====== ====== ======
Contributions to profit-sharing and other defined contribution plans are generally determined as a percentage of the covered employee's annual salary. Defined benefit plans provide retirement benefits for salaried employees based primarily on years of service and average earnings for the five highest consecutive years of compensation. Defined benefit plans covering hourly employees generally provide benefits of stated amounts for each year of service. These plans are funded based on an actuarial evaluation and review of the assets, liabilities and requirements of each plan. Plan assets are held by a trustee and invested principally in cash equivalents and marketable equity and fixed income instruments. Net periodic pension cost of defined benefit plans includes the following components:
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 ------- ------- ------- Service cost........................................... $ 2,490 $ 2,670 $ 2,000 Interest cost.......................................... 4,270 3,980 3,570 Actual (return) or loss on assets...................... (2,960) (4,010) (5,360) Net amortization and deferral.......................... (1,510) 20 1,480 ------- ------- ------- $ 2,290 $ 2,660 $ 1,690 ======= ======= =======
Weighted average rate assumptions used were as follows:
1997 1996 1995 ---- ---- ---- Discount rate............................................... 7.3% 7.5% 7.3% Rate of increase in compensation levels..................... 5.1% 5.1% 5.1% Expected long-term rate of return on plan assets............ 10.6% 10.6% 10.7%
F-13 62 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11. RETIREMENT PLANS (CONTINUED) The following table sets forth the funded status of the defined benefit plans:
(IN THOUSANDS) AT DECEMBER 31, -------------------------------------------------------- 1997 1996 -------------------------- -------------------------- PLANS PLANS PLANS PLANS WHERE WHERE WHERE WHERE ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ----------- ----------- ----------- ----------- Actuarial present value of: Vested benefit obligation.............. $ 2,800 $48,110 $30,850 $12,060 ======= ======= ======= ======= Accumulated benefit obligation......... $ 2,800 $49,370 $31,220 $14,190 ======= ======= ======= ======= Projected benefit obligation........... $ 2,800 $60,540 $41,030 $15,270 Plan assets at fair value................ 4,720 41,700 35,660 9,200 ------- ------- ------- ------- Projected benefit obligation (in excess of) or less than plan assets........... 1,920 (18,840) (5,370) (6,070) Unrecognized net (asset) or obligation... (250) (170) (980) 390 Unrecognized prior service cost.......... 2,340 400 1,680 Unrecognized net (gain) or loss.......... (1,630) 14,340 5,630 3,240 Requirement to recognize minimum liability.............................. (5,520) (4,220) ------- ------- ------- ------- Prepaid pension cost or (pension liability)....................... $ 40 $(7,850) $ (320) $(4,980) ======= ======= ======= =======
The Company provides postretirement health care and life insurance benefits for certain eligible retired employees under unfunded plans. Some of the plans have cost-sharing provisions. Net periodic postretirement benefit costs during 1997, 1996 and 1995 were $1.0 million, $1.0 million and $.8 million. The aggregate accumulated postretirement benefit obligation of these unfunded plans was $4.4 million and $7.1 million at December 31, 1997 and 1996. The discount rates used in determining the accumulated postretirement benefit obligations and the net periodic postretirement benefit costs were 7.25 percent, 7.5 percent and 7.25 percent in 1997, 1996 and 1995. The assumed health care cost trend rate in 1997 was nine percent, decreasing to an ultimate rate in the years subsequent to 2006 of five percent. A one percent increase in the assumed health care cost trend rates would have increased the net periodic postretirement benefit cost by $.1 million during 1997 and would have increased the accumulated postretirement benefit obligation at December 31, 1997 by $.5 million. The Company is amortizing the unrecognized transition accumulated postretirement benefit obligation and subsequent plan net gains and losses in accordance with Statement of Financial Accounting Standards No. 106. The accrued postretirement benefit obligation was $4.1 million and $3.5 million at December 31, 1997 and 1996. F-14 63 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company's operations in its business segments consist principally of the manufacture and sale of the following: Specialty Fasteners: Cold formed fasteners and related metallurgical processing. Towing Systems: Vehicle hitches, jacks, winches, couplers and related towing accessories. Specialty Container Products: Industrial container closures, pressurized gas cylinders and metallic and nonmetallic gaskets. Corporate Companies: Specialty drills, cutters and specialized metal finishing services, and flame-retardant facings and jacketings and pressure-sensitive tapes. F-15 64 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 -------- -------- -------- NET SALES Specialty Fasteners.................................... $161,640 $141,510 $141,050 Towing Systems......................................... 201,410 189,540 175,000 Specialty Container Products........................... 218,920 189,320 165,670 Corporate Companies.................................... 85,940 79,860 71,770 -------- -------- -------- Total net sales..................................... $667,910 $600,230 $553,490 ======== ======== ======== OPERATING PROFIT Specialty Fasteners.................................... $ 29,630 $ 25,740 $ 27,290 Towing Systems......................................... 31,190 31,480 31,080 Specialty Container Products........................... 46,810 42,890 39,040 Corporate Companies.................................... 14,490 11,980 8,420 -------- -------- -------- Total operating profit.............................. 122,120 112,090 105,830 Other income (expense), net.............................. 1,370 (3,700) (6,840) General corporate expense................................ (8,420) (7,800) (7,150) -------- -------- -------- Income before income taxes and extraordinary charge............................................ $115,070 $100,590 $ 91,840 ======== ======== ======== IDENTIFIABLE ASSETS AT DECEMBER 31 Specialty Fasteners.................................... $149,400 $143,060 $146,200 Towing Systems......................................... 155,500 158,840 151,160 Specialty Container Products........................... 244,600 231,610 149,790 Corporate Companies.................................... 58,020 57,220 56,230 Corporate (A).......................................... 100,940 105,940 112,980 -------- -------- -------- Total assets........................................ $708,460 $696,670 $616,360 ======== ======== ======== CAPITAL EXPENDITURES Specialty Fasteners.................................... $ 8,340 $ 4,500 $ 10,840 Towing Systems......................................... 4,770 9,160 4,790 Specialty Container Products........................... 13,580 23,170 5,780 Corporate Companies.................................... 1,830 2,690 2,030 Corporate.............................................. 40 10 30 -------- -------- -------- Total capital expenditures.......................... $ 28,560 $ 39,530(B) $ 23,470 ======== ======== ======== DEPRECIATION AND AMORTIZATION Specialty Fasteners.................................... $ 7,510 $ 7,510 $ 7,230 Towing Systems......................................... 6,460 6,070 5,610 Specialty Container Products........................... 8,860 6,690 6,140 Corporate Companies.................................... 2,780 2,590 2,430 Corporate.............................................. 70 70 70 -------- -------- -------- Total depreciation and amortization................. $ 25,680 $ 22,930 $ 21,480 ======== ======== ========
- ------------------------- (A) Corporate assets consist primarily of cash and cash equivalents. (B) Including $12.9 million from businesses acquired. Sales of the Company's foreign operations equaled $74.2 million, $46.0 million and $33.7 million in 1997, 1996 and 1995. Identifiable assets of foreign operations totaled $88.3 million, $82.9 million and $32.4 million at December 31, 1997, 1996 and 1995. Export sales equaled less than ten percent of total sales for each of the three years presented. F-16 65 TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) NOTE 13. INCOME TAXES
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 -------- -------- ------- Income before income taxes and extraordinary charge: Domestic......................................... $105,810 $ 92,990 $86,900 Foreign.......................................... 9,260 7,600 4,940 -------- -------- ------- $115,070 $100,590 $91,840 ======== ======== ======= Provision for income taxes: Federal.......................................... $ 31,090 $ 29,700 $23,810 State and local.................................. 5,170 4,690 4,460 Foreign.......................................... 2,640 2,740 1,990 Deferred, principally federal.................... 4,830 2,100 5,560 -------- -------- ------- $ 43,730 $ 39,230 $35,820 ======== ======== =======
The following is a reconciliation of the U.S. federal statutory tax rate to the effective tax rate:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 ----- ----- ----- U.S. federal statutory tax rate....................... 35.0% 35.0% 35.0% State and local taxes, net of federal tax benefit..... 2.9 3.0 3.1 Foreign taxes in excess of U.S federal tax rate....... .1 .1 .3 Nondeductible amortization of excess of cost over net assets of acquired companies........................ .6 .6 .7 Other, net............................................ (.6) .3 (.1) ----- ----- ----- Effective tax rate............................... 38.0% 39.0% 39.0% ===== ===== =====
Items that gave rise to deferred taxes:
(IN THOUSANDS) AT DECEMBER 31, ------------------------------------------------------------------ 1997 1996 ------------------------------ ------------------------------ DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX ASSETS LIABILITIES ASSETS LIABILITIES ------------ ------------ ------------ ------------ Property and equipment................ $27,260 $23,940 Intangible assets..................... 6,300 4,960 Accrued employee benefits............. $3,350 $2,950 Inventory............................. 650 620 Other................................. 1,050 4,710 1,420 4,480 ------ ------- ------ ------- $5,050 $38,270 $4,990 $33,380 ====== ======= ====== =======
F-17 66 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.i Restated Certificate of Incorporation of MascoTech, Inc. and amendments thereto.(7) 3.ii Bylaws of MascoTech, Inc., as amended.(filed herewith) 4.a Indenture dated as of November 1, 1986 between Masco Industries, Inc. (now known as MascoTech, Inc.) and Morgan Guaranty Trust Company of New York, as Trustee; Agreement of Appointment and Acceptance of Successor Trustee dated as of August 4, 1994 among MascoTech, Inc., Morgan Guaranty Trust Company of New York and The First National Bank of Chicago; Supplemental Indenture dated as of August 5, 1994 between MascoTech, Inc. and The First National Bank of Chicago, as Trustee; Directors' resolutions establishing the Company's 4 1/2% Convertible Subordinated Debentures Due 2003(7); and Form of Note. (filed herewith) 4.b $1,300,000,000 Credit Agreement dated as of January 16, 1998 among MascoTech, Inc., MascoTech Acquisition, Inc., the banks party thereto from time to time, The First National Bank of Chicago, as Administrative Agent, Bank of America NT&SA and NationsBank N.A., as Syndication Agents(4) and Amendment No. 1 thereto dated as of February 10, 1998.(3) 4.c Rights Agreement dated as of February 20, 1998, between MascoTech, Inc. and The Bank of New York, as Rights Agent(5) and Amendment No. 1 to Rights Agreement dated as of September 22, 1998.(6) NOTE: Other instruments, notes or extracts from agreements defining the rights of holders of long-term MascoTech, Inc. or its subsidiaries have not been filed since (i) in each case the total amount of long-term debt permitted thereunder does not exceed 10 percent of MascoTech, Inc.'s consolidated assets, and (ii) such instruments, notes and extracts will be furnished by MascoTech, Inc. to the Securities and Exchange Commission upon request. 10.a Assumption and Indemnification Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.).(1) 10.b Corporate Services Agreement and Annex dated as of January 1, 1987 between Masco Industries, Inc. (now known as MascoTech, Inc.) and Masco Corporation, Amendment No. 1 dated as of October 31, 1996 and related letter agreements dated January 22, 1998 and June 17, 1998. (all filed herewith) 10.c Corporate Opportunities Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.)(1) and Amendment No. 1 dated as of October 31, 1996.(2) 10.d Stock Repurchase Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.) and related letter dated September 20, 1985, Amendment to Stock Repurchase Agreement dated as of December 20, 1990 and Amendment to Stock Repurchase Agreement included in Agreement dated as of November 23, 1993.(7) 10.e Amended and Restated Securities Purchase Agreement dated as of November 23, 1993 ("Securities Purchase Agreement") between MascoTech, Inc. and Masco Corporation, including form of Note, Agreement dated as of November 23, 1993 relating thereto, and Amendment No. 1 to the Securities Purchase Agreement dated as of October 31, 1996.(7) 10.f Registration Agreement dated as of March 31, 1993, between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.). (filed herewith) 10.g Stock Purchase Agreement dated as of October 15, 1996 between Masco Corporation and MascoTech, Inc.(2)
67
EXHIBIT NUMBER DESCRIPTION - ------- ----------- NOTE: Exhibits 10.h through 10.q constitute the management contracts and executive compensatory plans or arrangements in which certain of the Directors and executive officers of the Company participate. 10.h MascoTech, Inc. 1991 Long Term Stock Incentive Plan (Restated July 15, 1998).(7) 10.i MascoTech, Inc. 1984 Restricted Stock Incentive Plan (Restated December 6, 1995).(1) 10.j MascoTech, Inc. 1984 Stock Option Plan (Restated September 21, 1999). (filed herewith) 10.k Masco Corporation 1991 Long Term Stock Incentive Plan (Amended and Restated July 10, 1998). (filed herewith) 10.l Masco Corporation 1988 Restricted Stock Incentive Plan (Restated December 6, 1995).(1) 10.m Masco Corporation 1988 Stock Option Plan (Restated September 22, 1999). (filed herewith) 10.n MascoTech, Inc. Supplemental Executive Retirement and Disability Plan. (filed herewith) 10.o MascoTech, Inc. 1997 Non-Employee Directors Stock Plan.(3) 10.p Description of the MascoTech, Inc. Program for Estate, Financial Planning and Tax Assistance.(3) 10.q Masco Corporation 1997 Non-Employee Directors Stock Plan (Amended July 10, 1998). (filed herewith) 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. (filed herewith) 21 List of Subsidiaries. (filed herewith) 23 Consent of PricewaterhouseCoopers LLP relating to MascoTech, Inc.'s Financial Statements and Financial Statement Schedule. (filed herewith) 27 Financial Data Schedule as of and for the year ended December 31, 1999. (filed herewith)
- ------------------------- (1) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995. (2) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Current Report on Form 8-K dated November 13, 1996. (3) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Current Report on Form 8-K dated January 30, 1998. (5) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Registration Statement on Form 8-A dated February 23, 1998. (6) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1998. (7) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. EX-3.II 2 BYLAWS 1 EXHIBIT 3.ii BYLAWS OF MASCOTECH, INC. (A DELAWARE CORPORATION) (AS AMENDED FEBRUARY 17, 1998) ARTICLE I MEETINGS OF STOCKHOLDERS Section 1.01. Annual Meetings. The annual meeting of stockholders for election of Directors and for the transaction of such other proper business, notice of which was given in the notice of the meeting, shall be held on a date (other than a legal holiday) in May or June of each year which shall be designated by the Board of Directors, or on such other date to which a meeting may be adjourned or re-scheduled, at such time and place within or without the State of Delaware as shall be designated in the notice of such meeting. Section 1.02. Special Meetings. Except as otherwise required by law, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, the Chief Executive Officer or a majority of the Board of Directors, subject to the rights of holders of any one or more classes or series of preferred stock or any other class of stock issued by the Corporation which shall have the right, voting separately by class or series, to elect Directors. Special meetings shall be held at such place within or without the State of Delaware and at such hour as may be designated in the notice of such meeting and the business transacted shall be confined to the object stated in the notice of the meeting. Section 1.03. Re-scheduling and Adjournment of Meetings. Notwithstanding Sections 1.01 and 1.02 of this Article, the Board of Directors may postpone and re-schedule any previously scheduled annual or special meeting of stockholders. The person presiding at any meeting is empowered to adjourn the meeting at any time after it has been convened. Section 1.04. Notice of Stockholders' Meetings. The notice of all meetings of stockholders shall be in writing and shall state the place, date and hour of the meeting. The notice of an annual meeting shall state that the meeting is called for the election of the Directors to be elected at such meeting and for the transaction of such other business as is stated in the notice of the meeting. The notice of a special meeting shall state the purpose or purposes for which the meeting is called and shall also indicate that it is being issued by or at the direction of the person or persons calling the meeting. If, at any meeting, action is proposed to be taken which would, if taken, entitle stockholders fulfilling the requirements of the General Corporation Law to receive payment for their shares, the notice of such meeting shall include a statement to that effect. A copy of the notice of each meeting of stockholders shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting at his record address or at such other address as he may have furnished by request in writing to the Secretary of the Corporation. If a meeting is adjourned to another 2 time or place, and, if any announcement of the adjourned time or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the adjournment is for more than thirty days or the Directors, after adjournment, fix a new record date for the adjourned meeting. Notice of a meeting need not be given to any stockholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of a stockholder at a meeting, in person or by proxy, without protesting prior to the meeting the lack of notice of such meeting shall constitute a waiver of notice of the meeting. Section 1.05 Business to be Considered. Only those matters stated to be considered in the notice of the meeting, or of which written notice has been given to the Corporation either by personal delivery to the Chairman of the Board or the Secretary or by U.S. mail, postage prepaid, of a stockholder's intent to bring the matter before the meeting, may be considered at the Annual Meeting of Stockholders. Such notice shall be received no later than 120 days in advance of the date on which the Corporation's proxy statement was released to stockholders in connection with the previous year's Annual Meeting. Only that business brought before a special meeting pursuant to the notice of the meeting may be conducted or considered at such meeting. Only such business brought before an annual or special meeting of stockholders pursuant to these bylaws shall be eligible to be conducted or considered at such meetings. Section 1.06. Quorum. Except as otherwise required by law, by the Certificate of Incorporation or by these bylaws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. Directors shall be elected by a plurality of the votes cast at a meeting of stockholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of Directors, is to be taken by vote of the stockholders, except as otherwise required by the General Corporation Law, the Certificate of Incorporation or these bylaws, it shall be authorized by a majority of the votes cast on the proposal by the holders of shares entitled to vote thereon at a meeting of stockholders. Section 1.07. Inspectors at Stockholders' Meetings. The Board of Directors, in advance of any stockholders' meeting, shall appoint one or more inspectors to act at the meeting or any adjournment thereof and to make a written report thereof. In case any inspector or alternate -2- 3 appointed is unable to act, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each, and shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. Section 1.08. Presiding Officer at Stockholders' Meetings. The Chairman of the Board or in his absence the Chief Executive Officer shall preside at Stockholders' Meetings as more particularly provided in Article III hereof. In the event that both the Chairman and the Chief Executive Officer shall be absent or otherwise unable to preside, then a majority of the Directors present at the meeting shall appoint one of the Directors or some other appropriate person to preside. ARTICLE II DIRECTORS Section 2.01. Qualifications and Number; Term; Vacancies. A Director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of Directors constituting the entire Board shall be not less than five nor more than twelve, the exact number of Directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Directors constituting the entire Board of Directors. Directors shall be nominated and serve for such terms, and vacancies shall be filled, as provided in the Certificate of Incorporation. Directors may be removed only for cause. Section 2.02. Place and Time of Meetings of the Board. Regular and special meetings of the Board shall be held at such places (within or without the State of Delaware) and at such times as may be fixed by the Board or upon call of the Chairman of the Board of the Corporation or of the executive committee or of any two Directors, provided that the Board of Directors shall hold at least four meetings a year. Section 2.03. Quorum and Manner of Acting. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business, but if there shall be less than a quorum at any meeting of the Board, a majority of those present (or if only one be present, then that one) may adjourn the meeting from time to time and the meeting may be held as adjourned without further -3- 4 notice. Except as provided to the contrary by the General Corporation Law, by the Certificate of Incorporation or by these bylaws, at all meetings of Directors, a quorum being present, all matters shall be decided by the vote of a majority of the Directors present at the time of the vote. Section 2.04. Renumeration of Directors. In addition to reimbursement for his reasonable expenses incurred in attending meetings or otherwise in connection with his attention to the affairs of the Corporation, each Director as such, and as a member of any committee of the Board, shall be entitled to receive such remuneration as may be fixed from time to time by the Board. Section 2.05. Notice of Meetings of the Board. Regular meetings of the Board may be held without notice if the time and place of such meetings are fixed by the Board. All regular meetings of the Board, the time and place of which have not been fixed by the Board, and all special meetings of the Board shall be held upon twenty-four hours' notice to the Directors given by letter or telegram. No notice need specify the purpose of the meeting. Any requirement of notice shall be effectively waived by any Director who signs a waiver of notice before or after the meeting or who attends the meeting without protesting (prior thereto or at its commencement) the lack of notice to him; provided, however, that a regular meeting of the Board may be held without notice immediately following the annual meeting of the stockholders at the same place as such meeting was held, for the purpose of electing officers and a Chairman of the Board for the ensuing year. Section 2.06. Executive Committee and Other Committees. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an Executive Committee and other committees to serve at the pleasure of the Board. Each Committee shall consist of such number of Directors as shall be specified by the Board in the resolution designating the Committee. Except as set forth below, the Executive Committee shall have all of the authority of the Board of Directors. Each other committee shall be empowered to perform such functions, as may, by resolution, be delegated to it by the Board. The Board of Directors may designate one or more Directors as alternate members of any such committee, who may replace any absent member or members at any meetings of such committee. Vacancies in any committee, whether caused by resignation or by increase in the number of members constituting said committee, shall be filled by a majority of the entire Board of Directors. The Executive Committee may fix its own quorum and elect its own Chairman. In the absence or disqualification of any member of any such committee, the member or members thereof present at any meeting and not disqualified from voting whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Section 2.07. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. -4- 5 ARTICLE III OFFICERS Section 3.01. Officers. The Board of Directors, at its first meeting held after the annual meeting of stockholders in each year may elect such officers as the Board of Directors may determine, and such officers may include a Chairman of the Board, a Chief Executive Officer, one or more Vice Chairman, one or more Presidents, one or more Vice Presidents, a Secretary, a Treasurer and a Controller. In addition, the Board of Directors may, in its discretion, also appoint from time to time, such other officers or agents as it may deem proper. The Chairman of the Board shall be elected from among the members of the Board of Directors. Any two or more offices may be held by the same person. Unless otherwise provided in the resolution of election or appointment, each officer shall hold office until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor has been elected and qualified; provided, however, that the Board of Directors may remove any officer for cause or without cause at any time. Section 3.02. Chairman of the Board. The Chairman of the Board shall preside, unless he designates another to act in his stead, at all meetings of the stockholders, the Board of Directors, and the Executive Committee and shall be a member ex officio of all committees appointed by the Board of Directors, except that the Board may, at his request, excuse him from membership on a committee. The Chairman of the Board shall have the power on behalf of the Corporation to enter into, execute, or deliver all contracts, instruments, conveyances, or documents and to affix the corporate seal thereto. The Chairman shall do and perform all acts and duties herein specified or which may be assigned to him from time to time by the Board of Directors. Section 3.03. Chief Executive Officer. The Chief Executive Officer of the Corporation shall have general supervision of the affairs of the Corporation subject to the control of the Board of Directors and the Chairman of the Board. At the request of the Chairman of the Board or in his absence or inability to act, the Chief Executive Officer shall preside at meetings of the stockholders. The Chief Executive Officer shall also perform such other duties as may be prescribed by the Board of Directors or the Executive Committee or the Chairman of the Board. Section 3.04. President(s). The President or Presidents shall perform such duties as may be prescribed by the Board of Directors or the Executive Committee or the Chairman of the Board or the Chief Executive Officer. Section 3.05. Secretary. The Secretary shall keep minutes of the proceedings taken and the resolutions adopted at all meetings of the stockholders, the Board of Directors and the Executive Committee, and shall give due notice of the meetings of the stockholders, the Board of Directors and the Executive Committee. He shall have charge of the seal and all books and papers of the Corporation, and shall perform all duties incident to his office. In case of the absence or disability of the Secretary, his duties and powers may be exercised by such person as may be appointed by the Board of Directors or the Executive Committee. -5- 6 Section 3.06. Treasurer. The Treasurer shall receive all the monies belonging to the Corporation, and shall forthwith deposit the same to the credit of the Corporation in such financial institutions as may be selected by the Board of Directors or the Executive Committee. He shall keep books of account and vouchers for all monies disbursed. He shall also perform such other duties as may be prescribed by the Board of Directors or Executive Committee, the Chairman of the Board or the Chief Executive Officer, and, in case of the absence or disability of the Treasurer, his duties and powers may be exercised by such person as may be appointed by the Board of Directors or Executive Committee. Section 3.07. Controller. The Controller shall have custody of the financial records of the Corporation and shall keep full and accurate books and records of the financial transactions of the Corporation. He shall determine the methods of accounting and reporting for all entities comprising the Corporation, and shall be responsible for assuring adequate systems of internal control. The Controller shall render to the Chairman of the Board of Directors, the Chief Executive Officer and the Board of Directors, whenever they may request it, a report on the financial condition of the Corporation and on the results of its operations. ARTICLE IV CAPITAL STOCK Section 4.01. Share Certificates. Each certificate representing shares of the Corporation shall be in such form as may be approved by the Board of Directors, and, when issued, shall contain upon the face or back thereof the statements prescribed by the General Corporation Law and by any other applicable provision of law. Each such certificate shall be signed by the Chairman of the Board, the Chief Executive Officer, a President or a Vice President and by the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer. The signatures of said officers upon a certificate may be facsimile if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Section 4.02. Lost, Destroyed or Stolen Certificates. No certificate representing shares shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of evidence of such loss, destruction or theft and, unless waived by the Board of Directors, on delivery to the Corporation, if the Board of Directors shall so require, of a bond of indemnity in such amount, upon such terms and secured by such surety as the Board of Directors may in its discretion require. Section 4.03. Transfer of Shares. The shares of stock of the Corporation shall be transferable or assignable on the books of the Corporation only by the person to whom may have been issued or his legal representative, in person or by attorney, and only upon surrender of the certificate or certificates representing such shares properly assigned. The person in whose name shares of stock shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. -6- 7 Section 4.04. Record Dates. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other action, the Board may fix, in advance, a date as the record date of any such determination of stockholders. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. ARTICLE V MISCELLANEOUS Section 5.01. Signing of Instruments. All checks, drafts, notes, acceptances, bills of exchange, and orders for the payment of money shall be signed in such manner as may be provided and by such person or persons as may be authorized from time to time by resolution of the Board of Directors or the Executive Committee or these bylaws. Section 5.02. Corporate Seal. The seal of the Corporation shall consist of a metal disc having engraved thereon the words "MascoTech, Inc., Delaware." Section 5.03. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January of each year and shall end on the thirty-first day of December following. ARTICLE VI AMENDMENTS OF BYLAWS Section 6.01. Amendments. Except as provided to the contrary by the General Corporation Law, by the Certificate of Incorporation or by these bylaws, these bylaws may be amended or repealed at a meeting, (1) by vote of a majority of the whole Board of Directors, provided that notices of the proposed amendments shall have been sent to all the Directors not less than three days before the meeting at which they are to be acted upon, or at any regular meeting of the Directors by the unanimous vote of all the Directors present, or (2) by the affirmative vote of the holders of at least 80% of the stock of the Corporation generally entitled to vote, voting together as a single class. -7- EX-4.A 3 INDENTURE 1 EXHIBIT 4.a Temporary Certificate - Exchangeable for Definitive Engraved Certificate - When Ready for Delivery MASCOTECH, INC. 4 1/2% Convertible Subordinated Debenture Due 2003 REGISTERED CUSIP No. 574670 AB 1 No. TR MascoTech, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company"), for value received, hereby promises to pay to __________________ or registered assigns, at the office or agency of the Company in the Borough of Manhattan, The City of New York, the principal sum of ____________________________ Dollars on December 15, 2003, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on June 15 and December 15 of each year, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Debenture, from the June 15 and December 15, as the case may be, next preceding the date of this Debenture to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Debenture, or unless no interest has been paid or duly provided for on the Debentures since the original issue date (as defined in the Indenture referred to on the reverse hereof) of this Debenture, in which case from January 21, 1994, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after June 1 or December 1, as the case may be, and before the following June 15 or December 15, this Debenture shall bear interest from such June 15 or December 15; provided, however, that if the Company shall default in the payment of interest on such June 15 or December 15, then this Debenture shall bear interest from the next preceding June 15 or December 15 to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Debentures since the original issue date (as defined in such Indenture) of this Debenture, from the January 21, 1994. The interest so payable on any June 15 or December 15 will, subject to certain exceptions provided in such Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the June 1 or December 1, as the case may be, next preceding such June 15 or December 15, whether or not such June 1 or December 1 is a business day, and may, at the option of the Company, be paid by check mailed to the registered address of such person. Reference is made to the further provisions of this Debenture set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee under such Indenture. 2 IN WITNESS WHEREOF, MascoTech, Inc. has caused this instrument to be executed in its corporate name by the facsimile signature of its Chairman of the Board or its President and imprinted with a facsimile of its corporate seal, attested by the facsimile signature of its Secretary or an Assistant Secretary. Dated: ______________ MascoTech, Inc. By: Richard Manoogian Chairman of the Board Attest: Eugene A. Gargaro, Jr. Secretary CERTIFICATE OF AUTHENTICATION This is one of the securities of the series designated therein referred to in the within-mentioned indenture. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS TRUSTEE BY________________________ AUTHORIZED OFFICER 2 3 REVERSE OF DEBENTURES MASCOTECH, INC. 4 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2003 This Debenture is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Company (hereinafter called the "Securities") of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture dated as of November 1, 1986 (herein called the "Indenture"), duly executed and delivered by the Company to Morgan Guaranty Trust Company of New York, Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and holders of the Securities. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provision (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided. This Debenture is one of a series designated as the 4 1/2% Convertible Subordinated Debentures Due 2003 of the Company, limited in aggregate principal amount to $345,000,000. Subject to the provisions of the Indenture, the holder of this Debenture is entitled, at such holder's option, at any time on or after March 22, 1994 and prior to December 15, 2003 (except that, in case this Debenture or any portion hereof shall be called for redemption, such right shall terminate with respect to this Debenture or portion hereof, as the case may be, so called for redemption at the close of business on the last business day preceding the date fixed for redemption as provided in the Indenture, unless the Company shall default in the payment due upon redemption thereof), to convert the principal amount of this Debenture (or any portion hereof which is $1,000 or an integral multiple thereof), into shares of Common Stock of the Company (calculated to the nearest 1/100th of a share), as said shares shall be constituted at the Date of Conversion, at the Conversion Price of $31.00 principal amount of Debentures for each share of Common Stock, or at the adjusted Conversion Price in effect at the Date of Conversion determined as provided in the Indenture, upon surrender of this Debenture, together with the conversion notice hereon duly executed, to the Company at the designated office or agency of the Company in the Borough of Manhattan, The City of New York, accompanied (if so required by the Company) by instruments of transfer, in form satisfactory to the Company and to the Trustee, duly executed by the holder or by such holder's duly authorized attorney in writing. Such surrender shall, if made during any period beginning at the close of business on a record date and ending at the opening of business on the interest payment date next following such record date (unless this Debenture or the portion being converted shall have been called for redemption on a redemption date during such period) also be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of any amount equal to the interest payable on such interest payment date on the principal amount of this Debenture then being surrendered for conversion. Except as aforesaid no adjustment is to be made on conversion for interest accrued hereon of for dividends on shares of Common Stock issued on conversion. The Company is not required to issue fractional shares upon any such conversion, but shall make adjustment therefor in cash on the basis of the market value of such fractional interest as provided in the Indenture. 3 4 The indebtedness evidenced by the Debentures is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of the principal of (and premium, if any) and interest on all Senior Indebtedness as defined in the Indenture, and this Debenture is issued subject to such provisions and each holder of this Debenture, by accepting the same, agrees to and shall be bound by such provisions, and authorizes the Trustee in such holder's behalf to take such action as may be necessary or appropriate to effectuate as between the holders of the Debentures and the holders of Senior Indebtedness the subordination as provided in the Indenture and appoints the Trustee such holder's attorney-in-fact for such purpose. In case an Event of Default with respect to the 4 1/2% Convertible Subordinated Debentures Due 2003 shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than 66 2/3% in aggregate principal amount of the Securities at the time outstanding of all series to be affected (voting as a class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Securities of each such series; provided, however, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof, or make the principal thereof or any interest or premium thereon payable in any coin or currency other than that hereinbefore provided, or impair the right to convert the 4 1/2% Convertible Subordinated Debentures Due 2003 into Common Stock on the terms defined in the Indenture, or impair or affect the right of any holder to institute suit for payment thereof or the right of repayment, if any, at the option of the holder, or modify any of the provisions of the Indenture relating to the subordination of the Securities in a manner adverse to the holders thereof, without the consent of the holder of each Security so affected, or (ii) reduce the aforesaid principal amount of Securities of all series to be affected, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Securities so affected then outstanding. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the holders of a majority in aggregate principal amount of the Securities of such series at the time outstanding (or, in the case of certain defaults or Events of Default, all the Securities) may on behalf of the holders of all of the Securities of such series (or all the Securities, as the case may be) waive any such past default or Event of Default under the Indenture and its consequences except a default in the payment of principal of, premium, if any, or interest, if any, on any of the Securities. Any such consent or waiver by the holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and any Debentures which may be issued in exchange or transfer hereof or in substitution herefor, irrespective of whether or not any notation thereof is made upon this Debenture or such other Debentures. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the 4 5 principal of and interest on this Debenture at the place, at the respective times, at the rate and in the coin or currency herein prescribed. The Debentures are issuable in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. In the manner and subject to the limitations provided in the Indenture, but without the payment of any charge (except for any tax or other governmental charge imposed in connection therewith), Debentures may be exchanged for an equal aggregate principal amount of Debentures of other authorized denominations at the office or agency of the Company for such exchange in the Borough of Manhattan, The City of New York or at such other location or locations as may be provided for pursuant to the Indenture. The Debentures may be redeemed at the option of the Company as a whole, or from time to time in part, on any date on or after December 22, 1996 and prior to maturity, upon mailing a notice of such redemption not less than thirty nor more than sixty days prior to the date fixed for redemption to the holders of Debentures at their last registered addresses, all as provided in the Indenture, at the following optional redemption prices (expressed in percentages of the principal amount to be redeemed) together in each case with accrued interest to the date fixed for redemption; provided, however, that if the date fixed for redemption of any Debenture is an interest payment date, then the regular semi-annual payment of interest becoming due on such date shall be payable to the registered holder of such Debenture at the close of business on the applicable record date. If redeemed during the twelve-month period beginning December 15.
Year Percentage ---- ---------- 1996.....................................................................103.00% 1997.....................................................................102.50% 1998.....................................................................102.00% 1999.....................................................................101.50% 2000.....................................................................101.00% 2001.....................................................................100.50% 2002.....................................................................100.00%
Upon due presentment for registration of transfer of this Debenture at the office or agency of the Company for such registration in the Borough of Manhattan, The City of New York, or any other location or locations as may be provided for pursuant to the Indenture, a new Debenture or Debentures of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the holder hereof as the absolute owner of this Debenture (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of or on account of the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and neither the Company nor the Trustee nor any such agent shall be affected by any notice to the contrary. All payments made to or upon the order 5 6 of such holder shall, to the extent of the sum or sums paid, effectually satisfy and discharge liability for moneys payable on this Debenture. No recourse for the payment of the principal of, or premium, if any, or interest on this Debenture, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Debenture, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used in this Debenture which are defined in the Indenture shall have the respective meanings ascribed to them therein. This Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of that State. --------------------------------- The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - Custodian ------------------------ ------------------ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may also be used though not in the above list. --------------------------------- 6 7 I or we assign and transfer this Security to PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ---------------------------------------------------- | | | | ---------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code of assignee) - -------------------------------------------------------------------------------- and irrevocably appoint - -------------------------------------------------------------------------------- to transfer this Security on the books of the Company. The agent may substitute another to act for him Dated Signed: -------------------------------- ---------------------------- - -------------------------------------------------------------------------------- (Sign exactly as name appears on the other side of this Security) CONVERSION NOTICE TO MASCOTECH, INC.: The undersigned owner of this Debenture hereby irrevocably exercises the option to convert this Debenture into shares of Common Stock of the Company in accordance with the terms of the indenture referred to in this Debenture, and directs that the shares issuable and deliverable upon the conversion together with any check in payment for fractional shares and any Debentures representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect hereto. Any amount required to be paid by the undersigned on account of interest accompanies this Debenture. Dated: -------------------------------- ----------------------------------- Signature Fill in for registration of shares of Common Stock and Debentures if to be issued otherwise than to the registered holder. - -------------------------- Social Security or other Taxpayer Identifying Number (Name) - -------------------------- ---------------------------------------------------- (Address) - --------------------------------------------------------- Please print name and address (including zip code number) 7 EX-10.B 4 CORPORATE SERVICES AGREEMNET AND ANNEX 1 EXHIBIT 10.b CORPORATE SERVICES AGREEMENT This Agreement is made as of January 1, 1987 between Masco Corporation, a Delaware corporation ("Masco"), and Masco Industries, Inc., a Delaware corporation ("Industries"). WHEREAS, Masco and Industries desire to amend and restate that certain Corporate Services Agreement between them dated as of May 1, 1984 (the "1984 Corporate Services Agreement"); and WHEREAS, Masco and Industries desire to terminate that certain Corporate Services Agreement dated as of July 1, 1985 (the "1985 Corporate Services Agreement") between Masco's wholly-owned subsidiary Masco Building Products Corp., a Delaware corporation ("MBPC"), and NI Industries, Inc. a Delaware corporation and currently an indirect wholly-owned subsidiary of Industries ("NI"); and WHEREAS, Industries desires that Masco provide, and Masco is willing to provide, either directly or through its subsidiaries, certain services and facilities on the terms and conditions hereinafter set forth; and WHEREAS, Masco desires that Industries provide, and Industries is willing to provide, either directly or through NI, certain facilities on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties agree to amend and restate the 1984 Corporate Services Agreement and take certain other action as follows: 1. Masco shall provide to Industries and its subsidiaries corporate support staff and administrative services of those personnel which Masco maintains internally for its own officers, operating executives and business operations and which Masco has heretofore provided to Industries headquarters and businesses pursuant to the 1984 Corporate Services Agreement, such as accounting, legal, treasury, tax, corporate development, data processing, research and development and human resources, provided that Masco shall not be obligated to provide any services which would be in contravention of law. Masco shall furnish such services at the reasonable request of Industries, provided that Masco shall not be required to disrupt the provisions of services for its own business purposes and shall not be obligated to retain additional employees in order to accommodate Industries requirements for services other than in the ordinary course of business. In addition, Masco shall provide to Industries headquarters office space and data processing equipment in Masco's corporate office in Taylor, Michigan. 2. Industries shall provide to MBPC headquarters office space at the corporate offices of NI in Long Beach, California, as heretofore provided pursuant to the 1985 Corporate Services Agreement. 3. Industries will pay Masco a fee for the services and office space provided under Section 1 hereof, irrespective of Industries or its subsidiaries' actual use thereof, equal to eight tenths of one percent of Industries' consolidated annual net sales (pro rated for any partial year), as shown in Industries' annual audited financial statements, less (in consideration of the facilities provided by Industries to MBPC pursuant to Section 2 hereof) the real estate related costs incurred by NI to maintain headquarters office space for MBPC in NI's Long Beach, California headquarters, including, but not limited to, depreciation expense, maintenance, repairs and taxes related to such facility. Such fee shall be payable monthly in arrears within 30 days of the end of each month, based upon Industries consolidated unaudited net sales for each month, with such timely adjustment as may be required following the preparation of such audited financial 2 statements. Industries shall be responsible for the payment of fees and expenses for services rendered by third parties retained by Masco on behalf of Industries and its subsidiaries. In addition, Industries shall pay for material utilized and purchased components in research and development projects, in accordance with Masco's customary practice. The parties recognize that Industries may, in the future, hire certain support and administrative staff to be employed solely by Industries and incur other expenses for equipment, services or space, and to the extent any such support and administrative staff are employed by Industries or such expenses are incurred, Masco shall review the resulting cost savings, if any, to Masco in providing support staff and administrative services, equipment and headquarters office space hereunder and if, in Masco's good faith judgment, such a cost savings has resulted, Masco shall reflect such savings by a corresponding reduction in the subsequent fees to be paid hereunder. 4. Additional services, facilities and other items made available by Masco to its operating units which are not covered by the base fee will similarly be made available to Industries except if the provision of such services, facilities and other items would be in contravention of law. The charges for additional services, facilities and other items shall be determined form time to time by Masco, but Industries shall have no obligation to purchase or use any such additional services, facilities or other times. 5. The term of this agreement shall be from the date hereof through December 31, 1988. the term shall be extended automatically for a period of one year each January 1 thereafter, provided that Masco may give notice of non-renewal not less than 90 days prior to any such January 1. This Agreement may be terminated by Industries at any time, without cause, on 90 days written notice, provided that such termination shall not relieve Industries of its obligations accruing hereunder through the effective date of such termination. 6. In providing services, equipment and facilities hereunder, Masco and Industries shall each have a duty to act, and to cause their respective employees to act, in a reasonable and prudent manner. Subject to the provisions of the Research and Development Undertaking attached as Annex A hereto, neither Masco or its subsidiaries, nor any officer, Director, employee or agent of Masco or its subsidiaries, nor Industries or its subsidiaries, nor any officer, director, employee or agent of Industries or its subsidiaries, shall be liable for any loss incurred in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance or bad faith. 7. The selection of Masco employees to provide services hereunder shall be determined by Masco and such employees shall be the employees of Masco. All work performed hereunder by Masco shall be performed by Masco as an independent contractor. 8. Masco and Industries shall take reasonable measures to keep confidential all information concerning the other which is acquired in the course of performing services hereunder and which is of a nature customarily considered to be confidential by them. Research and development services provided by Masco shall be subject to the additional provisions set forth in Annex A hereto. 9. This Agreement shall not be assigned by Industries without the express written consent of Masco, except for an assignment by Industries to a successor to substantially all of its business. 10. The 1985 Corporate Services Agreement is hereby terminated. 3 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. MASCO CORPORATION MASCO INDUSTRIES, INC. By/s/Richard G. Mosteller By/s/Erwin H. Billig ------------------------- -------------------- Senior Vice President - President Finance The termination of the 1985 Corporate Services Agreement is accepted and agreed to as of the day and year first above written. NI INDUSTRIES, INC. By/s/James Shaffer ------------------ 4 ANNEX A RESEARCH AND DEVELOPMENT UNDERTAKING RESEARCH AND DEVELOPMENT PROGRAM 1.01 Masco shall provide to Industries such research and development services as have heretofore been provided to the businesses Masco is transferring to Industries. Nothing herein or in the Corporate Services Agreement (of which this Annex is a part) shall require Masco to provide research and development services in kind, quality or amount greater than those customarily provided to Masco's own business units. CONFIDENTIAL RELATIONSHIP 2.01 It is acknowledged that in furtherance of performance by Masco of the research and development services performed under this Annex, Masco and Industries, during the term of this Annex may be exposed to and become privy to and will generate various confidential or secret information proprietary to the other, which confidential information may include, but is not limited to, information, technical information, and know-how concerning products, developments, new product plans, equipment, drawings, specifications, models, prototypes, ideas, designs, software, processes, methods, research, sales and customers and information relating to the management, operation or planning of the other, and the fact of the others interest in certain projections or technology (collectively hereinafter referred to as "Confidential Information"). Confidential Information shall be limited to information disclosed by one party to the other party in writing (including information confirmed in writing to be confidential within thirty (30) days after oral or visual disclosure) and designated as confidential, exclusive or any information which: (1) Was in the possession of the receiving party prior to receipt thereof; (2) Is or becomes available to the public through no fault of the receiving party; (3) Is obtained by the receiving party in good faith without obligation of non-disclosure from a third party who has a right to disclose the same; or (4) Is developed by the receiving party independently of receipt of such information from the disclosing party. 2.02 Masco and Industries shall hold and maintain the Confidential Information of the other in confidence. Masco and Industries shall not without the written consent of the disclosing party, except as specifically provided herein, disclose to any third party any Confidential Information of the disclosing party prior to the tenth (10th) anniversary of the date such Confidential Information either is generated by the research and development services or is disclosed by the disclosing party to the receiving party. 2.03 Masco, to the extent required for the furtherance of the research and development services for Industries contemplated by this Annex may disclose Industries Confidential Information to any engineering or equipment manufacturing or consulting firm that prior to such disclosure has agreed in writing with Masco in a manner consistent with this Annex neither to 5 disclose the information to any party nor use it for any purpose other than in furtherance of the research and development services provided by Masco to Industries. 2.04 Upon termination of the Corporate Services Agreement or the undertakings of this Annex, Masco will deliver to Industries upon request by Industries all Industries Confidential Information including the work product and all documentation generated by Masco relating thereto along with all equipment, drawings, specifications, materials, notes and any other documentation and physical things that Masco received from Industries. REPORTS AND FUNDING 3.01 Masco will keep Industries generally informed of the work performed and the results achieved under the research and development services provided by Masco to Industries. Interim reports will be provided to the business units of Industries upon their request. 3.02 Monies for financing materials and other property utilized in the research and development services shall be provided in accordance with the Corporate Services Agreement of which this Annex is a part. IV. INVENTIONS AND PATENTS 4.01 Title to each invention or improvement and to patent applications and patents thereon, made during performance of research and development services by Masco under the Corporate Services Agreement performed at the specific request of Industries and directed to the design, manufacture, installation or use of a process, machine, manufacture, or composition of matter, or improvement thereof, for manufacture, use, or sale by Industries (hereinafter "Industries Originated Inventions") shall reside in Industries. 4.02 Title to each invention or improvement and to patent applications and patents thereof, made during performance of research and development services by Masco under the Corporate Services Agreement not specifically performed at the request of Industries, but which invention or improvement is directed to the design, manufacture, installation or use of a process, machine, manufacture, or composition of matter, or improvement thereof, suitable for manufacture, use or sale by Masco in its business, or by industries in its business, and which invention makes substantial use of Industries Confidential Information (hereinafter "Masco Originated Inventions") shall reside in Industries. 4.03 Masco, its subsidiaries and, upon Masco's request, its affiliates, are hereby granted an unlimited, royalty-free, irrevocable, non-exclusive license, but not the right to grant sub-licenses, under Masco Originated Inventions, and patent applications and patents thereof, to manufacture, use and sell any process, machine, manufacture or composition of matter, and improvements thereof, incorporating, such Masco Originated Inventions, to the extent Industries has the right to grant such a license. 6 4.04 Masco and Industries hereby agree to negotiate in good faith a license granting to Masco the right to manufacture, use and sell any process, machine, manufacture, or composition of matter, and improvements thereof, incorporating Industries Originated Inventions, to the extent Industries has the right to grant such a license, which license shall be on terms and conditions in all respects reasonable to Masco in light of Masco's close involvement in the research and development. This agreement to negotiate in good faith a license under Industries Originated Inventions survives any termination of the Corporate Services Agreement and this Annex. 4.05 Nothing in this Annex shall be construed as a grant to Industries by Masco, by implication, estoppel or otherwise, of a right to use or a license to Industries in any Masco patent, trademark, tradename, Masco Confidential Information or other proprietary right not specifically granted to Industries. Title to any invention or improvement, and any patent application or patent thereon, made using both Masco Confidential Information and Industries Confidential Information shall reside with the party whose Confidential Information predominates and the other party shall be granted an unlimited, royalty-free, irrevocable, non-exclusive license to manufacture, use and sell any process, machine, manufacture or composition of matter, and improvements thereof, incorporating such inventions and improvements. 4.06 Notwithstanding any non-disclosure provisions of this Annex, Masco shall, if requested by Industries or an Industries business unit, and after notifying Industries, file and prosecute, or have filed and prosecuted, patent applications to protect any such inventions described in sub-paragraphs 4.01 and 4.02 above, in any and all countries. The expense of monitoring the preparation, filing and maintaining such patent applications and patents thereon by third parties shall be borne by Masco under the Corporate Services Agreement, except for government fees, annuities and taxes and any monies paid to third parties (collectively hereafter "Third Party Expenses"), which Third Party Expenses shall be paid by Industries or reimbursed to Masco by Industries. Masco will execute, acknowledge, and deliver all lawful papers which in the opinion of Industries counsel are necessary or desirable to vest or perfect title if required and in accordance with sub-paragraphs 4.01 and 4.02, as directed by Industries, its successors or assigns, including applications for divisions of pending applications, applications for reissue of patents and specific assignments of applications and patents, and all rights under the International Convention for the Protection of Industrial Property. In the event Industries decides not to file a patent application on any Masco Originated Invention, then Masco may do so in its own name at its own expense and Industries will assist Masco, its nominees, successors and assigns, at any time in every proper manner and without charge to Masco, but entirely at Masco's expense, to obtain patents on the Masco Originated Invention in any and all countries, and will execute, acknowledge and deliver all lawful papers which in the opinion of Masco counsel are necessary or desirable for applying and obtaining patents thereon as Masco may desire, and the provisions of Section 4.02 with respect to such Masco owned Masco Originated Inventions shall not be applicable thereto. 4.07 Industries agrees to assert no rights, claims or entitlements against Masco, its suppliers, its customers, its successors, assigns, or nominees, whether arising out of patents, trade secrets, or otherwise based on non-substantial use by Masco of Industries Confidential Information acquired by Masco in the performance of the research and development services or based on the use of Industries Confidential Information in existence at the time the Corporate Services Agreement of which this Annex is a part, is signed. 7 V. INFRINGEMENT AND INDEMNIFICATION 5.01 Industries agrees to indemnify and hold Masco harmless for damages, costs, expenses and reasonable attorney's fees against any third party claim of patent, trademark or copyright infringement, unfair competition, or misappropriation of proprietary, confidential or trade secret information to the extent such claim is based solely on Industries Confidential Information or on the specifications and other materials provided by Industries to Masco. 5.02 Masco agrees to indemnify and hold Industries harmless for damages, costs, expenses and reasonable attorney's fees, against any third party claim of patent, trademark or copyright infringement, unfair competition, or misappropriation of proprietary, confidential or trade secret information to the extent such claim is based solely on Masco's manufacture, use, or sale of a Masco Originated Invention. 5.03 Masco and Industries agree to promptly notify each other of any claim brought by a third party against the other that comes under either sub-paragraph 5.01 and 5.02 and agree that Masco shall promptly undertake reasonable efforts to obtain a discontinuance of such claim, and, if not successful, Masco shall consult with Industries. If the third party claim becomes the subject of a court action, the party against whom the action is brought shall select defense counsel (in consultation with Masco if the claim is brought against Industries), and damages, costs, expenses, and attorney's fees will be borne as stated in sub-paragraphs 5.01 and 5.02. 5.04 Masco and Industries shall notify the other promptly following the discovery of any infringement of any unexpired patent or pending published patent application directed to an invention defined in sub-paragraphs 4.01 and 4.02 above by any third party. Masco shall promptly undertake reasonable efforts to obtain a discontinuance of the aforesaid infringement, and, if not successful, Masco shall consult with Industries. If Industries, at its option, brings suite against such infringer, Industries shall select counsel in consultation with Masco and Masco shall guide such infringement action and assist Industries counsel and all costs, expenses and attorney's fees of such action shall be borne by Industries. Masco shall have the right, at its expense, to bring suit against any infringer of a patent directed to a Masco Originated Invention or an Industries Originated Invention licensed by Masco when the act of infringement by the third party competes in the marketplace with a business line of Masco. 5.05 Masco and Industries each agree to cooperate fully with the other and furnish any evidence in its possession bearing on the issues involved in any court action brought against Masco or Industries described in sub-paragraphs 5.01 and 5.02 and in any infringement action brought pursuant to sub-paragraph 5.04. 5.06 Any infringement action brought pursuant to sub-paragraph 5.04 shall be either in the name of Masco, or in the name of Industries, or jointly by Masco and Industries, as may be required by the law of the forum. For this purpose, Masco and Industries agree to execute such legal papers necessary for the prosecution of such action. In any such action, both Masco and Industries shall be entitled to recoup their expenses, costs and attorney's fees from any recoveries in such action. The excess recovery over such recoupment for infringement of a Masco Originated 8 Invention shall be divided equally between Masco and Industries. Industries shall retain the excess recovery for infringement of an Industries Originated Invention. VI. TERMINATION 6.01 This Annex shall terminate simultaneously with termination of the Corporate Services Agreement unless terminated earlier or extended by agreement of the parties. Sub-paragraphs 2.02, 2.03, 4.01, 4.02, 4.03, 4.04, 4.06, 4.07, 5.01, 5.02, 5.03, 5.04, 5.05 and 5.06 shall survive termination of this Annex. 9 AMENDMENT NO. 1 TO CORPORATE SERVICES AGREEMENT This Amendment is made as of October 31, 1996 between Masco Corporation, a Delaware corporation ("Masco"), and MascoTech, Inc., f/k/a Masco Industries, Inc., a Delaware corporation ("Tech"), concerning that certain Corporate Services Agreement (the "Services Agreement"), dated as of January 1, 1987, between Masco and Tech. All capitalized terms not otherwise defined in this Amendment shall have the meanings given them in the Services Agreement. A. Masco holds 24,824,690 shares of the Common Stock, par value $1.00 per share, of Tech (the "Tech Common Stock"); B. Concurrently herewith, Tech has, among other things, repurchased form Masco 17,000,000 shares of the Tech Common Stock; C. In connection therewith, Masco and Tech desire to amend certain provisions of the Services Agreement as set forth herein. IN CONSIDERATION of the mutual covenants and agreements contained in this Amendment, the parties agree to amend the Services Agreement as follows: 1. All references to "Industries" are hereby revised to be references to "Tech". 2. Paragraph 5 is hereby amended to read in its entirety as follows: 5. The term of this Agreement shall expire on September 30, 1998; provided however that the term shall be extended automatically for a period of one year each October 1 thereafter, subject to either party's right to terminate this Agreement by written notice to the other received at least 90 days prior to any such October 1. Termination of this Agreement shall not relieve either party of its obligations accruing hereunder through the effective date of termination. 3. All other terms and conditions of the Services Agreement are hereby ratified and confirmed and remain in full force and effect. 10 IN WITNESS WHEREOF, the parties have duly executed and delivered this Amendment as of the date first above written. MASCO CORPORATION By: /s/John R. Leekley ------------------ Name: John R. Leekley --------------- Title: Senior Vice President and General Counsel ----------------------------------------- MASCOTECH, INC. By: /s/Timothy Wadhams ------------------ Name: Timothy Wadhams --------------- Title: Vice President-Controller and Treasurer --------------------------------------- 11 June 17, 1998 John R. Leekley Senior Vice President and General Counsel Masco Corporation 21001 Van Born Road Taylor, Michigan 48180 Dear John: As you know, Masco Corporation and MascoTech, Inc. are both in the process of reviewing the arrangement for corporate services that are currently provided by Masco to MascoTech under the Corporate Services Agreement dated as of January 1, 1987, as amended (the "Agreement"). The term of the Agreement will be extended automatically for one year on October 1, 1998 unless written notice of termination is given at least 90 days prior thereto. MascoTech is prepared to waive the automatic one year extension and permit the Agreement to continue beyond September 30, 1998 on the condition that the Agreement may be terminated by either party at any time on or after September 30, 1998 on [90] days' prior written notice (or such other notice period as the parties may agree). Please confirm that you join in this waiver, whereupon the foregoing waiver will become binding on each of the parties. Sincerely, /s/Timothy Wadhams ------------------ Timothy Wadhams Senior Vice President and Chief Financial Officer Confirmed: MASCO CORPORATION By: /s/John R. Leekley ------------------ John R. Leekley Senior Vice President and General Counsel 12 January 22, 1998 Masco Corporation 21001 Van Born Road Taylor, Michigan 48180 Gentlemen: As you are aware, MascoTech, Inc. completed its acquisition of TriMas Corporation on Thursday, January 22, 1998 (the "Effective Date"). This will confirm our agreement that the Corporate Services Agreement, dated as of December 27, 1988, between Masco Corporation ("Masco") and TriMas Corporation (the "TriMas Corporate Services Agreement"), is terminated effective as of the end of business on the Effective Date, except with respect to rights and obligations of the parties thereto which have accrued as a result of services rendered thereunder prior to the Effective Date. Furthermore, Masco agrees that the period for which a fee is payable under the TriMas Corporate Services Agreement will terminate on the earlier of (i) the Effective Date, or (ii) the date immediately preceding the date that the consolidated net sales of TriMas are included in the consolidated net sales of MascoTech, Inc. After such date, Masco will be compensated for work performed for the TriMas companies under Masco's Corporate Services Agreement with MascoTech (the "MascoTech Corporate Services Agreement"). Finally, Masco agrees that, in calculating the fee payable under the MascoTech Corporate Services Agreement, MascoTech is entitled to the credits that were historically permitted to TriMas under the TriMas Corporate Services Agreement of up to $250,000 per year for occupancy costs at TriMas' Ann Arbor headquarters (consisting of rent, utilities, maintenance and property taxes), office supplies and postage costs at TriMas' Ann Arbor headquarters and the credit historically provided for the Norris management services that had been discontinued by you when Masco Building Products shut down its operations. If the foregoing is your understanding of our Agreement, please acknowledge by signing below on the attached copy of this letter, and returning same to the undersigned. Very truly yours, MASCOTECH, INC. By/s/David B. Liner ----------------- The foregoing is acknowledged and agreed to: MASCO CORPORATION By/s/John R. Leekley ------------------ EX-10.F 5 REGISTRATION AGREEMENT 1 EXHIBIT 10.f REGISTRATION AGREEMENT This Agreement is made as of March 31, 1993, between Masco Industries, Inc., a Delaware corporation (the "Company") and Masco Corporation, a Delaware corporation ("Masco"). WHEREAS, Masco currently holds certain Company securities; and WHEREAS, Masco is acquiring certain Company securities pursuant to a Purchase Agreement (the "Purchase Agreement") and an Exchange Agreement (the "Exchange Agreement"), each with the Company of even date herewith, and may acquire additional Company securities pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement") with the Company of even date herewith; and WHEREAS, in connection with the Purchase Agreement, the Exchange Agreement and the Securities Purchase Agreement, the Company has agreed to provide to Masco certain registration rights with respect to certain Company securities as provided herein. NOW, THEREFORE, the parties agree as follows: 1. Definitions. "Common Stock" means the Company's Common Stock, par value $1.00 per share. "Convertible Debentures" means the Company's 6% Convertible Subordinated Debentures due 2011. "Preferred Stock" means the Company's 10% Exchangeable Preferred Stock issued pursuant to the Exchange Agreement and the Company's exchangeable preferred stock that may be issued pursuant to the Securities Purchase Agreement. "Registrable Securities" means (i) the 17,946,498 shares of Common Stock held by Masco as of the date hereof (after giving effect to the Company's acquisition of 10 million shares of Common Stock pursuant to the Exchange Agreement between the Company and Masco of even date herewith) and shares of Common Stock that may be reacquired by Masco pursuant to the Masco Corporation 1984 Restricted Stock (Industries) Plan, (ii) $130 million principal amount of Convertible Debentures held by Masco, (iii) Preferred Stock, (iv) Subordinated Debentures, (v) Warrants, (vi) Common Stock issuable upon conversion of the Convertible Debentures and upon exercise of the Warrants, and (vii) any securities issued or issuable with respect to, or derived from, the securities referred to in clauses (i) through (vi) by way of stock dividend, stock split or other distribution or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. -1- 2 "Subordinated Debentures" means the Company's subordinated debentures that are issuable upon redemption and exchange of the Preferred Stock and the Company's subordinated debentures that may be issued pursuant to the Securities Purchase Agreement. "Warrants" means the warrants issued by the Company to purchase 10 million shares of Common Stock, which warrants were issued pursuant to the Purchase Agreement. 2 (a). Registration of Registrable Securities. Whenever the Company shall receive a written request signed by Masco requesting the Company to file a registration statement under the Securities Act of 1933, as in effect at the relevant time, or a comparable statement under any similar Federal statute then in effect (a "Registration Statement"), covering any class or series of Registrable Securities held by Masco, the Company shall promptly prepare and file a Registration Statement covering the Registrable Securities requested to be registered. The registration request may, at the option of Masco, require the Registration Statement to include Registrable Securities held by persons who acquired such Registrable Securities directly from Masco in a private placement (hereinafter referred to, together with Masco, as a "Selling Holder"). The Company shall use its best efforts to cause the Registration Statement to become effective and remain effective for the period required to permit the offering and sale of the Registrable Securities covered thereby, which may be an indefinite period of time if the registration request shall specify a delayed or continuous offering pursuant to Rule 415 of the Securities and Exchange Commission or any successor or comparable provision then in effect ("Shelf Registration"). 2(b). Limitations on Registration and Disposition. (i) The Company shall not be obligated to (A) file a Registration Statement with respect to less than $25 million market value of Registrable Securities (as determined in good faith by Masco at the time of the request), except that if the Company shall have redeemed or exchanged any class or series of Registrable Securities such that Masco holds less than $25 million market value of such class or series, Masco may request registration of all of any such class or series then held, or (B) make any such filing within 6 months from the effective date of the next preceding filing made pursuant hereto, except Masco may, within the period commencing with the date of issuance of Preferred Stock or Subordinated Debentures issued pursuant to the Securities Purchase Agreement or Subordinated Debentures issued upon redemption and exchange of Preferred Stock and ending six months from such effective date, require the filing of a Registration Statement covering such Preferred Stock or Subordinated Debentures. (ii) No disposition of Registrable Securities shall be made under a Shelf Registration unless the Selling Holder of such securities shall give the Company five days' prior written notice of such holder's intent to make such disposition. (iii) The Company may elect to defer, for a period not exceeding a total of 90 days, the preparation of any Registration Statement or the disposition of Registrable Securities pursuant to an effective Shelf Registration if in the Company's good faith judgment pending or prospective business developments (including financing plans) justify a temporary delay or the prospectus contained in an effective Shelf Registration contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements made in the light of the circumstances in which they were made, not misleading. -2- 3 (iv) The exercise of Warrants or conversion of Convertible Debentures shall not constitute a disposition of Registrable Securities for purposes of clauses (ii) and (iii) above. 2(c). Registration Procedures. (i) Whenever the Company shall file a Registration Statement pursuant hereto, the Company shall (A) thereafter, for such period of time as shall be required in connection with the transactions contemplated thereby and permitted by applicable rules, regulations and administrative practice, file all post-effective amendments and supplements thereto or to the prospectus contained therein and all filings under the Securities Exchange Act of 1934 that are necessary or appropriate so that neither the Registration Statement nor any related prospectus shall contain any material misstatement or omission relative to the Company or any of its assets or its business or affairs and so that the Registration Statement and such prospectus will otherwise comply with all applicable legal requirements, subject to the provisions of Paragraph 2(b) (iii) above, (B) furnish to the Selling Holders of the registered Registrable Securities such number of copies of the Registration Statement and any related preliminary prospectus, prospectus, post-effective amendment or supplement as such Selling Holders reasonably may request, and (C) take all action that may be necessary under the securities or Blue Sky laws of any state and as reasonably may be requested to permit the public offering and sale of the Registered Securities covered by the Registration Statement; provided, however, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Registrable Securities, in any jurisdiction where it is not now subject. In connection with any such Registration Statement, the Company shall deliver to such Selling Holders and any underwriters such indemnities, contribution agreements, opinions of counsel and letters of independent public accountants as are then customarily given to underwriters of registered public offerings and selling security holders. The underwriters and such Selling Holders shall deliver to the Company such indemnities, contribution agreements and opinions as are then customarily given to issuers of registered public offerings. (ii) Anything in this Agreement to the contrary notwithstanding, the Company shall not be obligated to file a Registration Statement unless the Selling Holders of the Registrable Securities being registered shall have furnished the Company in writing all information with respect to such Selling Holders, the Registrable Securities held by such Selling Holders requested to be so included, the transaction or transactions which such Selling Holders contemplate and each underwriter, if any, who will act for such Selling Holders in connection therewith, that any law, rule or regulation requires to be disclosed therein. (iii) The Company covenants that it will file the reports required to be filed by it under the Securities Exchange Act of 1934, as in effect from time to time, and the rules and regulations adopted by the Securities and Exchange Commission thereunder, and will deliver to Masco at its request a written statement affirming that it has complied with such requirements. -3- 4 (iv) Whenever a Registration Statement is requested with respect to Subordinated Debentures, the Company will enter into an indenture on substantially similar terms and conditions (but not materially inconsistent with the terms of such Subordinated Debentures) as those contained in the Indenture dated as of November 1, 1986 between the Company and Morgan Guaranty Trust Company of New York. The trustee designated by the Company to act as trustee under the Indenture shall be a bank or trust company or national banking association which has a combined capital and surplus in excess of $50,000,000. (v) The Company will, at it own expense, take whatever action is necessary to cause all Registrable Securities registered pursuant to these registration rights to be listed on a national securities exchange or to be included for quotation in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System or similar organization. (vi) All expenses (other than fees (including underwriters' discounts and commissions) and expenses of any underwriters and counsel to the Selling Holders) in connection with registrations undertaken pursuant hereto shall be borne by the Company, provided, however, that if Masco withdraws or abandons its request, then Masco shall reimburse the Company for all expenses reasonably incurred by the Company in complying with such request. (vii) Masco shall be deemed to be the representative of all Selling Holders, with full authority to select a managing underwriter, withdraw or abandon the Registration Statement, and make comparable decisions on behalf of all Selling Holders after reasonable consultation therewith. (viii) The Company will make available for inspection any Selling Holder, any underwriter participating in any disposition pursuant to a Registration Statement and any attorney, accountant or other professional retained by any Selling Holder or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Information obtained as a result of such inspections shall be deemed confidential and shall not be used as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each Selling Holder of such Registrable Securities will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. 3 (a). Amendments and Waivers. This Agreement may not be amended or terminated, nor any condition or term hereof be waived orally, but only by an instrument in writing duly executed by the parties hereto or, in the case of a waiver, by the party otherwise entitled to performance. -4- 5 3 (b). Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and upon their respective successors and assigns, provided, however, that Masco may not assign any of its rights hereunder. 3 (c). Governing Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Michigan. 3 (d). Paragraph and Other Headings. The paragraph and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. MASCO CORPORATION By /s/ Wayne B. Lyon ------------------------ MASCO INDUSTRIES, INC. By /s/ Timothy Wadhams ------------------------ -5- EX-10.J 6 1984 STOCK OPTION PLAN 1 EXHIBIT 10.j MASCOTECH, INC. 1984 STOCK OPTION PLAN (Amended and Restated September 21, 1999) ARTICLE I. PURPOSE The purpose of the 1984 Stock Option Plan (the "Plan") is to secure for MascoTech, Inc. (the "Company") and its stockholders the benefits inherent in stock ownership by selected key employees of and consultants to the Company and its subsidiaries and affiliated companies who in the judgment of the committee responsible for the administration of the Plan are largely responsible for the Company's growth and success. The Plan is designed to accomplish this purpose by offering such employees and consultants an opportunity to purchase shares of the Common Stock of the Company. For purposes of the Plan a "subsidiary" is any corporation in which the Company owns, directly or indirectly, stock possessing more than fifty percent of the total combined voting power of all classes of stock. For purposes of Articles III and VII of the Plan, an "affiliated company" is any other corporation (and its subsidiaries) in which the Company or its subsidiaries own stock possessing at least twenty percent of the total combined voting power of all classes of stock, and for all other purposes of the Plan, an "affiliated company" is any other corporation, at least twenty percent of the total combined voting power of all classes of stock of which is owned by the Company or by one or more other corporations in a chain of corporations, at least twenty percent of the stock of each of which is held by the Company or a subsidiary or another corporation within such chain. ARTICLE II. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") consisting of three or more of the Company's directors to be appointed by the Board of Directors. No director shall become or remain a member of the Committee unless at the time of his exercise of any discretionary function as a Committee member such director is not eligible, and has not at any time within one year prior to the exercise of such discretion been eligible for selection as a person to whom stock may be allocated or to whom stock options or stock appreciation rights may be granted pursuant to the Plan or any other plan of the Company or any of its affiliates entitling the participants therein to acquire stock, stock options or stock appreciation rights of the Company or any of its affiliates. The Committee shall have authority, consistent with the Plan: (a) to determine which key employees of and consultants to the Company, its subsidiaries and affiliated companies shall be granted options; (b) to determine the time or times when options shall be granted and the number of shares of Common Stock to be subject to each option; (c) to determine the option price of the stock subject to each option and the method of payment of such price; -1- 2 (d) to determine the time or times when each option becomes exercisable, limitations on exercise, and the duration of the exercise period; (e) to prescribe the form or forms of the instruments evidencing any options granted under the Plan and of any other instruments required under the Plan, and to change such forms from time to time; (f) to designate options granted to key employees of the Company or its "subsidiaries" under the Plan as "incentive stock options" ("ISOs"), as such terms are defined under the Internal Revenue Code; (g) to adopt, amend and rescind rules and regulations for the administration of the Plan and the options and for its own acts and proceedings; and (h) to decide all questions and settle all controversies and disputes which may arise in connection with the Plan. All decisions, determinations and interpretations of the Committee shall be binding on all parties concerned. ARTICLE III. PARTICIPANTS Key employees of and consultants to the Company, its subsidiaries or affiliated companies, including officers of the Company who are also employees (who may also be directors, but excluding members of the Committee, any person who serves only as a director or a non-employee officer of the Company and any consultant to the Company or any of its subsidiaries or affiliated companies who is not rendering services pursuant to a written agreement with the corporation in question), as may be selected from time to time by the Committee in its discretion, are eligible to receive options under the Plan. The grant of an option to an employee or consultant shall not entitle such individual to other grants or options, nor shall such grant disqualify such individual from further participation. ARTICLE IV. LIMITATIONS No options shall be granted under the Plan after December 31, 1999, but options theretofore granted may extend beyond that date. Subject to adjustment as provided in Article IX, the number of shares of Common Stock of the Company which may be issued under the Plan shall not exceed in the aggregate 8,160,000 shares; provided, however, that such total amount shall be reduced by the aggregate number of shares of the Company's Common Stock awarded under the Company's 1984 Restricted Stock Incentive Plan since the original adoption thereof (other than shares forfeited to the Company which are thereby available for further awards under Paragraph 2 of such Plan). To the extent that any option granted under the Plan shall expire or terminate unexercised or for any reason become unexercisable as to any stock subject thereto, such stock shall thereafter be available for further grants under the Plan, within the limit specified above. If an option granted under the Plan -2- 3 shall be accepted for surrender pursuant to Article VIII, any stock covered by options so accepted shall not thereafter be available for the granting of other options under the Plan. Notwithstanding any provision to the contrary in the Plan, no option may be designated an ISO unless all of the following conditions are satisfied with respect to such option: (a) Such option must be granted on or prior to May 1, 1994, and such option by its terms is not exercisable after the expiration of ten years from the date such option is granted; (b) Either (i) the employee to whom such option is granted does not, determined at the time such option is granted, own capital stock representing more than ten percent of the voting power of all classes of stock of the Company, its parent or any of its subsidiaries, or (ii) the option price is at least 110 percent of the fair market value, determined at the time such option is granted, of the stock subject to such option and such option by its terms is not exercisable more than five years from the date it is granted; (c) Such option by its terms is not exercisable while there is outstanding an ISO which was granted to the same employee at an earlier time. For purposes of this clause (c), an ISO which has not been exercised in full shall be deemed to be outstanding, notwithstanding any cancellation or termination thereof, until the expiration of the period during which it could have been exercised under its original terms; and (d) The aggregate fair market value of the Common Stock subject to such option plus the aggregate fair market value of Common Stock subject to ISOs previously or concurrently granted to the same employee in the same calendar year (all determined at the respective dates of grant of such options) must not exceed $100,000 (the "Basic Amount") plus the sum of the "Carry-Over Amounts" for each of the three calendar years immediately preceding the year in which such option is granted. The "Carry-Over Amount", as used in this clause (d) for any calendar year, shall mean (i) fifty percent of the amount by which $100,000 exceeds the fair market value, determined at the time of grant, of Common Stock subject to ISOs which were granted during such calendar year to the employee for whom the Carry-Over Amount is being determined, or (ii) $50,000 in the case such employee has not in such calendar year been granted any ISO. No amount shall be included in a Carry-Over Amount for any year to the extent such amount was theretofore necessarily included as a Carry-Over Amount to permit the qualification of an ISO under this clause (d), and Carry-Over Amounts shall only be utilized to permit the qualification of an ISO under this clause (d) in the order in which they first arose and then only if the Basic Amount has not theretofore been utilized to permit such qualification. -3- 4 ARTICLE V. STOCK TO BE ISSUED The stock as to which options may be granted is the Company's Common Stock, $1 par value. Such Stock may be authorized but unissued shares or shares of Common Stock reacquired by the Company, including but not limited to shares purchased on the open market. The Board of Directors and the officers of the Company shall take any appropriate action required for such issuance. ARTICLE VI. TERMS AND CONDITIONS OF OPTIONS All options granted under the Plan shall be subject to the following terms and conditions (except as otherwise provided in Article VII) and to such other terms and condition as the Committee shall deem appropriate. (a) Option Price. Each option granted hereunder shall have such per share option price as the Committee may determine, but not less than the fair market value of Common Stock of the Company on the date the option is granted. (b) Terms of Options. The term of an option shall not exceed eleven years from the date of grant. The date of grant shall be the date on which the option is awarded by the Committee. (c) Exercise of Options. (i) Each option shall be made exercisable not less than six months from the date of grant and at such time or times, whether or not in installments, as the Committee shall prescribe at the time the option is granted. (ii) A person electing to exercise an option shall give written notice to the Company, as may be specified by the Committee, of exercise of the option and of the number of shares of stock elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and such person shall at the time of such exercise tender the purchase price of the stock elected for exercise unless otherwise directed by the Committee. (iii) (A) Notwithstanding any of the provisions of this Plan or instruments evidencing options heretofore or hereafter granted hereunder, in the case of a Change in Control of the Company, each Option then outstanding shall immediately become exercisable in full. A Change in Control shall occur if any of the events described below in subparagraphs (1), (2) or (3) shall have occurred, unless the holder of any such option shall have consented to the application of subparagraph (3) in lieu of subparagraphs (1) and (2): (1) any "person" or "group of persons" as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") other than pursuant to a transaction or agreement previously approved by the Board directly or indirectly purchases or otherwise becomes the "beneficial owner" (as defined -4- 5 in Rule 13d-3 under the Exchange Act) or has the right to acquire such beneficial ownership (whether or not such right is exercisable immediately, with the passage of time, or subject to any condition), of voting securities representing 25% or more of the combined voting power of all outstanding voting securities of (A) the Company or (B) of Masco Corporation, a Delaware corporation ("Masco"); (2) during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's or Masco's Board of Directors, and any new directors whose election by either such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof; or (3) during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. For purposes hereof, "Excluded Directors" are directors whose election by the Board or approval by the Board for stockholder election occurred within one year of any "person" or "group of persons", as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power. (B)(1) In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this subparagraph (B) (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then such participant shall be entitled to receive from the Company, within 15 days following the determination described in (2) below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by such participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), -5- 6 including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (2) All determinations required to be made under this Article VI(c)(iii)(B), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the participant. As a result of the uncertainty in the application of Section 4999 of the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected participant. In the event that the participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Company. (3) This Article VI(c)(iii)(B) shall not apply to any option that was granted to an executive officer of the Company, as determined under the Exchange Act. (d) Payment for Issuance of Stock. Upon and at the time of exercise of any option granted pursuant to the Plan, payment in full shall be made for all such stock then being purchased either in cash or, at the discretion of the Committee, in whole or in part in Common Stock of the Company valued at its then fair market value. Notwithstanding the foregoing, the Committee may in its discretion permit the issuance of stock upon such other plan of payment as it deems reasonable, provided that the then unpaid portion of the purchase price shall be evidenced by a promissory note at such rate of interest and upon such other terms and conditions as the Committee shall deem appropriate. In all cases where stock is issued for less than present full payment of the purchase price, there shall be placed upon the certificate or certificates representing such stock a legend setting forth the amount paid at issuance, and the amount remaining unpaid thereon, and stating that the stock is subject to call for the remainder and may not be transferred by the holder until the balance due thereon shall be fully paid. The Committee, in its discretion and in accordance with the procedures established by the Committee, may permit a participant to satisfy, in whole or in part, the applicable income tax withholding obligations in connection with the exercise of a non-qualified stock option under the Plan by having withheld from the shares to be issued upon the exercise of the option or by delivering from shares of Common Stock of the Company owned by the participant such number of shares having a fair market value equal to the amount needed to satisfy such obligations. -6- 7 (e) Conditions to Issuance. The Company shall not be obligated to issue any stock unless and until: (i) in the event of the Company's outstanding Common Stock is at the time listed upon any stock exchange, the shares of stock to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and (ii) in the opinion of the Company's counsel there has been compliance with applicable law in connection with the issuance and delivery of stock and such issuance shall have been approved by the Company's counsel. Without limiting the generality of the foregoing, the Company may require from the participant such investment representation or such agreement, if any, as counsel for the Company may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the participant agree that any sale of the stock will be made only in such manner as shall be in accordance with law and that the participant will notify the Company of any intent to make any disposition of the stock whether by sale, gift or otherwise. The participant shall take any action reasonably requested by the Company in such connection. A participant shall have the rights of a stockholder only as and when shares of stock have been actually issued to the participant pursuant to the Plan. (f) Limits on Transferability of Options. No option may be transferred by the participant other than (i) by designation of beneficiary as provided in subsection (j) of this Article, or (ii) by will or the laws of descent and distribution, or (iii) to a revocable grantor trust established by the participant for the sole benefit of the participant during the participant's life, and under the terms of which the participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely in the participant. Notwithstanding a qualified assignment, the participant, and not the trust to which rights under such an Option may be assigned, for the purpose of determining compensation arising by reason of the Option, shall continue to be considered an employee or consultant, as the case may be, of the Company or an affiliated company, but such trust and the participant shall be bound by all of the terms and conditions of this Plan and any written agreement, contract or other instrument or document evidencing any award granted under this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the participant. (g) Consideration for Option. Each person receiving an option must agree to remain as an employee or consultant upon the terms of employment or the consulting arrangement then existing (unless different terms are mutually agreed upon) for at least one year from the date of the granting -7- 8 of the option, subject to the right of the Company, its subsidiary or affiliated company to terminate the participant's employment or consulting arrangement at any time. (h) Termination of Employment. If the employment of or consulting arrangement with a participant terminates for any reason (including termination by reason of the fact that such corporation is no longer a subsidiary of affiliated company) other than the participant's death or permanent and total disability or, in the case of an employee, retirement on or after normal retirement date, unless discharged for misconduct which in the opinion of the Committee casts such discredit on the participant as to justify termination of the option, the participant may thereafter exercise the option as provided below. If such termination is voluntary on the part of the participant, the option may be exercised only within ten days after the date of termination unless a longer period is permitted by the Committee in its discretion. If such termination is involuntary on the part of the participant, the option may be exercised within three months after the day of termination. Except as expressly provided in the Plan, in no event may a participant whose employment or consulting agreement has been terminated voluntarily or involuntarily exercise an option at a time when the option would not have been exercisable had the employment or consulting arrangement continued. Notwithstanding the foregoing, the Committee may by the express terms of the grant of the option extend the aforesaid periods of time within which the participant may exercise an option after the termination of employment or the consulting arrangement. For purposes of this Article VI(h), a participant's employment or consulting arrangement shall not be considered terminated (i) in the case of sick leave or other bona fide leave of absence (not to exceed one year unless otherwise approved by the Committee), (ii) in the case of a transfer of employment or the consulting arrangement among the Company, its subsidiaries and affiliated companies, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee. Unless otherwise expressly provided in the Plan or the grant of the option, an option may be exercised only to the extent exercisable on the date of termination of employment or of the consulting arrangement by reason of death, permanent and total disability, retirement or otherwise. (i) Retirement; Disability. If prior to the expiration date of an option the employee shall retire on or after normal retirement date or if the employment or consulting relationship is terminated by reason of permanent and total disability, such option may be exercised to the extent exercisable on the date of retirement or such termination, provided such option shall be exercised within three months of the date of retirement or such termination. Notwithstanding the foregoing, in its discretion the Committee may permit the exercise of an option held by a retired or disabled option holder upon other terms and conditions as it deems advisable under the circumstances, and if the period within which an option may be exercised has been extended the Committee may terminate all unexercised options if it shall determine that the participant has engaged in any activity detrimental to the Company's interests. (j) Death. If a participant dies at a time when entitled to exercise an option, then at any time or times within one year after death (or such further period as the Committee may allow) such option may be exercised, as to all or any of the shares which the participant was entitled to purchase immediately prior to death (unless the Committee shall have provided in the instrument evidencing such option that all shares covered by the option are subject to purchase upon death), by the person or persons designated in writing by the participant in such form of beneficiary designation as may -8- 9 be approved by the Company, or failing designation by the participant's personal representative, executor or administrator or the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution. The Company may decline to deliver shares to a designated beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such option shall expire at the end of such period. ARTICLE VII. REPLACEMENT OPTIONS The Committee may grant options under the Plan on terms differing from those provided for in Article VI where such options are granted in substitution for options held by employees of or consultants who have written agreement to render services to other entities who concurrently become employees of or consultants to the Company or a subsidiary or an affiliated company as the result of a merger, consolidation or other reorganization of such other entity with the Company or a subsidiary or an affiliated company, or the acquisition by the Company or a subsidiary or an affiliated company of the business, property or stock of such other entity. The Committee may direct that the substitute options be granted on such terms and conditions as the Committee considers appropriate in the circumstances. ARTICLE VIII. SURRENDER OF OPTIONS The Committee may, in its discretion and under such terms and conditions as it deems appropriate, accept the surrender by a participant of a presently exercisable right to purchase stock granted under an option and authorize payment by the Company in consideration therefor of an amount equal to the difference obtained by subtracting the option price of the stock from its fair market value on the date of such surrender, such payment to be in cash or shares of the Common Stock of the Company valued at fair market value on the date of such surrender, or partly in such stock and partly in cash, provided that the Committee determines such settlement is consistent with the purpose of the Plan. ARTICLE IX. CHANGES IN STOCK The Board of Directors is authorized to make such adjustments, if any, as it shall deem appropriate in the number and kind of shares which may be granted under the Plan, the number and kind of shares which are subject to options then outstanding and the purchase price of shares subject to such outstanding options, in the event of any change in capital or shares of capital stock, any special distribution to stockholders or any extraordinary transaction (including a merger, consolidation or dissolution) to which the Company is a party. The determination of the Board of Directors as to such matters shall be binding on all persons. ARTICLE X. EMPLOYMENT RIGHTS The adoption of the Plan does not confer upon any employee of or consultant to the Company or a subsidiary or an affiliated company any right to continue the employment or consulting relationship with the Company or a subsidiary or an affiliated company, as the case may be, nor does it in any way impair the right of the Company or a subsidiary or an affiliated company -9- 10 to terminate the employment of any of its employees or the consulting arrangement with any of its consultants at any time. ARTICLE XI. AMENDMENTS The Committee may at any time discontinue granting options under the Plan. The Board of Directors may at any time or times amend the Plan or amend any outstanding option or options for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law, provided that except to the extent permitted under Article IX, without the approval of the stockholders of the Company no such amendment shall increase the maximum number of shares of stock available under the Plan, or alter the class of persons eligible to receive options under the Plan, or without the consent of the participant void or diminish options previously granted, nor increase or accelerate the conditions and actions required for the exercise of the same, except that nothing herein shall limit the Company's right to call stock, issued for deferred payment which is evidenced by promissory note where the participant is in default of the obligations on such note. -10- EX-10.K 7 LONG TERM STOCK INCENTIVE PLAN 1 EXHIBIT 10.K MASCO CORPORATION 1991 LONG TERM STOCK INCENTIVE PLAN (Restated July 10, 1998) SECTION 1. PURPOSES The purposes of the 1991 Long Term Stock Incentive Plan (the "Plan") are to encourage selected employees of and consultants to Masco Corporation (the "Company") and its Affiliates to acquire a proprietary interest in the Company in order to create an increased incentive to contribute to the Company's future success and prosperity, and enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom the sustained progress, growth and profitability of the Company depend, thus enhancing the value of the Company for the benefit of its stockholders. SECTION 2. DEFINITIONS As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean any entity in which the Company's direct or indirect equity interest is at least twenty percent, and any other entity in which the Company has a significant direct or indirect equity interest, whether more or less than twenty percent, as determined by the Committee. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan. (c) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" shall mean a committee of the Company's directors designated by the Board of Directors to administer the Plan and composed of not less than two directors, each of whom is a "non-employee director" within the meaning of Rule 16b-3. (f) "Dividend Equivalent" shall mean any right granted under Section 6(e) of the Plan. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (h) "Incentive Stock Option" shall mean an Option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto. (i) "Non-Qualified Stock Option" shall mean an Option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option. (j) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (k) "Other Stock-Based Award" shall mean any right granted under Section 6(f) of the Plan. (l) "Participant" shall mean an employee of or consultant to the Company or any Affiliate designated to be granted an Award under the Plan. (m) "Performance Award" shall mean any right granted under Section 6(d) of the Plan. 2 (n) "Restricted Period" shall mean the period of time during which Awards of Restricted Stock or Restricted Stock Units are subject to restrictions. (o) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan. (p) "Restricted Stock Unit" shall mean any right granted under Section 6(c) of the Plan that is denominated in Shares. (q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation. (r) "Section 16" shall mean Section 16 of the Exchange Act, the rules and regulations promulgated by the Securities and Exchange Commission thereunder, or any successor provision, rule or regulation. (s) "Shares" shall mean the Company's common stock, par value $1.00 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(c) of the Plan. (t) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan. SECTION 3. ADMINISTRATION The Committee shall administer the Plan, and subject to the terms of the Plan and applicable law, the Committee's authority shall include without limitation the power to: (i) designate Participants; (ii) determine the types of Awards to be granted; (iii) determine the number of Shares to be covered by Awards and any payments, rights or other matters to be calculated in connection therewith; (iv) determine the terms and conditions of Awards and amend the terms and conditions of outstanding Awards; (v) determine how, whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vi) determine how, whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) determine the methods or procedures for establishing the fair market value of any property (including, without limitation, any Shares or other securities) transferred, exchanged, given or received with respect to the Plan or any Award; (viii) prescribe and amend the forms of Award Agreements and other instruments required under or advisable with respect to the Plan; 2 3 (ix) designate Options granted to key employees of the Company or its subsidiaries as Incentive Stock Options; (x) interpret and administer the Plan, Award Agreements, Awards and any contract, document, instrument or agreement relating thereto; (xi) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the administration of the Plan; (xii) decide all questions and settle all controversies and disputes which may arise in connection with the Plan, Award Agreements and Awards; (xiii) delegate to directors of the Company the authority to designate Participants and grant Awards, and to amend Awards granted to Participants; (xiv) make any other determination and take any other action that the Committee deems necessary or desirable for the interpretation, application and administration of the Plan, Award Agreements and Awards. All designations, determinations, interpretations and other decisions under or with respect to the Plan, Award Agreements or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, Affiliates, Participants, beneficiaries of Awards and stockholders of the Company. SECTION 4. SHARES AVAILABLE FOR AWARDS (a) Shares Available. Subject to adjustment as provided in Section 4(c): (i) Initial Authorization. There shall be 16,000,000 Shares initially available for issuance under the Plan. (ii) Acquired Shares. In addition to the amount set forth above, up to 16,000,000 Shares acquired by the Company subsequent to the 1997 Annual Meeting of Stockholders as full or partial payment for the exercise price for an Option or any other stock option granted by the Company, or acquired by the Company, in open market transactions or otherwise, in connection with the Plan or any Award hereunder or any other employee stock option or restricted stock issued by the Company may thereafter be included in the Shares available for Awards. If any Shares covered by an Award or to which an Award relates are forfeited, or if an Award expires, terminates or is cancelled, then the Shares covered by such Award, or to which such Award relates, or the number of Shares otherwise counted against the aggregate number of Shares available under the Plan by reason of such Award, to the extent of any such forfeiture, expiration, termination or cancellation, may thereafter be available for further granting of Awards and included as acquired Shares for purposes of the preceding sentence. (iii) Shares Under Prior Plans. In addition to the amounts set forth above, shares remaining available for issuance upon any termination of authority to make further awards under both the Company's 1988 Restricted Stock Incentive Plan and its 1988 Stock Option Plan shall thereafter be available for issuance hereunder. (iv) Accounting for Awards. For purposes of this Section 4, (A) if an Award (other than a Dividend Equivalent) is denominated in Shares, the number of Shares covered by such Award, or to which such Award relates, shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan to the extent 3 4 determinable on such date and insofar as the number of Shares is not then determinable under procedures adopted by the Committee consistent with the purposes of the Plan; and (B) Dividend Equivalents and Awards not denominated in Shares shall be counted against the aggregate number of Shares available for granting Awards under the Plan in such amount and at such time as the Committee shall determine under procedures adopted by the Committee consistent with the purposes of the Plan; provided, however, that Awards that operate in tandem with (whether granted simultaneously with or at a different time from), or that are substituted for, other Awards or restricted stock awards or stock options granted under any other plan of the Company may be counted or not counted under procedures adopted by the Committee in order to avoid double counting. Any Shares that are delivered by the Company or its Affiliates, and any Awards that are granted by, or become obligations of, the Company, through the assumption by the Company of, or in substitution for, outstanding restricted stock awards or stock options previously granted by an acquired company shall not, except in the case of Awards granted to Participants who are directors or officers of the Company for purposes of Section 16, be counted against the Shares available for granting Awards under the Plan. (v) Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized but unissued Shares or of Shares reacquired by the Company, including but not limited to Shares purchased on the open market. (b) Individual Stock-Based Awards. Subject to adjustment as provided in Section 4(c), no Participant may receive Options or Stock Appreciation Rights under the Plan in any calendar year that relate to more than 2,000,000 Shares in the aggregate; provided, however, that such number may be increased with respect to any Participant by any Shares available for grant to such Participant in accordance with this Paragraph 4(b) in any prior years that were not granted in such prior year beginning on or after January 1, 1997. No provision of this Paragraph 4(b) shall be construed as limiting the amount of any other stock-based or cash-based Award which may be granted to any Participant. (c) Adjustments. Upon the occurrence of any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), change in the capital or shares of capital stock, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or extraordinary transaction or event which affects the Shares, then the Committee shall have the authority to make such adjustment, if any, in such manner as it deems appropriate, in (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards, (ii) outstanding Awards including without limitation the number and type of Shares (or other securities or property) subject thereto, and (iii) the grant, purchase or exercise price with respect to outstanding Awards and, if deemed appropriate, make provision for cash payments to the holders of outstanding Awards; provided, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. SECTION 5. ELIGIBILITY Any employee of or consultant to the Company or any Affiliate, including any officer of the Company (who may also be a director, any person who serves only as a director of the Company and any consultant to the Company or an Affiliate who is also a director of the Company and who is not rendering services pursuant to a written agreement with the entity in question), as may be selected from time to time by the Committee or by the directors to whom authority may be delegated pursuant to Section 3 hereof in its or their discretion, is eligible to be designated a Participant. 4 5 SECTION 6. AWARDS (a) Options. The Committee is authorized to grant Options to Participants. (i) Committee Determinations. Subject to the terms of the Plan, the Committee shall determine: (A) the purchase price per Share under each Option, provided, however, that such price shall be not less than 100% of the fair market value of the Shares underlying such Option on the date of grant; (B) the term of each Option; and (C) the time or times at which an Option may be exercised, in whole or in part, the method or methods by which and the form or forms (including, without limitation, cash, Shares, other Awards or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price) in which payment of the exercise price with respect thereto may be made or deemed to have been made. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. Subject to the terms of the Plan, the Committee may impose such conditions or restrictions on any Option as it deems appropriate. (ii) Other Terms. Unless otherwise determined by the Committee: (A) A Participant electing to exercise an Option shall give written notice to the Company, as may be specified by the Committee, of exercise of the Option and the number of Shares elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and shall tender the purchase price of the Shares elected for exercise. (B) At the time of exercise of an Option payment in full in cash or in Shares (that have been held by the Participant for at least six months) or any combination thereof, at the option of the Participant, shall be made for all Shares then being purchased. (C) The Company shall not be obligated to issue any Shares unless and until: (I) if the class of Shares at the time is listed upon any stock exchange, the Shares to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and (II) in the opinion of the Company's counsel there has been compliance with applicable law in connection with the issuance and delivery of Shares and such issuance shall have been approved by the Company's counsel. Without limiting the generality of the foregoing, the Company may require from the Participant such investment representation or such agreement, if any, as the Company's counsel may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the Participant agree that any sale of the Shares will be made only in such manner as shall be in accordance with law and that the Participant will notify the Company of any intent to make any disposition of the Shares whether by sale, gift or otherwise. The Participant shall take any action reasonably requested by the Company in such connection. A Participant shall have the rights of a stockholder only as and when Shares have been actually issued to the Participant pursuant to the Plan. 5 6 (D) If the employment of or consulting arrangement with a Participant terminates for any reason (including termination by reason of the fact that an entity is no longer an Affiliate) other than the Participant's death, the Participant may thereafter exercise the Option as provided below, except that the Committee may terminate the unexercised portion of the Option concurrently with or at any time following termination of the employment or consulting arrangement (including termination of employment upon a change of status from employee to consultant) if it shall determine that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate. If such termination is voluntary on the part of the Participant, the Option may be exercised only within ten days after the date of termination. If such termination is involuntary on the part of the Participant, if an employee retires on or after normal retirement date or if the employment or consulting relationship is terminated by reason of permanent and total disability, the Option may be exercised within three months after the date of termination or retirement. For purposes of this Paragraph (D), a Participant's employment or consulting arrangement shall not be considered terminated (i) in the case of approved sick leave or other bona fide leave of absence (not to exceed one year), (ii) in the case of a transfer of employment or the consulting arrangement among the Company and Affiliates, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee, except as provided above. (E) If a Participant dies at a time when entitled to exercise an Option, then at any time or times within one year after death such Option may be exercised, as to all or any of the Shares which the Participant was entitled to purchase immediately prior to death. The Company may decline to deliver Shares to a designated beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such Option shall expire at the end of such period. (F) An Option may be exercised only if and to the extent such Option was exercisable at the date of termination of employment or the consulting arrangement, and an Option may not be exercised at a time when the Option would not have been exercisable had the employment or consulting arrangement continued. (iii) Restoration Options. The Committee may grant a Participant the right to receive a restoration Option with respect to an Option or any other stock option granted by the Company. Unless the Committee shall otherwise determine, a restoration Option shall provide that the underlying option must be exercised while the Participant is an employee of or consultant to the Company or an Affiliate and the number of Shares which are subject to a restoration Option shall not exceed the number of whole Shares exchanged in payment for the exercise of the original option. (b) Stock Appreciation Rights. The Committee is authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the fair market value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise over (ii) the grant price of the right as specified by the Committee. Subject to the terms of the Plan, the Committee shall determine the grant price, term, methods of exercise and settlement and any other terms and conditions of any Stock Appreciation Right and may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. (c) Restricted Stock and Restricted Stock Units. (i) Issuance. The Committee is authorized to grant to Participants Awards of Restricted Stock, which shall consist of Shares, and Restricted Stock Units which shall give the Participant the right to receive cash, other securities, other Awards or other property, in each case subject to the termination of the Restricted Period determined by the Committee. 6 7 (ii) Restrictions. The Restricted Period may differ among Participants and may have different expiration dates with respect to portions of Shares covered by the same Award. Subject to the terms of the Plan, Awards of Restricted Stock and Restricted Stock Units shall have such restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise. Unless the Committee shall otherwise determine, any Shares or other securities distributed with respect to Restricted Stock or which a Participant is otherwise entitled to receive by reason of such Shares shall be subject to the restrictions contained in the applicable Award Agreement. Subject to the aforementioned restrictions and the provisions of the Plan, Participants shall have all of the rights of a stockholder with respect to Shares of Restricted Stock. (iii) Registration. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of stock certificates. (iv) Forfeiture. Except as otherwise determined by the Committee: (A) If the employment of or consulting arrangement with a Participant terminates for any reason (including termination by reason of the fact that any entity is no longer an Affiliate), other than the Participant's death or permanent and total disability or, in the case of an employee, retirement on or after normal retirement date, all Shares of Restricted Stock theretofore awarded to the Participant which are still subject to restrictions shall upon such termination of employment or the consulting relationship be forfeited and transferred back to the Company. Notwithstanding the foregoing or Paragraph (C) below, if a Participant continues to hold an Award of Restricted Stock following termination of the employment or consulting arrangement (including retirement and termination of employment upon a change of status from employee to consultant), the Shares of Restricted Stock which remain subject to restrictions shall nonetheless be forfeited and transferred back to the Company if the Committee at any time thereafter determines that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate. For purposes of this Paragraph (A), a Participant's employment or consulting arrangement shall not be considered terminated (i) in the case of approved sick leave or other bona fide leave of absence (not to exceed one year), (ii) in the case of a transfer of employment or the consulting arrangement among the Company and Affiliates, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee, except as provided above. (B) If a Participant ceases to be employed or retained by the Company or an Affiliate by reason of death or permanent and total disability or if following retirement a Participant continues to have rights under an Award of Restricted Stock and thereafter dies, the restrictions contained in the Award shall lapse with respect to such Restricted Stock. (C) If an employee ceases to be employed by the Company or an Affiliate by reason of retirement on or after normal retirement date, the restrictions contained in the Award of Restricted Stock shall continue to lapse in the same manner as though employment had not terminated. (D) At the expiration of the Restricted Period as to Shares covered by an Award of Restricted Stock, the Company shall deliver the Shares as to which the Restricted Period has expired, as follows: (1) if an assignment to a trust has been made in accordance with Section 6(g)(iv)(B)(2)(c), to such trust; or (2) if the Restricted Period has expired by reason of death and a beneficiary has been designated in form approved by the Company, to the beneficiary so designated; or 7 8 (3) in all other cases, to the Participant or the legal representative of the Participant's estate. (d) Performance Awards. The Committee is authorized to grant Performance Awards to Participants. Subject to the terms of the Plan, a Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and other terms and conditions shall be determined by the Committee. (e) Dividend Equivalents. The Committee is authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Plan, such Awards may have such terms and conditions as the Committee shall determine. (f) Other Stock-Based Awards. The Committee is authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to or otherwise based on or related to Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purposes of the Plan, provided, however, that such grants to persons who are subject to Section 16 must comply with the provisions of Rule 16b-3. Subject to the terms of the Plan, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof, as the Committee shall determine. (g) General. (i) No Cash Consideration for Awards. Awards may be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. (ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under another plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iii) Forms of Payment Under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments. (iv) Limits on Transfer of Awards. 8 9 (A) Except as the Committee may otherwise determine, no Award or right under any Award may be sold, encumbered, pledged, alienated, attached, assigned or transferred in any manner and any attempt to do any of the foregoing shall be void and unenforceable against the Company. (B) Notwithstanding the provisions of Paragraph (A) above: (1) An Option may be transferred: (a) to a beneficiary designated by the Participant in writing on a form approved by the Committee; (b) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant's estate; or (c) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant's life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely in the Participant. Notwithstanding a qualified assignment, the Participant, and not the trust to which rights under such an Option may be as signed, for the purpose of determining compensation arising by reason of the Option shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant. (2) A Participant may assign or transfer rights under an Award of Restricted Stock or Restricted Stock Units: (a) to a beneficiary designated by the Participant in writing on a form approved by the Committee; (b) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant's estate; or (c) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant's life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Awards shall revert to and remain solely in the Participant. Notwithstanding a qualified assignment, the Participant, and not the trust 9 10 to which rights under such an Award may be assigned, for the purpose of determining compensation arising by reason of the Award shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant. (3) The Committee shall not permit directors or officers of the Company for purposes of Section 16 to transfer or assign Awards except as permitted under Rule 16b-3. (C) The Committee, the Company and its officers, agents and employees may rely upon any beneficiary designation, assignment or other instrument of transfer, copies of trust agreements and any other documents delivered to them by or on behalf of the Participant which they believe genuine and any action taken by them in reliance thereon shall be conclusive and binding upon the Participant, the personal representatives of the Participant's estate and all persons asserting a claim based on an Award. The delivery by a Participant of a beneficiary designation, or an assignment of rights under an Award as permitted hereunder, shall constitute the Participant's irrevocable undertaking to hold the Committee, the Company and its officers, agents and employees harmless against claims, including any cost or expense incurred in defending against claims, of any person (including the Participant) which may be asserted or alleged to be based on an Award subject to a beneficiary designation or an assignment. In addition, the Company may decline to deliver Shares to a beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. (v) Share Certificates. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (vi) Change in Control. (A) Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, upon a Change in Control of the Company (as hereinafter defined) the vesting of all rights of Participants under outstanding Awards shall be accelerated and all restrictions thereon shall terminate in order that Participants may fully realize the benefits thereunder. Such acceleration shall include, without limitation, the immediate exercisability in full of all Options and the termination of restrictions on Restricted Stock and Restricted Stock Units. Further, in addition to the Committee's authority set forth in Section 4(c), the Committee, as constituted before such Change in Control, is authorized, and has sole discretion, as to any Award, either at the time such Award is made hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the purchase of any such Award, upon the Participant's request, for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant's rights had such Award been currently exercisable or payable; (ii) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (iii) cause any such Award then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after such Change in Control. (B) With respect to any Award granted hereunder prior to December 6, 1995, a Change in Control shall occur if: (1) any "person" or "group of persons" as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, other than pursuant to a transaction or agreement previously approved by the Board of Directors of the Company, directly or indirectly purchases or otherwise becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) or has the right to acquire such beneficial ownership 10 11 (whether or not such right is exercisable immediately, with the passage of time, or subject to any condition) of voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company; or (2) during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. (C) Notwithstanding the provisions of subparagraph (B), with respect to Awards granted hereunder on or after December 6, 1995, a Change in Control shall occur only if the event described in this subparagraph (C) shall have occurred. With respect to any other Award granted prior thereto, a Change in Control shall occur if any of the events described in subparagraphs (B) or (C) shall have occurred, unless the holder of any such Award shall have consented to the application of this subparagraph (C) in lieu of the foregoing subparagraph (B). A Change in Control for purposes of this subparagraph (C) shall occur if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. For purposes hereof, "Excluded Directors" are directors whose election by the Board or approval by the Board for stockholder election occurred within one year of any "person" or "group of persons", as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power. (D) (1) In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a Participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this subparagraph (D) (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then such Participant shall be entitled to receive from the Company, within 15 days following the determination described in (2) below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by such Participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such Participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (2) All determinations required to be made under this Section 6(g)(vi)(D), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the Participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected Participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of 11 12 the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected Participant. In the event that the Participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Company. (3) This Section 6(g)(vi)(D) shall not apply to any Award (x) that was granted prior to February 17, 1993 and (y) the holder of which is an executive officer of the Company, as determined under the Exchange Act. (vii) Cash Settlement. Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, any Award outstanding hereunder may at any time be cancelled in the Committee's sole discretion upon payment of the value of such Award to the holder thereof in cash or in another Award hereunder, such value to be determined by the Committee in its sole discretion. SECTION 7. AMENDMENT AND TERMINATION Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan: (a) Amendments to the Plan. The Board of Directors of the Company may amend the Plan and the Board of Directors or the Committee may amend any outstanding Award; provided, however, that (i) no Plan amendment shall be effective until approved by stockholders of the Company insofar as stockholder approval thereof is required in order for the Plan to continue to satisfy the conditions of Rule 16b-3, and (ii) without the consent of affected Participants no amendment of the Plan or of any Award may impair the rights of Participants under outstanding Awards, and (iii) no Option may be amended to reduce its initial exercise price other than in connection with an event described in Section 4(c) hereof. (b) Waivers. The Committee may waive any conditions or rights under any Award theretofore granted, prospectively or retroactively, without the consent of any Participant. (c) Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan. (d) Correction of Defects, Omissions, and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to effectuate the Plan. SECTION 8. GENERAL PROVISIONS (a) No Rights to Awards. No Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards of the same type and the determination of the Committee to grant a waiver or modification of any Award and the terms and conditions thereof need not be the same with respect to each Participant. 12 13 (b) Withholding. The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards or other property) of withholding taxes due in respect of an Award, its exercise or any payment or transfer under such Award or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes. (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, including the grant of options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases. (d) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or other written agreement with the Participant. (e) Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law. (f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect. (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be cancelled, terminated or otherwise eliminated. (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 9. EFFECTIVE DATE OF THE PLAN The Plan shall be effective as of the date of its approval by the Company's stockholders. 13 EX-10.M 8 1988 STOCK OPTION PLAN 1 EXHIBIT 10.m MASCO CORPORATION 1988 STOCK OPTION PLAN (Amended and Restated September 22, 1999) ARTICLE I. PURPOSE The purpose of the 1988 Stock Option Plan (the "Plan") is to secure for Masco Corporation (the "Company") and its stockholders the benefits inherent in stock ownership by selected key employees of and consultants to the Company and its subsidiaries and affiliated companies who in the judgment of the committee responsible for the administration of the Plan are largely responsible for the Company's growth and success. The Plan is designed to accomplish this purpose by offering such employees and consultants an opportunity to purchase shares of the Common Stock of the Company. For purposes of the Plan a "subsidiary" is any corporation in which the Company owns, directly or indirectly, stock possessing more than fifty percent of the total combined voting power of all classes of stock, and an "affiliated company" is any other corporation, at least twenty percent of the total combined voting power of all classes of stock of which is owned by the Company or by one or more other corporations in a chain of corporations, at least twenty percent of the stock of each of which is held by the Company or a subsidiary or another corporation within such chain. ARTICLE II. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") of three or more of the Company's directors to be appointed by the Board of Directors. Members of the Committee shall be "disinterested persons" as such term is defined in Rule 16b-3(d) under the Securities Exchange Act of 1934 (the "Exchange Act") or any rule which modifies, amends or replaces Rule 16b-3(d). The Committee shall have authority, consistent with the Plan: (a) to determine which key employees of and consultants to the Company, its subsidiaries and affiliated companies shall be granted options; (b) to determine the time or times when options shall be granted and the number of shares of Common Stock subject to each option; (c) to determine the option price of the stock subject to each option and the method of payment of such price; (d) to determine the time or times when each option becomes exercisable, limitations on exercise, and the duration of the exercise period; (e) to prescribe the form or forms of the instruments evidencing options granted under the Plan and of any other instruments required under the Plan, and to change such forms from time to time; 2 (f) to designate options granted to key employees of the Company or its subsidiaries under the Plan as "incentive stock options" ("ISOs"), as such terms are defined in the Internal Revenue Code of 1986; (g) to adopt, amend and rescind rules and regulations for the administration of the Plan and options and for its own acts and proceedings; and (h) to decide all questions and settle all controversies and disputes which may arise in connection with the Plan. All decisions, determinations and interpretations of the Committee shall be conclusive and binding on all parties concerned. ARTICLE III. PARTICIPANTS Key employees of and consultants to the Company, its subsidiaries and affiliated companies, including officers of the Company (who may also be directors, but excluding members of the Committee, any person who serves only as a director of the Company and any consultant to the Company or any of its subsidiaries or affiliated companies who is also a director of the Company or who is not rendering services pursuant to a written agreement with the corporation in question), as may be selected from time to time by the Committee in its discretion, are eligible to receive options under the Plan. The grant of an option to an employee or consultant shall not entitle such individual to other grants or options, nor shall such grant disqualify such individual from further participation. ARTICLE IV. LIMITATIONS No options shall be granted under the Plan after December 31, 1998, but options theretofore granted may extend beyond that date. Subject to adjustment as provided in Article IX, the number of shares of Common Stock of the Company which may be issued under the Plan shall not exceed 8,000,000; provided, however, that such number of shares shall be reduced by the number of shares of the Company's Common Stock awarded under the Company's 1988 Restricted Stock Incentive Plan (other than shares awarded under such plan which are later forfeited to the Company). To the extent that any option granted under the Plan shall expire or terminate unexercised or for any reason become unexercisable, any stock theretofore subject to such expired or terminated option shall thereafter be available for further grants under the Plan. If an option granted under the Plan shall be accepted for surrender pursuant to Article VIII, any stock subject to such option shall not thereafter be available for further grants. Notwithstanding any provision to the contrary in the Plan, no option may be designated an ISO unless all of the following conditions are satisfied: -2- 3 (a) Such option must be granted on or prior to April 1, 1998, and such option by its terms must not be exercisable after the expiration of ten years from the date such option is granted; (b) Either (i) the employee to whom such option is granted does not, determined at the time such option is granted, own capital stock representing more than ten percent of the voting power of all classes of stock of the Company, its parent or any of its subsidiaries, or (ii) the option price is at least 110 percent of the fair market value, determined at the time such option is granted, of the stock subject to such option and such option by its terms is not exercisable more than five years from the date it is granted; and (c) The aggregate fair market value of the Common Stock subject to such option plus the aggregate fair market value of Common Stock subject to ISOs previously or concurrently granted to the same employee exercisable in the same calendar year (all determined at the respective dates of grant of such options) must not exceed $100,000. ARTICLE V. STOCK TO BE ISSUED The stock as to which options may be granted is the Company's Common Stock, $1 par value. Such stock may be authorized but unissued shares or shares of Common Stock reacquired by the Company, including but not limited to shares purchased on the open market. The Board of Directors and the officers of the Company shall take any appropriate action required for such issuance. ARTICLE VI. TERMS AND CONDITIONS OF OPTIONS All options granted under the Plan shall be subject to the following terms and conditions (except as otherwise provided in Article VII) and to such other terms and conditions as the Committee shall deem appropriate. (a) Option Price. Each option shall have such per share option price as the Committee may determine, but not less than the fair market value of Common Stock of the Company on the date the option is granted. (b) Term of Options. The term of an option shall not exceed eleven years from the date of grant. The date of grant shall be the date on which the option is awarded by the Committee. (c) Exercise of Options. (i) Each option shall be made exercisable not less than six months from the date of grant and at such time or times, whether or not in installments, as the Committee shall prescribe at the time the option is granted. -3- 4 (ii) A person electing to exercise an option shall give written notice to the Company, as may be specified by the Committee, of exercise of the option and the number of shares of stock elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and shall tender the purchase price of the stock elected for exercise unless otherwise directed by the Committee. (iii) (A) Notwithstanding any of the provisions of this Plan or instruments evidencing options granted hereunder, in the case of a Change in Control of the Company, each option then outstanding shall immediately become exercisable in full. A Change in Control shall occur if any of the events described below in subparagraphs (1), (2) or (3) shall have occurred, unless the holder of any such option shall have consented to the application of subparagraph (3) in lieu of subparagraphs (1) and (2): (1) any "person" or "group of persons" as such terms are used in Sections 13(d) and 14(d) of the Exchange Act other than pursuant to a transaction or agreement previously approved by the Board of Directors directly or indirectly purchases or otherwise becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) or has the right to acquire such beneficial ownership (whether or not such right is exercisable immediately, with the passage of time, or subject to any condition) of voting securities representing 25% or more of the combined voting power of all outstanding voting securities of the Company; (2) during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof; or (3) during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. For purposes hereof, "Excluded Directors" are directors whose election by the Board or approval by the Board for stockholder election occurred within one year of any "person" or "group of persons", as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior -4- 5 to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power. (B)(1) In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this subparagraph (B) (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended from time to time ("Code"), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then such participant shall be entitled to receive from the Company, within 15 days following the determination described in (2) below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by such participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (2) All determinations required to be made under this Article VI(c)(iii)(B), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the participant. As a result of the uncertainty in the application of Section 4999 of the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected participant. In the event that the participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Company. (3) This Article VI(c)(iii)(B) shall not apply to any option that was granted to an executive officer of the Company, as determined under the Exchange Act. (d) Payment for Issuance of Stock. At the time of exercise of any option granted pursuant to the Plan, payment in full shall be made for all stock then being purchased either in cash or, at the discretion of the Committee, in whole or in part in Common Stock of the Company valued at its then fair market value. Notwithstanding the foregoing, the Committee may in its discretion permit the -5- 6 issuance of stock upon such other plan of payment as it deems reasonable, provided that the then unpaid portion of the purchase price shall be evidenced by a promissory note at such rate of interest and upon such other terms and conditions as the Committee shall deem appropriate. In all cases where stock is issued for less than present full payment of the purchase price, there shall be placed upon the certificate or certificates representing such stock a legend setting forth the amount paid at issuance, and the amount remaining unpaid thereon, and stating that the stock is subject to call for the remainder and may not be transferred by the holder until the balance due thereon shall be fully paid. The Committee, in its discretion and in accordance with its procedures, may permit a participant to satisfy, in whole or in part, the income tax withholding obligations in connection with the exercise of a non-qualified stock option by having shares withheld from the shares to be issued upon the exercise of the option or by delivering shares of Common Stock of the Company having a fair market value equal to the amount needed to satisfy such obligations. (e) Conditions to Issuance. The Company shall not be obligated to issue any stock unless and until: (i) if the Company's outstanding Common Stock is at the time listed upon any stock exchange, the shares of stock to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and (ii) in the opinion of the Company's counsel there has been compliance with applicable law in connection with the issuance and delivery of stock and such issuance shall have been approved by the Company's counsel. Without limiting the generality of the foregoing, the Company may require from the participant such investment representation or such agreement, if any, as counsel for the Company may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the participant agree that any sale of the stock will be made only in such manner as shall be in accordance with law and that the participant will notify the Company of any intent to make any disposition of the stock whether by sale, gift or otherwise. The participant shall take any action reasonably requested by the Company in such connection. A participant shall have the rights of a stockholder only as and when shares of stock have been actually issued to the participant pursuant to the Plan. (f) Limits on Transferability of Options. No option may be transferred by the participant other than (i) by designation of beneficiary as provided in subsection (j) of this Article, or (ii) by will or the laws of descent and distribution, or (iii) to a revocable grantor trust established by the participant for the sole benefit of the participant during the participant's life, and under the terms of which the participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an -6- 7 assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely in the participant. Notwithstanding a qualified assignment, the participant, and not the trust to which rights under such an Option may be assigned, for the purpose of determining compensation arising by reason of the Option, shall continue to be considered an employee or consultant, as the case may be, of the Company or an affiliated company, but such trust and the participant shall be bound by all of the terms and conditions of this Plan and any written agreement, contract or other instrument or document evidencing any award granted under this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the participant. (g) Consideration for Option. Each person receiving an option must agree to remain as an employee or consultant upon the terms of employment or the consulting arrangement then existing (unless different terms are mutually agreed upon) for at least ninety days from the date the option is granted. (h) Termination of Employment. If the employment of or consulting arrangement with a participant terminates for any reason (including termination by reason of the fact that any corporation is no longer a subsidiary or affiliated company) other than the participant's death or permanent and total disability or, in the case of an employee, retirement on or after normal retirement date, unless discharged for misconduct which in the opinion of the Committee casts such discredit on the participant as to justify termination of the option, the participant may thereafter exercise the option as provided below. If such termination is voluntary on the part of the participant, the option may be exercised only within ten days after the day of termination. If such termination is involuntary on the part of the participant, the option may be exercised within three months after the day of termination. Except as expressly provided in the Plan or the option, whether the termination of employment or consulting arrangement is voluntary or involuntary, options may be exercised only if such options were exercisable at the date of such termination, and an option may not be exercised at a time when the option would not have been exercisable had the employment or consulting arrangement continued. Notwithstanding the preceding three sentences, the Committee may extend the time within which or alter the terms and conditions on which the participant may exercise an option after the termination of employment or the consulting arrangement, and if the period within which an option may be exercised has been extended, the Committee may terminate the unexercised portion of the option if it shall determine that the participant has engaged in any activity detrimental to the Company's interests. For purposes of this Article VI(h), a participant's employment or consulting arrangement shall not be considered terminated (i) in the case of approved sick leave or other bona fide leave of absence (not to exceed one year unless otherwise approved by the Committee), (ii) in the case of a transfer of employment or the consulting arrangement among the Company, its subsidiaries and affiliated companies, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee. (i) Retirement; Disability. If prior to the expiration date of an option the employee shall retire on or after normal retirement date or if the employment or consulting relationship is terminated by reason of permanent and total disability, such option may be exercised to the extent exercisable -7- 8 on the date of retirement or such termination, provided such option shall be exercised within three months of the date of retirement or such termination. Notwithstanding the foregoing, in its discretion the Committee may extend the time within which or alter the terms and conditions on which an option held by a retired or disabled option holder may be exercised, and if the period within which an option may be exercised has been extended, the Committee may terminate the unexercised portion of the option if it shall determine that the participant has engaged in any activity detrimental to the Company's interests. (j) Death. If a participant dies at a time when entitled to exercise an option, then at any time or times within one year after death (or such further period as the Committee may allow) such option may be exercised, as to all or any of the shares which the participant was entitled to purchase immediately prior to death (or such additional shares covered by the option as the Committee may allow), by the person or persons designated in writing by the participant in such form of beneficiary designation as may be approved by the Company, or failing designation by the participant's personal representative, executor or administrator or the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution. The Company may decline to deliver shares to a designated beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such option shall expire at the end of such period. ARTICLE VII. REPLACEMENT OPTIONS The Committee may grant options under the Plan on terms and conditions differing from those provided for in Article VI where such options are granted in substitution for options held by employees of or consultants to other entities who concurrently become employees of or consultants to the Company or a subsidiary or an affiliated company as the result of a merger, consolidation or other reorganization of such other entity with the Company or a subsidiary or an affiliated company, or the acquisition by the Company or a subsidiary or an affiliated company of the business, property or stock of such other entity. The Committee may direct that the replacement options be granted on such terms and conditions as the Committee considers appropriate in the circumstances. ARTICLE VIII. SURRENDER OF OPTIONS The Committee may, in its discretion and upon such terms and conditions as it deems appropriate, accept the surrender by a participant of a presently exercisable right to purchase stock granted under an option and authorize payment by the Company in consideration therefor of an amount equal to the difference obtained by subtracting the option price of the stock from its fair market value on the date of such surrender, such payment to be in cash or shares of the Common Stock of the Company valued at fair market value on the date of such surrender, or partly in such stock and partly in cash, provided that the Committee determines such settlement is consistent with the purpose of the Plan. -8- 9 ARTICLE IX. CHANGES IN STOCK The Board of Directors is authorized to make such adjustments, if any, as it shall deem appropriate in the number and kind of shares which may be granted under the Plan, the number and kind of shares which are subject to options then outstanding and the purchase price of shares subject to such outstanding options, in the event of any change in capital or shares of capital stock, any special distribution to stockholders or any extraordinary transaction (including a merger, consolidation or dissolution) to which the Company is a party. The determination of the Board of Directors as to such matters shall be conclusive and binding on all persons. ARTICLE X. EMPLOYMENT RIGHTS The adoption of the Plan, the grant of options hereunder and the participation by a participant in the Plan do not confer upon any employee of or consultant to the Company or subsidiary or an affiliated company any right to continue the employment or consulting relationship with the Company or a subsidiary or an affiliated company, as the case may be, nor does it in any way impair the right of the Company or a subsidiary or an affiliated company to terminate the employment of any of its employees or the consulting arrangement with any of its consultants at any time, with or without cause, unless a written employment or consulting agreement provides otherwise. ARTICLE XI. AMENDMENTS The Board of Directors may at any time or times amend the Plan or amend any outstanding option or options for the purpose of satisfying the requirements of changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law, provided that except to the extent permitted under Article IX, without the approval of the stockholders of the Company no amendment shall increase the maximum number of shares of stock available under the Plan, alter the class of persons eligible to receive options under the Plan, or without the consent of the participant void or diminish options previously granted, nor increase or accelerate the conditions required for the exercise of the same, except that nothing herein shall limit the Company's right under Article VI(d) to call stock, issued for deferred payment which is evidenced by a promissory note, where the participant is in default of the obligations of such note. -9- EX-10.N 9 SUPPLEMENTAL EXECUTIVE RET. AND DISABILITY PLAN 1 EXHIBIT 10.n February 28, 1995 Dear As you know, our company's Board of Directors has adopted a Plan whereby supplemental retirement and other benefits, in addition to those provided under the Company's pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company's Chief Executive Officer. You have been previously designated as a participant in the Plan by a letter agreement signed by you and dated December 10, 1992. This agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company's obligations to you and yours to the Company under the Plan. These benefits as described below are contractual obligations of the Company. For the purposes of this Agreement, words and terms are defined as follows: a. "Retirement" shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment. b. "Average Compensation" shall mean the aggregate of your highest three years' total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three. c. If you become Disabled, "Total Compensation" shall mean your annual base salary rate in the year in which you become Disabled plus the regular year-end cash bonus paid to you for the year immediately prior thereto. d. "Surviving Spouse" shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5, and (iii) your Disability for the purposes of paragraphs 6 and 7. For the purposes of paragraphs 10a, 10e, 10f, 10g and 10h, "Surviving Spouse" shall be any spouse entitled to survivor's benefits. e. "Disability" and "Disabled" shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more. 2 f. "Company" shall mean MascoTech, Inc. or any corporation in which MascoTech, Inc. or a subsidiary owns stock possessing at least 20% of the total combined voting power of all classes of stock. g. "Year" shall mean twelve full consecutive months, and "year" shall mean a calendar year. h. "Plan Limitation" for any year shall mean (x) for 1989, $300,000 multiplied by the Cost of Living Factor for 1988, and (y) for any year subsequent to 1989, the Plan Limitation for the immediately preceding year multiplied by the Cost of Living Factor for such preceding year. i. "Cost of Living Factor" for any year shall mean, except as otherwise provided generally with respect to the Plan by the Company's Board of Directors, the quotient (in no event to exceed 1.03 or to be less than .97) obtained by dividing the monthly Consumer Price Index Number (as compiled in the Consumer Price Index for Urban Consumers by the Bureau of Labor Statistics) for the month of December in such year by the monthly Consumer Price Index Number for the immediately preceding month of December. j. A "Change in Control" shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. 1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime 60% of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan restoration provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company's Future Service Profit Sharing Trust and the defined contribution (profit sharing) restoration provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, and (iii) any retirement benefits payable to you by reason of employment by your prior employers (excluding, however, from such deduction any portion thereof, and earnings thereon, determined by the committee referred to in paragraph 10 to have been contributed by you rather than your prior employers). In all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trust referred to therein which are authorized pursuant to a Qualified Domestic Relations Order under ERISA. -2- 3 2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death). 3. Upon your Retirement the Company will provide or purchase for you and your spouse's benefit, or at its option reimburse you or your Surviving Spouse for premiums paid, during your joint and several lives, such supplemental medical insurance as the Company may deem advisable from time to time. 4. Under no circumstances (i) will any retirement benefits be paid to you or your Surviving Spouse pursuant to this Agreement unless you were employed by the Company or Disabled on your Retirement, or were employed by the Company at the time of your death after attaining age 65, and (ii) will you or your Surviving Spouse be entitled to receive retirement benefits under this Agreement if your Retirement commences prior to your attaining age 65. 5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life 45% of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under Company funded qualified pension plans and the defined benefit (pension) plan restoration provisions of the Company's Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity, and (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company's Future Service Profit Sharing Trust and the defined contribution (profit sharing) restoration provisions of the Company's Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity. In all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trust referred to therein which are authorized pursuant to a Qualified Domestic Relations Order under ERISA. No death benefits are payable except to your Surviving Spouse. 6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance or other plans the cost of which is paid by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled. -3- 4 7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, notwithstanding paragraph 4 you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of your becoming Disabled. 8. Notwithstanding any of the provisions of this Agreement, the maximum retirement, disability and death benefits payable to you and your spouse pursuant to this Agreement for any year shall in no event exceed the higher of (A) $500,000 less those sums to be deducted from benefits pursuant to clauses (i), (ii) and (iii) of paragraph 1, clauses (i) and (ii) of paragraph 5, or under paragraph 6, whichever is applicable, or (B) the Plan Limitation for the year in which such benefits were first paid, less the aggregate annual benefit with respect to the Company's Retirement Benefits Restoration Plan (and any future non-qualified retirement plan) to be deducted (x) under clauses (i) and (ii) of paragraph 1, (y) under paragraph 5 should you die while employed prior to attaining age 65 or (z) under paragraph 6 should you become disabled prior to attaining age 65. 9. If you are eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company's Retirement Benefits Restoration Plan. 10. We also agree upon the following: a. The Compensation Committee of the company's Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the company's officers and executives, shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the date of and whether you are Disabled, the amount of annual benefits payable to you by reason of employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Compensation Committee or such other committee of the company's Board of Directors shall be conclusive and binding, without appeal, upon both of us. b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person's benefit under any circumstances any of the Company's Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary. -4- 5 c. If your employment by the Company shall terminate for any reason whatsoever prior to your Retirement other than by reason of your death or Disability, for a period of two years after the termination of your employment, and if your employment shall be terminated by reason of Retirement or any Disability during such time as you shall receive retirement or disability benefits pursuant to this Agreement, you agree that you will not directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of termination of employment or Retirement. In addition to the foregoing and provided no "Change in Control" has occurred, if while you are receiving retirement or other benefits pursuant to this Agreement, in the judgment of the committee you directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the committee may terminate your rights to any further benefits hereunder. d. Except as may be provided to the contrary in a duly authorized written agreement between yourself and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion. e. At the Company's request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Compensation or other committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company or such committee from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse's cooperation in providing such information is a condition to the receipt of survivor's benefits under this Agreement. f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse's debts, contracts, torts or other engagements of any kind. g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your -5- 6 Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement. h. All benefits payable pursuant to this Agreement shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse's written application, or by the applicant's personal representative in the event of disability. i. All benefits under this Agreement shall be payable from the Company's general assets, which assets are subject to the claims of general creditors, and are not set aside for your or your Surviving Spouse's benefit. j. This Agreement shall be governed by the laws of the State of Michigan. 11. We have agreed that the determinations of the committee described in paragraph 10a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 10a, we agree that, except for causes of action which may arise under paragraph 10b and the first paragraph of paragraph 10c, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as "dispute") involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms. The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area. The arbitrator's sole authority shall be to apply the clauses of this Agreement. We agree that the provisions of this paragraph 11, and the decision of the arbitrator with respect to any dispute, with only the exception provided in this paragraph 11, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exception, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement. -6- 7 We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period it is forever barred. We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me. Sincerely, MASCOTECH, INC. By /s/ Richard A. Manoogian ----------------------------- Richard A. Manoogian Chief Executive Officer - ------------------------ DATE: ------------------- -7- EX-10.Q 10 1997 NON-EMPLOYEE DIRECTORS STOCK PLAN 1 EXHIBIT 10.q MASCO CORPORATION 1997 NON-EMPLOYEE DIRECTORS STOCK PLAN (AS AMENDED JULY 10, 1998) SECTION 1. PURPOSE The purpose of this Plan is to ensure that the non-employee Directors of Masco Corporation (the "Company") have an equity interest in the Company and thereby have a direct and long term interest in the growth and prosperity of the Company by payment of part of their compensation in the form of common stock of the Company. SECTION 2. ADMINISTRATION OF THE PLAN This Plan will be administered by the Company's Board of Directors (the "Board"). The Board shall be authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan. The Board's interpretation of the terms and provisions of this Plan shall be final and conclusive. The Secretary of the Company shall be authorized to implement the Plan in accordance with its terms and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes thereof. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law. SECTION 3. ELIGIBILITY Participation will be limited to individuals who are Eligible Directors, as hereinafter defined. Eligible Director shall mean any Director of the Company who is not an employee of the Company and who receives a fee for services as a Director. SECTION 4. SHARES SUBJECT TO THE PLAN (a) Subject to the adjustments set forth below, the aggregate number of shares of Company Common Stock, par value $1.00 per share ("Shares"), which may be the subject of awards issued under the Plan shall be 1,000,000. (b) Any Shares to be delivered under the Plan shall be made available from newly issued Shares or from Shares reacquired by the Company, including Shares purchased in the open market. (c) To the extent a Stock Option award, as hereinafter defined, terminates without having been exercised, or an award of Restricted Stock, as hereinafter defined, is forfeited, the Shares subject to such Stock Option or Restricted Stock award shall again be available for distribution in connection with future awards under the Plan. Shares equal in number to the Shares surrendered to the Company in payment of the option price or withholding taxes (if any) relating to or arising in connection with any Restricted Stock or Stock Option hereunder shall be added to the number of Shares then available for future awards under clause (a) above. (d) In the event of any merger, reorganization, consolidation, recapitalization, stock split, stock dividend, or other change in corporate structure affecting the Shares, the aggregate number of Shares which may be issued under the Plan, the number of Shares subject to Stock Options to be granted under Section 6(a) hereof and the number of Shares subject to any outstanding award of Restricted Stock or unexercised Stock Option shall be adjusted to avoid enhancement or diminution of the benefits intended to be made available hereunder. SECTION 5. DIRECTOR STOCK COMPENSATION (a) The compensation of each Eligible Director for the five year period beginning January 1, 1997 shall be payable in part with an award of Restricted Stock determined as set forth below, and in part in cash. Compensation for this purpose means annual retainer fees but does not include supplemental retainer fees for committee positions or fees 1 2 for attendance at meetings, which shall be paid in cash. The portion of compensation payable in Restricted Stock during the five year period shall be equal to one-half of the annual compensation paid to Eligible Directors in the year immediately prior to the award multiplied by five, and the balance of compensation, unless otherwise determined by the Board, shall be payable in cash. Each award of Restricted Stock shall vest in twenty percent annual installments (disregarding fractional shares) on January 1 of each of the five consecutive years following the year in which the award is made. Subject to the approval of this Plan by the Company's stockholders, each Eligible Director on February 18, 1997 is awarded as of that date 3,470 Shares of Restricted Stock, based on the closing price of the Shares as reported on the New York Stock Exchange Composite Tape (the "NYSE") on February 18, 1997. Cash shall be paid to an Eligible Director in lieu of a fractional share. (b) Subject to the approval of this Plan by the Company's stockholders, each Eligible Director who is first elected or appointed to the Board on or after the date of the Company's 1997 annual meeting of stockholders shall receive, as of the date of such election or appointment, an award of Restricted Stock determined in accordance with Section 5(a) for the five year period beginning on January 1 of the year in which such election or appointment occurred; provided, however, that the price of the Shares used in determining the number of Shares of Restricted Stock which shall be issued to such Eligible Director shall be the closing price of the Shares as reported on the NYSE on the date on which such Eligible Director is elected or appointed, and provided, further, that the amount of Restricted Stock awarded to any Eligible Director who begins serving as a Director other than at the beginning of a calendar year shall be prorated to reflect the partial service of the initial year of the Director's term, such proration to be effected in the initial vesting. (c) Upon the full vesting of any award of Restricted Stock awarded pursuant to Section 5(a) or 5(b), each affected Eligible Director shall be eligible to receive a new award of Restricted Stock, subject to Section 4. The number of Shares subject to such award shall be determined generally in accordance with the provisions of Section 5(b); provided, however, that the Board shall have sole discretion to adjust the amount of compensation then to be paid in the form of Shares and the terms of any such award of Shares. Except as the Board may otherwise determine, any increase or decrease in an Eligible Director's annual compensation during the period when such Director has an outstanding award of Restricted Stock shall be implemented by increasing or decreasing the cash portion of such Director's compensation. (d) Each Eligible Director shall be entitled to vote and receive dividends on the unvested portion of his or her Restricted Stock, but will not be able to obtain a stock certificate or sell, encumber or otherwise transfer such Restricted Stock except in accordance with the terms of the Company's 1991 Long Term Stock Incentive Plan (the "Long Term Plan"). If an Eligible Director's term is terminated by reason of death or permanent and total disability, the restrictions on the Restricted Stock will lapse and such Eligible Director's rights to the Shares will become vested on the date of such termination. If an Eligible Director's term is terminated for any reason other than death or permanent and total disability, the Restricted Stock that has not vested shall be forfeited and transferred back to the Company; provided, however, that a pro rata portion of the Restricted Stock which would have vested on January 1 of the year following the year of the Eligible Director's termination shall vest on the date of termination, based upon the portion of the year during which the Eligible Director served as a Director of the Company. SECTION 6. STOCK OPTION GRANT (a) Subject to approval of this Plan by the Company's stockholders, each Eligible Director on the date of such approval will be granted on such date a stock option to purchase 8,000 Shares (the "Stock Option"). Thereafter, on the date of each of the Company's subsequent annual stockholders meetings, each person who is or becomes an Eligible Director on that date and whose service on the Board will continue after such date shall be granted a Stock Option, subject to Section 4, effective as of the date of such meeting. (b) Stock Options granted under this Section 6 shall be non-qualified stock options and shall have the following terms and conditions. 1. Option Price. The option price per Share shall be equal to the closing price of the Shares as reflected on the NYSE on the date of grant (or if there were no sales on such date, the most recent prior date on which there were sales). 2. Term of Option. The term of the Stock Option shall be ten years from the date of grant, subject to earlier termination in the event of termination of service as an Eligible Director. If an Eligible Director's term is terminated for any reason other than death at a time when such Director is entitled to exercise an outstanding Stock Option, then 2 3 at any time or times within three months after termination such Stock Option may be exercised as to all or any of the Shares which the Eligible Director was entitled to purchase at the date of termination. If an Eligible Director dies at a time when such Director is entitled to exercise a Stock Option, then at any time or times within one year after death such Stock Option may be exercised as to all or any of the Shares which the Eligible Director was entitled to purchase immediately prior to such Director's death. Except as so exercised, such Stock Options shall expire at the end of such periods. That portion of the Stock Option not exercisable at the time of such termination shall be forfeited and transferred back to the Company on the date of such termination. 3. Exercisability. Subject to clause 2 above, each Stock Option shall vest and become exercisable with respect to twenty percent of the underlying Shares on each of the first five anniversaries of the date of grant, provided that the optionee is an Eligible Director on such date. 4. Method of Exercise. A Stock Option may be exercised in whole or in part during the period in which such Stock Option is exercisable by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price shall be made in cash, by delivery of Shares, or by any combination of the foregoing. 5. Non-Transferability. Unless otherwise provided by the terms of the Long Term Plan or the Board, (i) Stock Options shall not be transferable by the optionee other than by will or by the laws of descent and distribution, and (ii) during the optionee's lifetime, all Stock Options shall be exercisable only by the optionee or by his or her guardian or legal representative. 6. Stockholder Rights. The holder of a Stock Option shall, as such, have none of the rights of a stockholder. SECTION 7. GENERAL (a) Plan Amendments. The Board may amend, suspend or discontinue the Plan as it shall deem advisable or to conform to any change in any law or regulation applicable thereto; provided, that the Board may not, without the authorization and approval of the stockholders of the Company: (a) modify the class of persons who constitute Eligible Directors as defined in the Plan; or (b) increase the total number of Shares available under the Plan. In addition, without the consent of affected participants, no amendment of the Plan or any award under the Plan may impair the rights of participants under outstanding awards. (b) Listing and Registration. If at any time the Board shall determine, in its discretion, that the listing, registration or qualification of the Shares under the Plan upon any securities exchange or under any state or Federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of any award hereunder, no Shares may be delivered or disposed of unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Board. (c) Award Agreements. Each award of Restricted Stock and Stock Option granted hereunder shall be evidenced by the Eligible Director's written agreement with the Company which shall contain such terms and conditions not inconsistent with the provisions of the Plan as shall be determined by the Board in its discretion. 3 EX-12 11 COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 MASCOTECH, INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31 --------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- ------- -------- EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES: Income from continuing operations before income taxes, and cumulative effect of accounting change, net... $139,470 $144,520 $190,290 $77,220 $100,280 Deduct equity in undistributed earnings of less-than-fifty percent owned companies..... (9,800) (8,530) (46,030) (31,650) (29,590) Add interest on indebtedness, net......................... 80,660 81,280 36,650 30,350 51,500 Add amortization of debt expense..................... 2,740 3,250 900 1,490 1,670 Estimated interest factor for rentals..................... 3,710 3,620 2,100 6,350 7,070 -------- -------- -------- ------- -------- Earnings before income taxes and fixed charges........... $216,780 $224,140 $183,910 $83,760 $130,930 ======== ======== ======== ======= ======== FIXED CHARGES: Interest on indebtedness, net......................... $ 80,950 $ 81,740 $ 36,770 $30,590 $ 51,690 Amortization of debt expense... 2,740 3,250 900 1,490 1,670 Estimated interest factor for rentals..................... 3,710 3,620 2,100 6,350 7,070 -------- -------- -------- ------- -------- Total fixed charges... 87,400 88,610 39,770 38,430 60,430 -------- -------- -------- ------- -------- Preferred stock dividend requirement (a)................ -- -- 10,300 21,570 21,970 -------- -------- -------- ------- -------- Combined fixed charges and preferred stock dividends... $ 87,400 $ 88,610 $ 50,070 $60,000 $ 82,400 ======== ======== ======== ======= ======== RATIO OF EARNINGS TO FIXED CHARGES........................ 2.5 2.5 4.6 2.2 2.2 ======== ======== ======== ======= ======== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS................ 2.5 2.5 3.7 1.4 1.6 ======== ======== ======== ======= ========
- --------------- (a) Represents amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company and its 50% owned companies. EX-21 12 LIST OF SUBSIDIARIES 1 EXHIBIT 21 MASCOTECH, INC. (A DELAWARE CORPORATION) Subsidiaries as of January 31, 2000 *
NAME JURISDICTION OF ---- INCORPORATION OR ORGANIZATION ----------------------------- Arrow Specialty Company Delaware Cuyam Corporation Ohio E.R. Acquisition Corp. Delaware Gruppo Tov Sr.l (80%) Italy K-Tech Mfg., Inc. Delaware Kendallville Foundry, Inc. Delaware Masco Industries International Sales, Inc. Barbados MascoTech Europe, Inc. Delaware MascoTech European Holdings Inc. Delaware GLO S.p.A. Italy MascoTech Forming Technologies - Fort Wayne, Inc. Indiana MascoTech GmbH Germany Gruppo Tov Sr.l. (20%) Italy H&B Hyprotec Technology OHG Germany Huber & Bauer GmbH (20%) Germany Holzer GmbH & Co. Germany Holzer Limited United Kingdom MascoTech Sintered Components Espana S.L. Spain Neumeyer CR spol S.r.o. Czech Republic Neumeyer Fliesspressen GmbH Germany MascoTech Services, Inc. Delaware MascoTech Sintered Components Limited United Kingdom MascoTech Sintered Components of Indiana, Inc. Delaware MascoTech Sintered Components, Inc. Delaware MascoTech Sintered Components Holdings, Mexico S. de R.L. de C.V. MascoTech Sintered Components Mexico Services, S.de R.L. de C.V. MascoTech Sintered Components Mexico Mexico, S.A. de C.V. MascoTech Tubular Products, Inc. Michigan MASX Energy Services Group, Inc. Delaware MASG Disposition, Inc. Michigan NI Wheel, Incorporated Ontario Plastic Form, Inc. Delaware Precision Headed Products, Inc. Delaware
- ---------------------- * Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business. 1 2
NAME JURISDICTION OF ---- INCORPORATION OR ORGANIZATION ----------------------------- TriMas Corporation Delaware Beaumont Bolt & Gasket, Inc. Texas Industrial Bolt & Gasket, Inc. Louisiana Compac Corporation Delaware Netcong Investments, Inc. New Jersey Di-Rite Company Ohio Draw-Tite, Inc. Delaware Draw-Tite (Canada) Ltd. Ontario Eskay Screw Corporation Delaware Fulton Performance Products, Inc. Delaware Heinrich Stolz GmbH Germany Hitch'N Post, Inc. Delaware K.S. Disposition, Inc. Michigan Keo Cutters, Inc. Michigan Lake Erie Screw Corporation Ohio Lamons Metal Gasket Co. Delaware Canadian Gasket & Supply Inc. Canada Louisiana Hose & Rubber Co. Louisiana Monogram Aerospace Fasteners, Inc. Delaware NI Foreign Military Sales, Inc. Delaware NI West, Inc. California Norris Cylinder Company Delaware Norris Environmental Services, Inc. California Norris Industries, Inc. California Punchcraft Company Michigan Reese Products, Inc. Indiana TriMas Corporation Pty. Ltd. Australia Roof Rack Industries Pty Ltd. Australia Reese Products of Canada Ltd. Ontario Reska Spline Products, Inc. Michigan Richards Micro-Tool, Inc. Delaware Rieke Corporation Indiana Rieke Canada Limited Canada Rieke Corporation (S) Pte Ltd Singapore Rieke of Indiana, Inc. Indiana Rieke of Mexico, Inc. Delaware Rieke de Mexico, S.A. de Mexico C.V. Rieke Leasing Co., Incorporated Delaware TriMas Corporation Limited United Kingdom The Englass Group Limited United Kingdom The English Glass Company Limited United Kingdom
- ---------------------- * Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business. 2 3
NAME JURISDICTION OF ---- INCORPORATION OR ORGANIZATION ----------------------------- Top Emballage S.A. France TriMas Export, Inc. Barbados TriMas Fasteners, Inc. Delaware TriMas Services Corp. Delaware W.C. McCurdy & Co. Michigan Windfall Products, Inc. Pennsylvania Windfall Specialty Powders, Inc. Pennsylvania WIPCO, Inc. Delaware Windfall do Brasil Ltda. Brazil Windfall Foreign Sales Corp. Barbados
- ---------------------- * Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business. 3 EX-23 13 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the prospectuses included in the registration statements of MascoTech, Inc. on Form S-3 (Registration Nos. 33-59222, 33-55837 and 333-66307) and Form S-8 (Registration Nos. 33-30735, 33-42230, 333-30869, 333-64531 and 333-74875) of our report dated February 25, 2000, on our audits of the consolidated financial statements and financial statement schedule of MascoTech, Inc. and subsidiaries as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, which report is included in this Annual Report on Form 10-K. We also consent to the reference to our Firm under the caption "Experts" in such prospectuses. PRICEWATERHOUSECOOPERS LLP Detroit, Michigan March 27, 2000 EX-27 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1999 MASCOTECH, INC. 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 4,490 0 223,250 (4,290) 183,600 470,120 1,045,220 (322,540) 2,101,270 228,400 1,372,890 0 0 44,640 255,740 2,101,270 1,679,690 1,679,690 (1,246,660) (1,246,660) (3,070) 0 (80,820) 139,470 (47,040) 92,430 0 0 0 92,430 2.25 1.84
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