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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
MASCO CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
[MASCO LETTERHEAD LOGO]
Dear Stockholders:
You are cordially invited to attend Masco Corporation's Annual Meeting of
Stockholders on Wednesday, May 14, 2003 at 10:00 a.m. at our corporate
headquarters in Taylor, Michigan. Information regarding the meeting schedule and
the matters proposed for your consideration at the meeting are contained in the
following pages.
As a stockholder, you are requested to vote upon the matters more fully
described in the accompanying notice and proxy statement. At our meeting, we
also expect to provide a review of our Company's operations and respond to your
questions.
On behalf of our entire Board of Directors, we thank you for your continued
support of Masco Corporation and look forward to seeing you on May 14.
Sincerely,
[/s/ Richard A. Manoogian]
Richard A. Manoogian
Chairman of the Board and
Chief Executive Officer
MASCO CORPORATION
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: MAY 14, 2003
TIME: 10:00 A.M.
PLACE: MASCO CORPORATION
21001 VAN BORN ROAD
TAYLOR, MICHIGAN 48180
The purposes of the Annual Meeting are:
1. To elect three Class III Directors;
2. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the Company for the year 2003; and
3. To transact such other business as may properly come before the
Meeting.
Stockholders of record at the close of business on March 28, 2003 are
entitled to vote at the Meeting or any adjournment thereof.
Your attention is called to the accompanying Proxy Statement and Proxy.
Whether or not you plan to attend the Meeting, you can be sure your shares are
represented at the Meeting by promptly voting and submitting your Proxy by
telephone, by Internet, or by completing, signing, dating and returning your
Proxy card in the enclosed postage prepaid envelope. Prior to being voted, the
Proxy may be withdrawn in the manner specified in the Proxy Statement.
By Order of the Board of Directors
[/s/ Eugene A. Gorgaro, Jr.]
EUGENE A. GARGARO, JR.
Secretary
April 18, 2003
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
MASCO CORPORATION
May 14, 2003
GENERAL INFORMATION
The solicitation of the enclosed Proxy is made by the Board of Directors of
Masco Corporation (the "Company") for use at the Annual Meeting of Stockholders
of the Company to be held at its offices at 21001 Van Born Road, Taylor,
Michigan 48180, on Wednesday, May 14, 2003 at 10:00 A.M., and at any
adjournment. This Proxy Statement and the enclosed Proxy are being mailed or
given to stockholders on or about April 18, 2003.
The expense of this solicitation will be borne by the Company. Solicitation
will be by mail, and executive officers and other employees of the Company may
solicit Proxies, without additional compensation, personally and by telephone
and other means of communication. In addition, the Company has retained Morrow &
Co., Inc. to assist in the solicitation of Proxies for a fee of $9,000, plus
expenses. The Company will also reimburse brokers and other persons holding
Company Common Stock in their names or in the names of their nominees for their
reasonable expenses in forwarding Proxies and Proxy materials to beneficial
owners.
Stockholders of record at the close of business on March 28, 2003 are
entitled to vote at the Meeting. On that date, there were 476,447,642 shares of
Company Common Stock, $1 par value, outstanding and entitled to vote and 16,666
shares of Series B Participating Preferred Stock outstanding and entitled to
vote. Holders of Company Common Stock and Series B Participating Preferred Stock
vote on the matters set forth in this Proxy Statement together as a single
class. Each share of outstanding Company Common Stock entitles the holder to one
vote and each share of the Series B Participating Preferred Stock entitles the
holder to 1,000 votes. The Meeting will be held if a quorum, consisting of a
majority of the aggregate voting power of the outstanding shares of Company
Common Stock and the Series B Participating Preferred Stock, is represented in
person or by proxy. Broker non-votes and abstentions will be counted toward the
establishment of a quorum. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on a proposal because the nominee
has not been instructed by the beneficial owner how to vote on the proposal and
does not have discretionary voting power to vote on the proposal.
Stockholders can ensure that their shares are voted at the Meeting by
submitting proxy instructions by telephone, by Internet, or by completing,
signing, dating and returning the enclosed Proxy card in the envelope provided.
Submitting instructions by any of these methods will not affect the right to
attend the Meeting and vote. The telephone and Internet voting procedures are
designed to authenticate stockholders' identities, to allow stockholders to give
their voting instructions and to confirm that stockholders' instructions have
been recorded properly. Specific instructions for stockholders of record who
wish to use the telephone or Internet voting procedures are included with the
enclosed Proxy card. A stockholder who gives a Proxy may revoke it at any time
before it is exercised by voting in person at the Meeting, by delivering a
subsequent Proxy, or by notifying the Company in writing of such revocation
(Attention: Eugene A. Gargaro, Jr., Secretary, at 21001 Van Born Road, Taylor,
Michigan 48180).
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of
the Class III Directors, consisting of Thomas G. Denomme, Richard A. Manoogian
and Mary Ann Van Lokeren, expires at this Meeting. The Board proposes the
re-election of Messrs. Denomme and Manoogian, and Ms. Van Lokeren, to the Board
as Class III Directors.
Raymond F. Kennedy, President and a Class II Director of the Company,
passed away unexpectedly on February 4, 2003. As a result of his death, there is
currently a vacancy in the Class II Directors, for which the Board of Directors
has not presently proposed a nominee.
The Class I, Class II and Class III Directors will serve for terms expiring
at the Annual Meeting of Stockholders in 2004, 2005 and 2006, respectively, or
until their respective successors are elected and qualified. The Board of
Directors expects that the persons named as proxies in the Proxy will vote the
shares represented by each Proxy for the election of the above nominees as
Directors unless a contrary direction is given. If prior to the Meeting a
nominee is unable or unwilling to serve as a Director, which the Board of
Directors does not expect, the persons named as proxies will vote for such
alternate nominee, if any, as may be recommended by the Board of Directors.
Directors are elected by a plurality of the votes cast. Proxies cannot be voted
for a greater number of persons than the number of nominees named. Abstentions
and broker non-votes, if any, will not be treated as votes cast, and therefore
will not affect the election.
Information concerning the nominees and continuing Directors is set forth
below.
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
CLASS I (TERM TO EXPIRE AT THE ANNUAL MEETING IN 2004)
Peter A. Dow........................... Mr. Dow, 69, initially joined Campbell-Ewald Company in
Private investor; Retired Vice 1958 and returned in 1979 to serve as Executive Vice
Chairman, Chief Operating Officer and President and Director of General Accounts. In 1982 he
Chairman of the Executive Committee became President, Chief Operating Officer and Chairman of
of Campbell-Ewald, an advertising and the Executive Committee, and then served as Vice Chairman
marketing communications company. from 1993 until his retirement in 1995. He was named
Director since 2001. Director of Advertising for the Chrysler-Plymouth Division
of Chrysler Corporation in 1968. Subsequently, he became
responsible for advertising and merchandising for Chrysler
Corporation and all of its divisions, and in 1978 he was
named Director of Marketing for Chrysler Corporation. Mr.
Dow is currently a director of The Stroh Companies, Inc.
and Technobrands, Inc. (formerly Comtrad Industries,
Inc.).
Anthony F. Earley, Jr. ................ Mr. Earley, 53, has served as Chairman of the Board and
Chairman of the Board, Chief Chief Executive Officer of DTE Energy Company and its
Executive Officer and President and subsidiary, The Detroit Edison Company, since 1998 and as
Chief Operating Officer, DTE Energy President and Chief Operating Officer of both companies
Company, a diversified energy since 1994. From 1989 to 1994, he served as President and
company. Director since 2001. Chief Operating Officer of Long Island Lighting Company,
an electric and gas utility in New York. Prior to 1989,
Mr. Earley held several other positions with Long Island
Lighting, including Executive Vice President and General
Counsel. He is a director of DTE Energy Company, Comerica
Incorporated, Mutual of America Capital Management Co. and
Plug Power, Inc.
Wayne B. Lyon.......................... Mr. Lyon, 70, served as Chairman of LifeStyle Furnishings
Former Chairman of LifeStyle International Ltd. from 1996 to 2002 and also served as
Furnishings International Ltd., a its President and Chief Executive Officer until early
manufacturer and marketer of 2000. Previously, he served the Company as a Group Vice
residential furniture. Director since President beginning in 1972, was named Executive Vice
1988. President and Chief Operating Officer in 1974, and served
as President and Chief Operating Officer from 1985 until
1996. Mr. Lyon is also a director of Comerica
Incorporated.
2
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
CLASS II (TERM TO EXPIRE AT THE ANNUAL MEETING IN 2005)
Verne G. Istock........................ Mr. Istock, 62, joined NBD Bank in 1963 and served as Vice
Retired Chairman/President of Bank Chairman and director of NBD Bank and its parent, NBD
One Corporation. Director since 1997. Bancorp, from 1985 until he was named Chairman and Chief
Executive Officer in 1994. Upon the merger of NBD and
First Chicago Corporation in December 1995, he was named
President and Chief Executive Officer of First Chicago NBD
Corporation and was elected Chairman in May 1996. Upon the
merger of First Chicago NBD Corporation and Banc One
Corporation in October 1998, he was named Chairman of the
Board of Bank One Corporation, where he served in various
executive positions until his retirement in September
2000. Mr. Istock is a director of Kelly Services, Inc. and
Rockwell Automation, Inc.
CLASS III (NOMINEES FOR TERM TO EXPIRE AT THE ANNUAL MEETING IN 2006)
Thomas G. Denomme...................... Mr. Denomme, 63, served as Vice Chairman and Chief
Retired Vice Chairman and Chief Administrative Officer of Chrysler Corporation from 1994
Administrative Officer of Chrysler until he retired in December 1997 and had been a director
Corporation. Director since 1998. of Chrysler Corporation since 1993. He joined Chrysler
Corporation in 1980 and was elected Vice
President -- Corporate Strategic Planning in 1981,
Executive Vice President -- Corporate Staff Group in 1991,
and Executive Vice President and Chief Administrative
Officer in 1993. Previously, he held a number of positions
at Ford Motor Company, including Director, Marketing
Policy and Strategy Office and Director, Sales Operations
Planning.
Richard A. Manoogian................... Mr. Manoogian, 66, joined the Company in 1958, was elected
Chairman of the Board and Chief Vice President and a Director in 1964 and President in
Executive Officer of the Company. 1968 and has served as Chairman and Chief Executive
Director since 1964. Officer since 1985. He is a director of Bank One
Corporation, Ford Motor Company, Metaldyne Corporation and
MSX International, Inc.
Mary Ann Van Lokeren................... Ms. Van Lokeren, 55, joined Krey Distributing Company as
Chairman and Chief Executive Officer Secretary in 1978 and has served Krey Distributing Company
of Krey Distributing Company, a in her present positions since 1987. She also serves as a
beverage distribution firm. Director director of Commerce Bancshares, Inc. and Laclede Gas
since 1997. Company.
The Board of Directors held five meetings during 2002. The Board continues
to monitor developments in corporate governance, including changes effected by
the Sarbanes-Oxley Act (the "Act"), which was enacted by Congress in July, 2002,
proposed and adopted regulations of the Securities and Exchange Commission (the
"SEC") under the Act and the proposed rules of the New York Stock Exchange
("NYSE") currently pending at the SEC. Although the NYSE proposed rules are not
yet effective, the Board has determined that the Company should adopt certain of
the proposed rules as though they were currently in effect. In that regard the
Board reviewed the pending NYSE standards defining the independence of a
director in connection with the NYSE proposed rule requiring listed companies to
have a majority of independent directors and concluded that five of the
Company's seven Directors satisfy the proposed standards of independence.
The Audit Committee of the Board of Directors, consisting of Messrs.
Denomme, Dow, Earley and Istock, held six meetings during 2002. Each member of
the Audit Committee would be deemed an independent director under the NYSE
proposed rules and the proposed SEC regulation under the Act. The Board of
Directors recently approved a revised charter for the Audit Committee, attached
to this Proxy Statement as Appendix A, that incorporates the specific
responsibilities of this Committee under the Act and the proposed NYSE rules.
The Audit Committee assists Board oversight of the integrity of the Company's
financial statements, the qualifications, independence and performance of the
Company's independent public
3
accountants, the performance of the Company's internal audit function, and
compliance by the Company with legal and regulatory requirements, including the
Company's Code of Business Conduct and Ethics.
The Organization and Compensation Committee of the Board of Directors,
consisting of Messrs. Dow and Istock and Ms. Van Lokeren held six meetings
during 2002. Each member of this Committee would be deemed an independent
director under the NYSE proposed rules. The Board of Directors has adopted a
formal charter for this Committee that incorporates the specific
responsibilities of the Committee under the proposed NYSE rules. The
Organization and Compensation Committee establishes and monitors executive
compensation, evaluates the Company's management, administers and determines
awards and options granted under the Company's restricted stock incentive and
stock option plans, and reviews succession planning.
The Corporate Governance and Nominating Committee of the Board of
Directors, consisting of Messrs. Earley, Istock and Lyon, held four meetings
during 2002. A majority of the members of this Committee would be deemed
independent under the NYSE proposed rules. The Board of Directors has also
adopted a formal charter for this Committee that incorporates the specific
responsibilities of the Committee under the proposed NYSE rules. The Corporate
Governance and Nominating Committee will serve in an advisory capacity to the
Board on the governance structure of the Board and has the responsibility for
developing and recommending to the Board appropriate Corporate Governance
Guidelines. In addition, the Committee will identify qualified individuals for
nomination to the Board, recommend Directors for appointment to Board committees
and evaluate current Directors for re-nomination to the Board or re-appointment
to Board committees. The Corporate Governance and Nominating Committee will
consider candidates as nominees for election as Directors of the Company
submitted by stockholders. Any stockholder who wishes to have the Committee
consider a candidate should submit the name of the candidate, along with any
biographical or other relevant information the stockholder wishes the Committee
to consider, to the Secretary of the Company at the address appearing on the
first page of this Proxy Statement.
For many years the Company has circulated annually a legal and ethical
standards compliance program, requiring employees to report conduct inconsistent
with the program. The Board has recently adopted a revised Code of Business
Conduct and Ethics to be distributed to each employee that incorporates both the
requirements of the Act relating to the Company's chief executive officer and
senior financial executives and those of the proposed NYSE rules for the
Company's Directors, officers and employees. The Corporate Governance and
Nominating Committee has also approved and the Board of Directors has adopted
Corporate Governance Guidelines that incorporate the proposed guidelines of the
NYSE currently pending at the SEC.
The full text of the charters for these committees, the Corporate
Governance Guidelines and the Code of Business Conduct and Ethics are posted on
the Company's website at www.masco.com.
COMPENSATION OF DIRECTORS
Under the 1997 Non-Employee Directors Stock Plan (the "Directors Stock
Plan"), one-half of the cash compensation formerly paid to non-employee
Directors was replaced with an annual vesting of shares of restricted stock.
Pursuant to the Directors Stock Plan, each non-employee Director received an
award of Company Common Stock to vest over a five-year period in 20 percent
annual installments. The value of the stock awards was based on the market price
of Company Common Stock on the date of grant and the value equaled five years of
the replaced cash compensation. Accordingly, each non-employee Director has
received an award valued at $25,000 per year for each of five years (with
proration for their partial first years of service). For 2002, non-employee
Directors each received a cash fee of $25,000 and $1,000 for each Board of
Directors meeting attended (and committee meeting attended if not held on a date
on which the entire Board met). The Chairman of the Audit Committee and the
Chairman of the Organization and Compensation Committee each receives an
additional $5,000 per year for chairing such committees. Directors are eligible
to participate in the Company's matching gifts program (which is available to
Company employees) pursuant to which the Company will match gifts made to
eligible educational and cultural institutions up to an aggregate of $10,000 per
year for each participant.
The Directors Stock Plan also provides for the grant to each non-employee
Director on the date of each annual meeting of stockholders of a non-qualified
option to purchase 8,000 shares of Company Common
4
Stock at the then current market price. These options become exercisable in 20
percent installments on the first five anniversaries of the grant date. Each
option has a ten-year term from the date of grant, except that options may
generally be exercised for only a limited period of time following termination
of service as a non-employee Director for any reason other than death or
permanent and total disability. Upon termination of a Director's term for any
reason other than death, disability or following a change in control, the
Company may require the participant to pay back to the Company the net gain
realized upon the exercise of any installment of an option that became
exercisable within two years prior to termination.
The Directors Stock Plan provides that a participant is generally
restricted from engaging in certain competitive activities while serving as a
Director and for one year following termination of the participant's term as a
Director. In the event of a breach of this noncompete agreement, the Company may
require the participant to pay back to the Company the net gain realized upon
the exercise of any portion of an option that occurred on or after termination
or within two years prior to such termination.
The Board recently established stock ownership guidelines for Directors.
The guidelines require non-employee Directors to retain at least 50% of the
shares of restricted Company Common Stock they receive as compensation from the
Company until the date of their termination or retirement from service as a
Director.
5
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
Set forth below is information concerning beneficial ownership of Company
Common Stock as of March 15, 2003 by (i) each of the Directors, (ii) each of the
named executive officers, (iii) all Directors and executive officers of the
Company as a group, and (iv) all persons known by the Company to be the
beneficial owners of five percent or more of the combined voting power of
Company Common Stock and Series B Participating Preferred Stock. No Director or
executive officer owns any shares of Series B Participating Preferred Stock.
Except as indicated below, each person exercises sole voting and investment
power with respect to the shares listed.
SHARES OF PERCENTAGE OF
COMMON STOCK VOTING POWER
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
---- ------------ -------------
Thomas G. Denomme........................................... 48,900 *
Peter A. Dow................................................ 33,770 *
Anthony F. Earley, Jr.(2)................................... 14,370 *
Verne G. Istock............................................. 50,010 *
Raymond F. Kennedy(3)....................................... 4,037,724 *
John R. Leekley............................................. 751,044 *
Wayne B. Lyon(4)............................................ 185,003 *
Richard A. Manoogian(4)..................................... 12,748,088 2.6%
Robert B. Rosowski.......................................... 345,555 *
Mary Ann Van Lokeren........................................ 49,510 *
Timothy Wadhams............................................. 176,060 *
All Directors and executive officers of the Company as a
group (excluding subsidiary, divisional and group
executives)(2)(3)(4)...................................... 19,994,206 4.0%
FMR Corp.(5)
82 Devonshire Street
Boston, Massachusetts 02109............................... 26,758,739 5.4%
Montag & Caldwell, Inc.(6)
3455 Peachtree Road NE
Suite 1200
Atlanta, Georgia 30326-3248............................... 32,639,057 6.6%
---------------
* Less than one percent
(1) Includes unvested restricted stock award shares held under the Company's
stock incentive plans (3,390 for each of Messrs. Dow and Earley; 3,768
shares for Mr. Istock; 121,386 shares for Mr. Leekley; 11,474 shares for Mr.
Lyon; 1,116,806 for Mr. Manoogian; 51,025 shares for Mr. Rosowski; 3,768
shares for Ms. Van Lokeren; 81,907 shares for Mr. Wadhams; and 1,632,500
shares for all Directors and executive officers of the Company as a group)
and shares which may be acquired before May 15, 2003 upon exercise of stock
options issued under the Company's stock option plans (28,800 for Mr.
Denomme; 8,000 for each of Messrs. Dow and Earley; 36,800 shares for Mr.
Istock; 284,246 shares for Mr. Leekley; 36,800 shares for Mr. Lyon;
2,909,111 shares for Mr. Manoogian; 159,200 shares for Mr. Rosowski; 36,800
shares for Ms. Van Lokeren; 60,000 shares for Mr. Wadhams; and 4,295,703
shares for all Directors and executive officers of the Company as a group).
Holders have sole voting but no investment power over unvested restricted
shares and exercise neither voting nor investment power over unexercised
option shares.
(2) Includes 1,000 shares held in a trust for the benefit of Mr. Earley for
which Mr. Earley's wife serves as trustee.
6
(3) Mr. Kennedy passed away unexpectedly on February 4, 2003. As of March 15,
2003, the Raymond F. Kennedy Trust beneficially owned 4,037,724 shares of
Company Common Stock, of which 2,351,819 shares could be acquired before May
15, 2003 upon the exercise of stock options.
(4) Shares owned by Mr. Manoogian and by all Directors and executive officers of
the Company as a group include in each case an aggregate of 3,809,100 shares
owned by charitable foundations for which Mr. Manoogian serves as a director
and 3,000 shares held by trusts for which he serves as a trustee. Shares
owned by Mr. Lyon and by all Directors and executive officers of the Company
as a group include in each case 26,802 shares owned by a charitable
foundation for which Mr. Lyon serves as a Director. Shares owned by all
Directors and executive officers of the Company as a group include 1,757,209
shares held by trusts for which an executive officer serves as a trustee and
2,351,819 shares that could be acquired by one of the trusts before May 15,
2003 upon the exercise of stock options. The directors of the foundations
and the trustees share voting and investment power with respect to shares
owned by the foundations and trusts, but Messrs. Manoogian and Lyon and the
executive officer who serves as a trustee for certain trusts each disclaim
beneficial ownership of such shares.
(5) Based on a Schedule 13G dated February 14, 2003 and filed with the
Securities and Exchange Commission ("SEC") by FMR Corp. and certain of its
affiliates, at December 31, 2002, these shares of Company Common Stock were
owned by Fidelity Management & Research Company, Fidelity Management Trust
Company and Strategic Advisors, Inc., subsidiaries of FMR Corp. which
provide investment advisory services to investment companies, investment
management services to institutional accounts and investment advisory
services to individuals, and Geode Capital Management, LLC, an affiliated
investment advisor. Also included in the table as beneficially owned by FMR
Corp. are 556,100 shares of Company Common Stock beneficially owned by an
affiliate of FMR Corp. FMR Corp. reported sole investment power over all of
these shares and sole voting power over 2 ,353,581 shares of Company Common
Stock, but no voting power over the balance of the shares held by various
investors.
(6) Based on a Schedule 13G dated January 8, 2003 and filed with the SEC, at
December 31, 2002, Montag & Caldwell, Inc. owned 32,639,057 shares of
Company Common Stock. It had sole investment but no voting power over these
shares.
Mr. Manoogian may be deemed a controlling person of the Company by reason
of his significant ownership of Company Common Stock and his positions as a
Director and an executive officer of the Company.
7
AUDIT COMMITTEE REPORT
The Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the integrity of the Company's financial
statements, the qualifications, independence and performance of the Company's
independent accountants, the performance of the Company's internal audit
function, and compliance by the Company with legal and regulatory requirements,
including the Company's Code of Business Conduct and Ethics. Management has the
primary responsibility for the financial statements and the reporting process,
including the Company's system of internal control. In discharging its oversight
responsibility as to the audit process, the Audit Committee reviewed and
discussed with management the audited financial statements of the Company as of
and for the year ended December 31, 2002, including a discussion of the quality
and the acceptability of the Company's financial reporting and controls, as well
as the selection, application and disclosure of critical accounting policies.
The Audit Committee obtained from the Company's independent accountants,
PricewaterhouseCoopers LLP, the letter required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and discussed
with the accountants any relationships that may impact their objectivity and
independence and satisfied itself as to the accountants' independence. The Audit
Committee considered and determined that such accountants' provision of
non-audit services to the Company is compatible with maintaining the
accountants' independence. The Committee reviewed various matters with the
accountants, who are responsible for expressing an opinion on the Company's
financial statements as of and for the year ended December 31, 2002 based on
their audit. The Committee met with the accountants, with and without management
present, and discussed the matters required to be discussed by Statement on
Auditing Standards No. 61 as amended, "Communication with Audit Committees",
including their judgment as to the quality and the acceptability of the
Company's financial reporting and such other matters as are required to be
discussed with the Committee under generally accepted auditing standards.
Based on the above-mentioned reviews and discussions with management and
the independent accountants, the Audit Committee recommended to the Board of
Directors that the Company's financial statements as of and for the year ended
December 31, 2002 be included in its Annual Report on Form 10-K for the year
ended December 31, 2002 for filing with the Securities and Exchange Commission.
The Audit Committee also reappointed, subject to stockholder approval,
PricewaterhouseCoopers LLP as the Company's independent accountants.
Thomas G. Denomme, Chairman
Peter A. Dow
Anthony F. Earley, Jr.
Verne G. Istock
8
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Organization and Compensation Committee's strategies and practices have
increasingly linked a significant portion of compensation to Company
performance. The Committee believes that this strategy more closely aligns
executive officers' interests with the long-term interests of stockholders,
while maintaining the Company's ability to attract, retain and motivate the
highest quality executive management team.
CURRENT COMPENSATION PRACTICES
Cash compensation of executive officers is directly impacted by Company
performance. Base salaries of executive officers in 2000 were generally not
increased in 2001, due in part to the Company's performance during that period.
In 2002 the Company successfully met or exceeded many of its operational and
financial objectives in a difficult business climate. Base salaries of executive
officers, including Mr. Manoogian, were generally increased effective July 2002,
in part due to the Company's improved performance.
Bonuses were granted in accordance with a new program implemented at the
beginning of 2002. Historically, an executive officer's annual cash bonus
opportunity had generally been up to fifty percent of base salary. Under the new
program, bonuses are directly tied to Company performance by linking executive
officers' annual cash bonuses to earnings per share targets. Potential payouts
generally range from 0% to 100% of an executive officer's base salary, with the
bonus opportunity (as a percentage of salary) increasing as earnings per share
targets increase. In 2002, the Committee determined that the bonus opportunities
for the Chief Executive Officer and the President were up to 140% and 120%,
respectively, of each officer's base salary. Based on the Company's performance
in 2002, executive officers, including Mr. Manoogian, received 80% of their
maximum bonus opportunity. Due to the Company's improved earnings performance in
2002, bonuses paid were considerably larger than bonuses paid for 2001.
Conversely, less than satisfactory Company performance would have resulted in a
significantly lower bonus opportunity. The Committee believes that, by placing
more bonus compensation at risk, this new program will further align
compensation with stockholders' interests.
Company Common Stock is a major part of annual and long-term compensation
for key employees because of its inherent alignment with the interests of
stockholders. Over 2,000 of the Company's employees participate in the Company's
restricted stock award or stock option programs. The Committee's long-term
philosophy is reflected in the fact that full realization of the value of stock
incentives is generally subject to long-term vesting schedules.
In 2002 the Company revised its annual restricted stock award program for
key employees (including executive officers) to more closely link Company
performance to the size of stock grants. Historically, the potential opportunity
for executive officers to receive annual restricted stock awards under the
Company's restricted stock award program did not exceed thirty percent of base
salary, and unsatisfactory Company performance resulted in awards at a lower
level or, in some years, no awards. In light of the Company's performance in
2001, the awards granted in early 2002 were considerably less than the full
potential opportunity. Under the revised program, eligible employees (including
executive officers and Mr. Manoogian) are assigned an individual standard stock
award target percent of base salary determined according to the individual's job
responsibilities (30% of base salary for executive officers and Mr. Manoogian).
The Company's financial performance is then used as the starting point for
determining the size of awards, together with consideration of the individual's
performance. Under this new program, superior Company and individual performance
could result in an annual restricted stock award that is up to twice the target
percentage (60% of base salary for executive officers and Mr. Manoogian), while
sub-par performance will result in annual awards that are less than the target
percentage. These awards generally vest in ten percent annual installments over
a period of ten years from the date of grant. The terms of these awards are more
fully described below.
In December 2002, the Committee granted approximately five million stock
options to approximately 600 key employees, as part of the Committee's
commitment to utilize options as an important component of the Company's
long-term compensation for highly valued employees. The annual number of options
granted has averaged less than 1% of shares outstanding over the past five
years, which is significantly less than the average
9
number of options granted by companies in the Standard & Poor's 500 Index. These
options, which become exercisable in 20 percent installments on the first five
anniversaries of the grant date, contain a noncompete agreement for a one-year
period following termination of employment. In addition, except in certain
circumstances (including normal retirement, death or disability), upon
termination of employment the recipient may be required to pay back to the
Company the net gain realized upon the exercise of any installment of the option
that became exercisable within two years prior to the termination. An additional
payback provision may also be triggered upon breach of the noncompete agreement.
The Committee believes that the five-year vesting schedule of these options will
further encourage employees to maximize stockholder return in this shortened
time frame, while the noncompete and payback provisions will serve to promote
retention. All executive officers were granted options under this program.
In 2000 the Committee implemented an Executive Stock Purchase Program (the
"Program"). This voluntary Program was made available worldwide to key members
of the Company's management. Approximately 300 employees participated in the
Program and invested approximately $156 million in Company Common Stock. This
Program represents a major financial commitment on the part of its participants,
thus further aligning the interests of the Company's key management with the
interests of stockholders.
In order to formalize the Board's policy of encouraging stock ownership by
executive officers and to require executive officers to remain at risk by
maintaining a substantial interest in Company Common Stock, the Board has
established stock ownership guidelines for executive officers. The guidelines
require the Chief Executive Officer to own stock with a value of at least five
times base pay; the President to own stock with a value of at least four times
base pay; Senior Vice Presidents to own stock with a value of at least three
times base pay; and all other executive officers to own stock with a value of at
least two times base pay. Executive officers are required to achieve the share
ownership (including restricted stock awards) necessary to meet the guidelines
within three years of becoming subject to the guidelines.
GENERAL COMPENSATION INFORMATION
Compensation arrangements for executive officers generally consist of a
blend of base salary, annual cash bonus and long-term incentives utilizing
Company Common Stock. The Committee uses a variety of resources, including
published compensation surveys, as it considers information concerning current
compensation practices and trends within the Company's industries and geographic
area. In addition, the Committee reviews compensation policies and practices of
corporations in other industries that are similar to the Company in terms of
revenues and market value, because the Committee believes that the Company
competes with such companies for executive talent. Although the Committee
reviews such information for general guidance, it does not specifically target
compensation of the executive officers to compensation levels at other
companies.
Annual cash compensation consists of salary and bonus. Base salaries for
executive officers historically have been adjusted annually if warranted by
Company performance. This has been done by establishing ranges for increases for
executive officers that reflect inflation, promotions and merit and that are
similar to the ranges established for other corporate office employees. The
ranges reflect changes observed in general compensation levels of salaried
employees, and in particular, within the geographic area of the Company's
corporate office and within the Company's industries. Historically, the
Company's performance for the particular year and the Company's prospects have
been more significant factors in determining year-end bonuses than in
determining salary ranges. As noted above, beginning in 2002, the Company has
changed its approach to annual cash bonuses and implemented a program in which
bonus levels will more closely correspond to earnings per share targets. Salary
and bonus determinations may vary, however, for a variety of subjective factors
such as an individual's responsibilities and contribution to the performance of
the Company and its affiliates in addition to the other considerations referred
to above.
Restricted stock awards and stock options granted under the Masco
Corporation 1991 Long Term Stock Incentive Plan (the "1991 Plan") are generally
used as part of the Company's long-term incentive arrangements, which focus the
recipient on long-term enhancement in stockholder value and help retain key
employees. Factors reviewed by the Committee in determining whether to grant
options and awards are
10
generally similar to the factors considered in determining salaries and bonuses
described above. The Committee believes that the level of restricted stock
awards and stock option grants should be sufficient in size and potential value
to provide a strong incentive, aligned with shareholders' interests, and to
reinforce the individual's commitment to the Company. The history of restricted
stock awards and stock option grants previously granted to an executive is also
a factor in determining new awards and grants. As noted above, beginning in
2003, the Company has revised its program for granting annual restricted stock
awards to relate more closely to Company performance. In addition, supplemental
restricted stock awards and stock options are granted periodically.
The Company has historically purchased shares of Company Common Stock in
the open market sufficient to provide for all restricted stock awards to avoid
any common share dilution resulting from these awards. The cost related to these
awards as they vest is fixed, and this expense is generally amortized over the
vesting period of the awards. Because the Company's tax deduction is based on
the fair market value of the stock at the time the restrictions lapse, the
after-tax cost of this program can be favorable to the Company as a result of
any future appreciation of Company Common Stock. The Company believes that the
extended vesting of stock awards with the opportunity for substantial stock
price appreciation promotes retention, and also spreads compensation expense
over a longer term, which generally has resulted in a significant reduction in
the Company's after-tax cost of this stock-related compensation. The Committee
permits Company Common Stock to be used in payment of federal, state and local
withholding tax obligations resulting from the vesting of these awards.
Restricted stock awards granted under the 1991 Plan generally vest in ten
percent annual installments over a period of ten years from the date of grant.
In general, vesting is contingent on a continuing employment relationship with
the Company. The 1991 Plan provides, however, that shares continue to vest upon
retirement on or after normal retirement age, and that all shares vest
immediately upon death, permanent and total disability or the occurrence of
certain events constituting a change in control of the Company. It is the
Company's current practice to include a noncompete agreement for a one-year
period following termination of employment in all restricted stock awards
granted under the 1991 Plan.
Original stock option grants made under the 1991 Plan prior to February
2000 have generally vested in installments beginning in the third year and
extending through the eighth year after grant and, unless otherwise provided,
may be exercised until the earlier of ten years from the date of grant or, as to
the number of shares then exercisable, the termination of the employment
relationship of the participant. Beginning February 2000, option grants under
the 1991 Plan generally vest in five annual installments. In general, these
options include a noncompete clause and a provision stating that upon
termination of employment, except in certain circumstances (including normal
retirement, death or disability), the recipient may be required to pay back to
the Company the net gain realized upon the exercise of any installment of the
option that became exercisable within two years prior to the termination.
Historically, Company stock option grants have generally not had a financial
reporting expense associated with them since they are granted at fair market
value, although they are reflected in diluted earnings per share. The difference
between the exercise price and fair market value of the Company Common Stock on
the date of exercise is deductible by the Company for federal income tax
purposes and thereby provides tax savings to the Company. The Committee permits
Company Common Stock to be used in payment of federal, state and local
withholding tax obligations attributable to the exercise of stock options. The
1991 Plan also permits the Committee to accept the surrender of an exercisable
stock option and to authorize payment by the Company of an amount equal to the
difference between the option exercise price of the stock and its then fair
market value.
The Company has elected to change its method of accounting for stock
options effective January 2003, on a prospective basis. The change in accounting
for stock options will result in pre-tax expense being recognized by the Company
related to stock options granted in 2003 and thereafter.
Recipients of stock options are eligible to receive restoration options. A
restoration option is granted when a participant exercises a stock option and
pays the exercise price by delivering shares of Company Common Stock or attests
to the ownership of such shares. The restoration option is equal to the number
of shares delivered or attested to by the participant and does not increase the
number of shares covered by the original
11
stock option. The exercise price is 100 percent of the fair market value of
Company Common Stock on the date the restoration option is granted so that the
participant benefits only from subsequent increases in the Company's stock
price. Restoration options were granted in 2002 to certain executive officers in
connection with such individuals' exercise of original stock options. The 1991
Plan also provides that, upon the occurrence of certain events constituting a
change in control of the Company, all stock options previously granted
immediately become fully exercisable and all restricted stock awards immediately
vest. Generally, if a participant incurs an excise tax under Section 4999 of the
Internal Revenue Code of 1986 (the "Code") in connection with a payment or
distribution following such a change in control, the 1991 Plan provides that the
participant will receive additional payments to make him or her whole for such
excise tax.
In addition to the stock-based programs noted above, most Company salaried
employees participate in defined contribution profit-sharing retirement plans,
which further link compensation to Company performance. Discretionary
contributions are made into these plans based on the Company's performance.
Historically, aggregate annual contributions and accruals for the profit-sharing
plan in which executive officers participate have ranged from four percent to
seven percent of participants' base salary. See footnote (3) to the "Summary
Compensation Table."
Beginning in 1994, Section 162(m) of the Code limits deductibility of
annual compensation in excess of $1 million paid to the Company's chief
executive officer and to each of the other four highest paid executive officers
unless this compensation qualifies as "performance-based." In 1997, the Board
approved, and the stockholders adopted, amendments to the 1991 Plan so that
stock options granted under the 1991 Plan will continue to result in
compensation fully deductible by the Company under Section 162(m). In addition,
the Committee approved, and stockholders adopted, the 2002 Annual Incentive
Compensation Plan to continue the Committee's practice of structuring
determinations for cash bonuses to make them performance-based and therefore tax
deductible. The Committee continues to believe that it is in the Company's
interest to retain flexibility in its compensation programs, and although
compensation will in some circumstances exceed the limitation of Section 162(m),
the Committee believes that any tax deduction lost on account of any such excess
compensation is not expected to be material.
Peter A. Dow, Chairman
Verne G. Istock
Mary Ann Van Lokeren
12
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation of the
Company's chief executive officer and the other four highest paid executive
officers (collectively, the "named executive officers") for 2002, 2001 and 2000.
LONG-TERM
COMPENSATION AWARDS
------------------------
ANNUAL COMPENSATION(1) RESTRICTED SECURITIES
------------------------------ STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(2) OPTIONS COMPENSATION(3)
--------------------------- ---- ---------- ---------- ----------- ---------- ---------------
Richard A. Manoogian...... 2002 $1,350,000 $1,680,000(4) $ 180,000 742,858(5) $95,000
Chairman of the 2001 1,200,000 576,000 16,709,000 2,000,000 84,000
Board and Chief 2000 1,200,000 576,000 6,338,000 340,000 84,000
Executive Officer
Raymond F. Kennedy(6)..... 2002 $1,200,000 $1,248,000(4) $ 165,000 154,000 $84,000
President and Chief 2001 1,100,000 528,000 7,249,000 1,000,000 77,000
Operating Officer 2000 1,050,000 528,000 3,923,000 240,000 74,000
John R. Leekley........... 2002 $ 688,000 $ 568,000(4) $ 100,000 182,846(5) $48,000
Senior Vice President 2001 665,000 266,000 101,000 0 47,000
and General Counsel 2000 647,000 266,000 1,253,000 144,000 45,000
Timothy Wadhams(7)........ 2002 $ 577,000 $ 496,000(4) $ 40,000 72,000 $40,000
Vice President and 2001 132,000 71,000 1,686,000 150,000 9,000
Chief Financial Officer
Robert B. Rosowski........ 2002 $ 390,000 $ 320,000(4) $ 57,000 47,000 $27,000
Vice President and 2001 380,000 152,000 57,000 0 27,000
Treasurer 2000 370,000 152,000 414,000 82,000 26,000
---------------
(1) Salary information is disclosed in the table on a calendar year basis.
Salary levels were not increased in 2001, but the changes from 2000 to 2001
reflected in the table are a result of increases implemented in July 2000
that were effective for only part of 2000 but all of 2001. Officers may
receive certain perquisites and personal benefits, the dollar amounts of
which are below current Securities and Exchange Commission thresholds for
reporting requirements.
(2) This column sets forth the dollar value, as of the date of grant, of
restricted stock awarded under the Company's 1991 Long Term Stock Incentive
Plan (the "1991 Plan") for the previous year's performance. Vesting of all
shares is generally contingent on a continuing employment relationship with
or normal retirement from the Company. The following numbers of shares were
awarded to the named executive officers in February 2002 as part of the
Company's annual long-term incentive compensation based on Company
performance during the prior year: Mr. Manoogian -- 6,920 shares; Mr.
Kennedy -- 6,350 shares; Mr. Leekley -- 3,840 shares; Mr. Wadhams -- 1,530
shares and Mr. Rosowski -- 2,190 shares. The restricted stock awards made to
the named executive officers generally vest over a period of ten years from
the date of grant with ten percent of each award vesting annually and with
vesting generally contingent on a continuing employment relationship with or
normal retirement from the Company. Vesting is accelerated in the event of
death or permanent and total disability. As of December 31, 2002, the
aggregate numbers and market values of unvested restricted shares of Company
Common Stock held by each of the named executive officers under all vesting
arrangements were: Mr. Manoogian -- 1,121,460 shares valued at $23,607,000;
Mr. Kennedy -- 783,942 shares valued at $16,502,000; Mr. Leekley -- 116,459
shares valued at $2,451,000; Mr. Wadhams -- 73,530 shares valued at
$1,548,000; and Mr. Rosowski -- 46,628 shares valued at $982,000. Recipients
of restricted stock awards have the right to receive dividends on unvested
shares.
(3) This column sets forth Company contributions and allocations under the
Company's defined contribution retirement plans for the accounts of each of
the named executive officers.
13
(4) A new program implemented at the beginning of 2002 directly links cash
bonuses to earnings per share targets, and the performance of the Company in
2002 resulted in bonuses being awarded for such year which were
significantly larger than the bonuses awarded in the two prior years. See
"Organization and Compensation Committee Report on Executive Compensation"
for more detail.
(5) Most of these options are restoration options granted upon the exercise of
previously held stock options. As described in more detail under
"Organization and Compensation Committee Report on Executive Compensation,"
a restoration option does not increase the number of shares covered by the
original option or extend the term of the original option.
(6) Although Mr. Kennedy passed away unexpectedly in February 2003, because he
served as President and Chief Operating Officer of the Company for all of
2002, his compensation information is included in the Summary Compensation
Table.
(7) Mr. Wadhams became employed as an executive officer of the Company in
October, 2001, and information for that year reflects the entire period of
his employment.
OPTION GRANT TABLE
The following table sets forth information concerning options granted to
the named executive officers in 2002. In accordance with Securities and Exchange
Commission regulations, the Black-Scholes option pricing model was used to
estimate the grant date present value of the options set forth in this table.
Actual gains, if any, on stock option exercises and Company Common Stock
holdings will depend on overall market conditions and the future performance of
the Company and its Common Stock. There can be no assurance that the amounts
reflected in this table will be realized.
INDIVIDUAL GRANTS(1)
-------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED IN 2002 PRICE DATE VALUE
---- ---------- ---------- -------- ---------- ------------
Richard A. Manoogian........ 403,866(2) 6.7% $28.97 5/21/07 $3,191,000(3)
66,275(2) 1.1% 28.97 5/22/06 524,000(3)
92,717(2) 1.5% 28.97 2/16/10 732,000(3)
180,000 3.0% 19.50 12/10/12 1,154,000(4)
Raymond F. Kennedy.......... 154,000 2.6% 19.50 12/10/12 987,000(4)
John R. Leekley............. 55,087(2) .9% 26.14 5/22/06 390,000(5)
44,759(2) .7% 26.14 5/21/07 317,000(5)
83,000 1.4% 19.50 12/10/12 532,000(4)
Timothy Wadhams............. 72,000 1.2% 19.50 12/10/12 462,000(4)
Robert B. Rosowski.......... 47,000 .8% 19.50 12/10/12 301,000(4)
---------------
(1) For a description of additional terms of these options, see "Organization
and Compensation Committee Report on Executive Compensation."
(2) These options are restoration options. Restoration options are equal to the
number of shares delivered to exercise prior options. The exercise price of
restoration options is equal to the market value of Company Common Stock on
the date the original options were exercised. As described in more detail
under "Organization and Compensation Committee Report on Executive
Compensation," a restoration option does not increase the number of shares
covered by the original option or extend the term of the original option.
(3) The following assumptions were made in calculating the grant date present
value of these options: volatility of 41.95%, dividend yield of 2.66%, risk
free rate of return of 3.76% based on a U.S. Treasury Strip with a maturity
date equal to the expected term of the options and an expected option life
of three years.
14
(4) The following assumptions were made in calculating the grant date present
value of these options: volatility of 36.64%, dividend yield of 2.66%, risk
free rate of return of 3.74% based on a U.S. Treasury Strip with a maturity
date equal to the expected term of the options and an expected option life
of seven years.
(5) The following assumptions were made in calculating the grant date present
value of these options: volatility of 41.95%, dividend yield of 2.66%, risk
free rate of return of 3.57% based on a U.S. Treasury Strip with a maturity
date equal to the expected term of the options and an expected option life
of three years.
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
The following table sets forth information concerning each exercise of
stock options during 2002 by each named executive officer and the value at
December 31, 2002 of unexercised options held by such individuals under the
Company's stock option plans. At December 31, 2002, when the closing price of
Company Common Stock was $21.05 per share, the value of unexercised options
reflects any increase in market value of Company Common Stock from the date of
grant (from May, 1995 to May, 2001, with grant date market prices ranging from
$14.125 to $22.12). The value actually realized upon future option exercises by
the named executive officers will depend on the value of Company Common Stock at
the time of exercise.
AGGREGATED OPTION EXERCISES IN 2002, AND DECEMBER 31, 2002 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2002 DECEMBER 31, 2002
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ----------- ---------- ------------- ----------- ------------- -----------
Richard A. Manoogian..... 856,000 $8,492,000 3,224,000 2,841,111 $3,306,000 $ 613,000
Raymond F. Kennedy....... 0 $ 0 1,578,000 773,819 $1,912,000 $1,274,000
John R. Leekley.......... 150,000 $1,305,000 381,400 255,446 $ 822,000 $ 290,000
Timothy Wadhams.......... 0 $ 0 192,000 30,000 $ 148,000 $ 9,000
Robert B. Rosowski....... 0 $ 0 186,200 142,800 $ 416,000 $ 423,000
PENSION PLANS
The executive officers participate in pension plans maintained by the
Company for certain of its salaried employees. The following table shows
estimated annual retirement benefits payable for life at age 65 for various
levels of compensation and service under these plans.
PENSION PLAN TABLE
YEARS OF SERVICE(1)
---------------------------------------------------------------------------------------
REMUNERATION(2) 5 10 15 20 25 30
--------------- -------- -------- -------- -------- -------- --------
$ 200,000............ $ 11,290 $ 22,580 $ 33,870 $ 45,161 $ 56,451 $ 67,741
400,000............ 22,580 45,161 67,741 90,321 112,902 135,482
600,000............ 33,870 67,741 101,611 135,482 169,352 203,223
800,000............ 45,160 90,321 135,482 180,643 225,803 270,964
1,000,000............ 56,451 112,902 169,352 225,803 282,254 338,705
1,200,000............ 67,741 135,482 203,223 270,964 338,705 406,446
1,300,000............ 73,386 146,772 220,158 293,544 366,930 440,316
1,500,000............ 84,676 169,352 254,029 338,705 423,381 508,057
2,000,000............ 112,902 225,803 338,705 451,606 564,508 677,409
---------------
(1) The plans provide for credit for employment with any of the Company, its
subsidiaries or certain Company affiliates and their subsidiaries. Vesting
occurs after five full years of employment. The benefit
15
amounts set forth in the table above are not subject to reduction for social
security benefits or for other offsets, except to the extent that pension or
equivalent benefits are payable under an affiliate's plan. The table does
not depict Code limitations on tax-qualified plans because one of the
Company's plans is a non-qualified plan established to restore for certain
salaried employees (including the named executive officers) benefits that
are otherwise limited by the Code. For each year of credited service prior
to July 1, 1971 there is an additional annual benefit equal to 0.2 percent
of final average earnings in excess of $9,000. Approximate years of credited
service for the named executive officers participating in the plan are:
Messrs. Manoogian and Rosowski -- 30 (the maximum credited service); Mr.
Kennedy -- 25; Mr. Leekley -- 27 and Mr. Wadhams -- 26.
(2) For purposes of determining benefits payable, remuneration in general is
equal to the average of the highest five consecutive January 1 annual base
salary rates paid by the Company prior to retirement.
Under the Company's Supplemental Executive Retirement Plan, certain
officers and other key executives of the Company may receive retirement benefits
in addition to those provided under the Company's other retirement plans. Each
participant is to receive annually upon retirement on or after age 65, an amount
which, when combined with benefits from the Company's other retirement plans
(and, for most participants, any retirement benefits payable by reason of
employment by prior employers) equals up to 60 percent of the average of the
participant's highest three years' cash compensation received from the Company
(base salary and regular year-end cash bonus (subject to certain limitations) or
equivalent estimates where cash compensation has been reduced by agreement with
the Company). A disability benefit is payable to a participant who has been
employed at least two years and becomes disabled. Generally, participants who
terminate from the Company with more than five years' service before age 65
become entitled to receive a benefit adjusted by an age-and-service vesting
schedule that provides for no more than 50 percent vesting upon attainment of
age 50 and 100 percent vesting no earlier than age 60. Such vested benefit is
not payable until age 65 and is subject to offset for amounts earned from prior
or future employers. A surviving spouse will receive reduced benefits upon the
participant's death, including a death while in service. A participant and his
or her surviving spouse may also receive supplemental medical benefits. The plan
is unfunded, except that accelerated payment on a present value basis is
mandatory following a change in control of the Company. The named executive
officers participate in this plan, and each is eligible for a 60 percent benefit
at age 65.
16
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on Company Common Stock with the cumulative total return of the Standard
& Poor's 500 Composite Stock Price Index ("S&P 500 Index") and the Standard &
Poor's Building Products Index ("S&P Building Products Index") (formerly known
as the Standard & Poor's Building Materials Index) for the period from January
1, 1998 through December 31, 2002, when the closing price of Company Common
Stock was $21.05 per share (on April 15, 2003 the closing price was $19.91 per
share). The graph assumes investments of $100 on December 31, 1997 in Company
Common Stock, the S&P 500 Index and the S&P Building Products Index and the
reinvestment of dividends.
[MASCO PERFORMANCE GRAPH]
The table below sets forth the value, as of December 31 of each of the
years indicated, of a $100 investment made on December 31, 1997 in each of
Company Common Stock, the S&P 500 Index and the S&P Building Products Index, and
the reinvestment of dividends.
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
Masco Corporation $100.00 $114.71 $103.04 $106.30 $103.56 $91.28
S&P 500 Index 100.00 128.34 155.14 141.13 124.40 97.08
S&P Building Products Index 100.00 106.17 83.62 77.40 74.88 68.93
ORGANIZATION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Organization and Compensation Committee of the Board of Directors
currently consists of Peter A. Dow, Verne G. Istock and Mary Ann Van Lokeren.
John A. Morgan also served as a member of the Organization and Compensation
Committee until his retirement from the Board in May 2002. None of these
individuals is or was a current or former officer or employee of the Company or
any of its subsidiaries. During 2002, no executive officer of the Company served
as a director or as a member of a committee of any company of which any of the
Company's Directors are executive officers.
From time to time Morgan Joseph & Co., Inc., of which Mr. Morgan is
Managing Director, performs investment banking and other related services for
the Company and was engaged to provide investment banking and financial advisory
services for Furnishings International Inc. ("FII") in connection with the
transactions described below under "Certain Relationships and Related
Transactions." In 2002, the Company paid such firm $4 million for services to
the Company for the two previous years, including services in
17
connection with significant acquisitions, divestitures and financings. Fees for
services rendered to the Company during 2002 have not been finalized. Fees paid
in 2002 by FII to Morgan Joseph & Co., Inc. for investment banking and financial
advisory services in connection with the liquidation of FII described under
"Certain Relationships and Related Transactions" were approximately $1.4
million.
The Company has committed to invest up to $50 million (of which
approximately $38.6 million has been invested) in a private equity fund, Long
Point Capital Fund, LP (the "Fund"), whose investment activities are managed by
the Fund's sole general partner, Long Point Capital Partners, LLC ("Long
Point"). The objective of the Fund is to make leveraged acquisitions or
investments in the United States. Mr. Morgan is one of the principals of Long
Point, and Mr. Morgan and Mr. Manoogian (who has no personal investment or
financial interest in the Fund) serve on an investment committee that advises on
possible investments by the Fund. Both Long Point and the Fund are investors in
Metaldyne Corporation (described in "Certain Relationships and Related
Transactions"). As one of its investments, in March 2002 the Fund also
participated in the acquisition of a textile business from FII as described in
"Certain Relationships and Related Transactions."
Long Point is entitled to receive an annual fee equal to two percent of the
aggregate commitments of all investors to the Fund during a specified commitment
period and thereafter is entitled to receive an annual fee equal to two percent
of the Fund's invested capital. In 2002, the Company's portion of the management
fees for the Fund approximated $402,000. Long Point will generally be entitled
to a twenty percent "carried interest" on the profits on investments by the
Fund. The Company has invested $3 million in Long Point, which will entitle the
Company to a percentage of this carried interest earned by Long Point. In
addition to the potential capital appreciation from the Company's investment in
the Fund and the Company's share in the carried interest on the Fund's profits,
the Company expects to receive additional benefits from this investment because
of its right of first refusal with respect to any investments identified by the
Fund in the home improvement, building products and related services industries.
The Company believes that the terms of its investment in the Fund are comparable
to or better than the terms applicable to investments in other equivalent funds.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
METALDYNE CORPORATION (FORMERLY MASCOTECH, INC.)
In November 2000, the Company reduced its common equity ownership in
Metaldyne Corporation (formerly MascoTech, Inc.) ("Metaldyne") through a
recapitalization merger with an affiliate of Heartland Industrial Partners, L.P.
The Company currently holds approximately 6% of the common equity of Metaldyne.
The Company has also invested approximately $46 million in Heartland Industrial
Partners, L.P. and paid approximately $71,300 for management fees in 2002. The
Company, Richard Manoogian (who owns approximately 1.9% of Metaldyne common
stock), a charitable foundation for which Mr. Manoogian serves as a director and
officer (which owns approximately 1.5% of such stock), and certain other
shareholders (including Heartland Industrial Partners, Long Point Capital
Partners, LLC and the Long Point Capital Fund, LP) who in the aggregate own
approximately 90% of Metaldyne common stock, are parties to a Shareholders
Agreement regarding their ownership of such stock. The Shareholders Agreement
governs the election of directors, the transferability of stock, access to
information and registration rights, among other things. Mr. Manoogian remains a
director of Metaldyne.
In June 2002, Metaldyne sold approximately 66% of the fully diluted common
equity of its TriMas Corporation subsidiary to Heartland Industrial Partners,
L.P. The parties to the Shareholders Agreement had a right to acquire a
proportionate share of such interest, and Masco exercised its right and acquired
approximately 6% of TriMas Corporation for $25 million. Metaldyne retained
approximately 34% of the fully diluted common equity of TriMas Corporation in
the form of common stock and a presently exercisable warrant to purchase shares
of common stock at a nominal exercise price. In connection with these
transactions, Metaldyne received $840 million in the form of cash and debt
reduction and agreed to provide certain corporate services to TriMas Corporation
for an annual fee of $2.5 million for a one-year term, subject
18
to annual renewals. As a result of these transactions, Masco was able to obtain
Metaldyne's agreement to terminate Metaldyne's option to issue $100 million of
subordinated debentures to the Company. The commitment fee payable by Metaldyne
to the Company for the portion of 2002 during which the option was outstanding
was $59,000.
The Company also holds 361,001 shares of preferred stock of Metaldyne with
a liquidation value of $100 per share. During 2002 these preferred shares
accrued dividends at the rate of 15% per annum, totaling approximately $7.7
million. Subsequent to the recapitalization of Metaldyne in 2000, the services
historically provided by the Company to Metaldyne and its subsidiaries since
1984 under a Corporate Services Agreement were substantially curtailed and the
agreement terminated on December 31, 2002. In addition, sales of products and
services and other transactions occur from time to time between the Company and
Metaldyne. During 2002, such purchases and charges payable by the Company to
Metaldyne aggregated approximately $4.7 million, and purchases and charges
payable by Metaldyne to the Company aggregated approximately $670,000.
The Company and Metaldyne are also parties to a Corporate Opportunities
Agreement that will terminate on June 30, 2003. This agreement materially
restricts the ability of either party to acquire or otherwise invest in a
business if the other party has an investment in such business, except that the
Company is not restricted from investing in any company engaged in home
improvement, building products or related services businesses. Under a 1984
Assumption and Indemnification Agreement, Metaldyne assumed and agreed to
indemnify the Company against all of the liabilities and obligations of the
businesses then transferred to Metaldyne by the Company, including claims
resulting from circumstances that existed prior to the transfer, but excluding
specified liabilities. The Company agreed to indemnify a subsidiary of Metaldyne
against certain liabilities of businesses acquired by that subsidiary from the
Company in 1990. Since August 2000, the Company has reimbursed Metaldyne for
certain litigation and settlement costs of approximately $2.3 million, some or
all of which may be recovered from insurance proceeds. In addition, the Company
has advanced $1.275 million in connection with the settlement of this matter.
FURNISHINGS INTERNATIONAL INC.
In August 1996, the Company sold its Home Furnishings Group to Furnishings
International Inc. ("FII"), a corporation owned by a group of investors,
including 399 Venture Partners, Inc. (an affiliate of Citicorp), the Company,
certain affiliates of Travelers Group, Inc., and certain members of FII's
management, including Wayne B. Lyon, a Director of the Company and the Company's
former President. The Home Furnishings Group manufactured and sold residential
furniture and designed, marketed and sold decorative home furnishing fabrics.
Total proceeds to the Company from the sale of the Home Furnishings Group were
approximately $1,050 million, consisting of approximately $708 million in cash,
12% pay-in-kind junior debt securities and equity securities. In March 2001, 399
Venture Partners, Inc. and the Company each loaned FII $10 million and received
pay-in-kind notes due 2008. That loan and a previous loan of $20 million accrued
interest at the rate of prime plus one percent. In January 2002, incident to the
liquidation process described below, the Company entered into a $30 million
subordinated revolving credit arrangement with FII with interest at the prime
rate to assist FII with its temporary cash requirements. This arrangement was
secured by a lien on certain assets.
The U.S. furniture industry was adversely affected by the ongoing economic
weakness in its markets in 2001, by the bankruptcies of a number of major
retailers and by increased import competition. In the third quarter of 2001,
management of FII advised the Company that it was pursuing the disposition of
all of its businesses and that the expected consideration from the sale of such
businesses would not be sufficient to pay amounts due to the Company in
accordance with the terms of the junior debt securities. During the second
quarter of 2002, FII substantially completed the disposition of its operations.
The remaining net assets of FII represents proceeds for the Company's investment
in FII debt. These assets are primarily comprised of notes receivable and other
assets of $75 million and four million shares of Furniture Brands International
common stock, valued at $121 million as of the date such assets were
transferred, net of pension obligations of approximately $75 million and other
accrued liabilities of $12 million. Certain non-Masco shareholders of FII
contributed their FII shares back to FII resulting in Masco becoming the
majority shareholder.
19
As part of the disposition process, in March 2002, FII sold a textile
business for approximately $23.5 million plus contingent consideration to the
management of such business and the Long Point Capital Fund, LP. FII retained an
11% equity interest. The price was determined through arms-length negotiations
and approved by the disinterested directors of FII. As part of this transaction,
a facility used by the textile business was leased and then sold to the
purchaser. The lease payments and purchase price aggregated approximately $3.4
million.
To facilitate the liquidation of FII, the Company guaranteed certain
financial and severance arrangements for certain key employees of FII in order
to retain their services during the liquidation. In addition, FII has reacquired
the equity interest in FII that was held by certain members of FII's management
group, consistent with FII's past practices and in certain cases at the
insistence of the purchasers of FII's businesses. Accordingly, certain equity
interests held by Wayne B. Lyon were reacquired for approximately $3.02 million.
Mr. Lyon also received a severance payment in the amount of $300,000.
OTHER RELATED PARTY TRANSACTIONS
During the third quarter of 2000, approximately 300 of the Company's key
employees, including executive officers, purchased 8.4 million shares of Company
Common Stock from the Company for cash totaling $156 million under an Executive
Stock Purchase Program. The key employees were given the opportunity to purchase
a number of shares determined by a formula based upon each employee's salary
level and other factors. The stock was purchased at $18.50 per share, the
approximate market price of Company Common Stock at the time of purchase.
Participants in the Program financed their entire purchase with five-year full
recourse personal loans, at an interest rate of 9.2%, the market rate at the
time, from a bank syndicate. Each participant is fully responsible at all times
for repaying the bank loan when it becomes due and is personally responsible for
100 percent of any loss in the market value of the purchased stock, except that
in the event of death, if the participant is in a loss position, the
participant's estate may transfer the purchased stock to the Company and require
the Company to assume responsibility for the loan. The Company has guaranteed
repayment of the loans only in the event of a default by the participant. As a
further inducement for continued employment beyond the end of this five-year
Program, each participant received, as part of the Program, a restricted stock
grant vesting over a ten-year period. Pursuant to the terms of the Program, all
participants are subject to a one-year post-employment noncompetition agreement
with the Company's businesses that employ them. Following is a list of the
executive officers who invested in the Program, together with the amounts of
their investments and the number of shares purchased: Alan Barry -- $3 million
(162,162); Dr. Lillian Bauder -- $2.7 million (145,945 shares); Daniel
Foley -- $1.5 million (81,081 shares); Eugene Gargaro, Jr. -- $2.7 million
(145,945 shares); Raymond Kennedy -- $16 million (864,864 shares); John
Leekley -- $4.7 million (254,054 shares); Richard Manoogian -- $26 million
(1,405,405 shares); and Robert Rosowski -- $1.3 million (72,972 shares).
During 2002, the Company purchased and sold securities through First Union
Securities. These transactions, which were effected on what the Company believes
are customary terms, resulted in brokerage commissions to the firm of
approximately $1.4 million. Richard A. Manoogian, Jr., the son of Richard A.
Manoogian, is employed at that firm and received a portion of such commissions
as compensation from the firm.
Each year Mr. Manoogian has personally reimbursed the Company in cash for
services provided to him by the Company. For 2002, Mr. Manoogian reimbursed the
Company an aggregate of $585,000 for the value of such services, consisting of
various financial, accounting, tax, property maintenance and administrative
assistance. Two charitable foundations established by Mr. Manoogian and by his
father Mr. Alex Manoogian, who founded the Company, also separately reimburse
the Company for accounting and administrative services provided by the Company.
During 2002, this reimbursement aggregated $217,000. These foundations
coordinate their activities with those of the Masco Corporation Foundation to
assist the Company in responding to requests to the Company for donations. Mr.
Manoogian has continued to loan a significant number of his personal artworks to
the Company at its headquarters, but this arrangement is at no charge to the
Company and with no reimbursement to Mr. Manoogian for insurance, restoration
and his other costs he personally incurs with respect to the artworks on loan.
20
From time to time the Company has employed individuals who are related or
become related to other employees, officers or Directors. There are currently
six individuals employed by the Company or one of its divisions who are closely
related to current executive officers or to Messrs. Kennedy or Lyon. No current
employee is related to any individual who served as a Director of the Company
other than Messrs. Kennedy or Lyon. Each of these six employees received cash
compensation for 2002 in excess of $60,000.
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Audit Committee has selected the independent public accounting firm of
PricewaterhouseCoopers LLP to audit the Company's financial statements for the
year 2003, and believes it appropriate to submit its selection for ratification
by stockholders.
PricewaterhouseCoopers LLP has acted as the Company's independent certified
public accounting firm for over 41 years. It has performed services of an
accounting and auditing nature and, from time to time, has provided other
consulting services for the Company. Representatives of PricewaterhouseCoopers
LLP are expected to be present at the Meeting and will have the opportunity to
make a statement and are expected to be available to respond to appropriate
questions. If the selection is not ratified, the Audit Committee will consider
selecting another public accounting firm as the Company's independent auditors.
The affirmative vote of a majority of the votes cast by shares entitled to
vote thereon is required for the ratification of the selection of independent
auditors. Abstentions and broker non-votes are not counted as votes cast, and
therefore do not affect the ratification of the selection of auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE COMPANY
FOR THE YEAR 2003.
PRICEWATERHOUSECOOPERS LLP FEES
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees for professional services rendered for the Company by
PricewaterhouseCoopers LLP as of or for the years ended December 31, 2002 and
2001, were (in millions):
2002 2001
---- ----
Audit....................................................... $5.5 $5.0
Audit Related............................................... 1.9 2.3
Tax......................................................... 1.5 0.9
All Other................................................... * *
---- ----
Total....................................................... $8.9 $8.2
---------------
* Aggregate amounts were less than $50,000
The Audit fees for the years ended December 31, 2002 and 2001,
respectively, were for professional services rendered for the audits of the
consolidated financial statements of the Company, statutory audits, issuance of
comfort letters, consents, income tax provision procedures, and assistance with
review of documents filed with the SEC.
The Audit Related fees for services rendered during the years ended
December 31, 2002 and 2001, respectively, were for assurance and related
services related to employee benefit plan audits, due diligence related to
acquisitions, audits in connection with acquisitions and divestitures, and
consultations concerning the assessment of internal accounting controls.
21
Tax fees for services rendered during the years ended December 31, 2002 and
2001, respectively, were for services related to tax return preparation, tax
planning, and tax advice related to acquisitions.
All Other fees for services rendered during the years ended December 31,
2002 and 2001 were for miscellaneous services rendered.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
During 2002, the Company's Audit Committee began requiring pre-approval of
certain audit-related and other non-audit services. The Company's Audit
Committee, however, has not yet formally adopted pre-approval policies and
procedures for audit and non-audit services. Therefore, the proxy disclosure
does not include pre-approval policies and procedures and related information.
The Company is early-adopting components of the proxy fee disclosure
requirements; the requirement does not become effective until periodic annual
filings for the first fiscal year ending after December 15, 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and Directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, Directors and greater than ten
percent stockholders are required by regulations of the Securities and Exchange
Commission to furnish the Company copies of all Section 16(a) forms they file.
Based solely on the Company's review of copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
are required for those persons, the Company believes that its Directors,
officers and greater than ten percent beneficial owners met all applicable
filing requirements during the last fiscal year.
STOCKHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
Stockholders who intend to present a proposal for inclusion in the
Company's proxy statement and proxy relating to the 2004 Annual Meeting must
provide written notice of such intent to the Secretary of the Company at its
address stated in the Notice of Annual Meeting of Stockholders by December 20,
2003.
If a stockholder intends to bring a matter before next year's meeting,
other than by timely submitting a proposal to be included in the proxy
statement, timely notice must be given in accordance with the Company's bylaws.
Management proxies will have the right to exercise discretionary voting
authority on any matter raised in this manner by stockholders after December 20,
2003. The bylaws provide that, to be timely, notice must be received by the
Company's Corporate Secretary at 21001 Van Born Road, Taylor, Michigan 48180 no
earlier than January 15, 2004 and no later than February 14, 2004. For each
matter a stockholder intends to bring before the meeting, the notice must
include a brief description of the business to be brought before the meeting;
the text of the proposal or business (including the text of any resolutions
proposed for consideration); the reasons for conducting the business at the
meeting and any material interest the stockholder may have in such business; the
stockholder's name and address as it appears in the records of the Company; the
number of shares of Company Common Stock and Series B Participating Preferred
Stock owned by the stockholder; and a representation as to whether the
stockholder is a part of a group that intends to deliver a proxy statement or
form of proxy to holders of at least the percentage of the aggregate voting
power of the outstanding Company Common Stock and Series B Participating
Preferred Stock required to approve or adopt such proposal or if the stockholder
intends to otherwise solicit proxies from stockholders in support of the
proposal.
DELIVERY OF PROXY MATERIALS AND ANNUAL REPORTS
The SEC's proxy rules permit companies and intermediaries, such as brokers
and banks, to satisfy delivery requirements for proxy statements with respect to
two or more stockholders sharing an address by
22
delivering a single proxy statement to those stockholders. This procedure,
referred to as "householding," reduces the amount of duplicate information that
stockholders receive and lowers printing and mailing costs for companies.
The Company has been notified that certain intermediaries will household
the Company's 2003 Annual Report and proxy materials. Therefore, only one Annual
Report and Proxy Statement may have been delivered to multiple stockholders
sharing a single address. Stockholders who wish to opt out of householding and
receive separate copies of the Annual Report and Proxy Statement in the future,
or stockholders who are receiving multiple copies and would like to receive only
one copy for the household, should contact their bank, broker or other nominee
or the Company at the address and telephone number below.
The Company will promptly deliver a separate copy of the 2002 Annual Report
or Proxy Statement for the 2003 Annual Meeting upon oral request to the
Company's Investor Relations Department at (313) 274-7400 or written request to
Investor Relations, Masco Corporation, 21001 Van Born Road, Taylor, Michigan
48180.
OTHER MATTERS
The Board of Directors knows of no other matters to be voted upon at the
Meeting. If any other matters properly come before the Meeting, it is the
intention of the proxies named in the enclosed Proxy to vote the shares
represented thereby with respect to such matters in accordance with their best
judgment.
By Order of the Board of Directors
[/s/ Eugene A. Gorgaro, Jr.]
EUGENE A. GARGARO, JR.
Secretary
Taylor, Michigan
April 18, 2003
23
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
MASCO CORPORATION
APRIL 7, 2003
I. MISSION
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Masco Corporation (the "Company") shall assist the Board in
fulfilling its independent and objective oversight responsibilities. The
Committee will assist Board oversight of (1) the integrity of the Company's
financial statements, (2) the qualifications, independence and performance of
the Company's independent accountants, (3) the performance of the Company's
internal audit function, and (4) compliance by the Company with legal and
regulatory requirements, including the Company's Code of Business Conduct and
Ethics. The Committee strives to maintain open communications and has an
effective working relationship with the Board of Directors, the independent
accountants, the internal auditors and the management of the Company.
II. MEMBERSHIP
The Committee shall consist of at least three Directors of the Company. The
membership of the Committee shall qualify under the independence and experience
requirements of applicable law and the New York Stock Exchange. The Corporate
Governance and Nominating Committee shall recommend nominees for appointment to
the Committee annually and as vacancies or newly created positions occur.
Committee members shall be appointed by the Board and may be removed by the
Board at any time, and the Board will appoint a Committee Chairperson.
The Committee will meet as often as required to discharge its
responsibilities, no less than four times a year. The Committee will meet from
time to time in executive sessions without management participation. A majority
of the members of the Committee shall constitute a quorum for the transaction of
business. The Committee may delegate its authority to subcommittees or the
Chairperson of the Committee when it deems it appropriate and in the best
interests of the Company.
III. RESPONSIBILITIES
FINANCIAL STATEMENTS; DISCLOSURE AND OTHER RISK MANAGEMENT MATTERS
The Committee shall review with management, the internal auditors and the
independent accountants, as required by the New York Stock Exchange or as the
Committee deems appropriate, in separate meetings if the Committee deems it
appropriate:
- the annual audited financial statements, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and management's certifications with
respect to these financial statements, prior to the filing of the
Company's Form 10-K;
- the quarterly financial statements, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and management's certifications with respect to
these financial statements, prior to the filing of the Company's Form
10-Q;
- any analyses or other written communications prepared by management, the
internal auditors or the independent accountants setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of
the effects of alternative GAAP methods on the financial statements;
- the critical accounting policies and practices of the Company;
A-1
- off-balance sheet transactions and structures;
- any major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles; and
- regulatory and accounting initiatives.
The Committee shall review, in conjunction with management, the Company's
policies with respect to the Company's earnings press releases, financial
information and earnings guidance provided to analysts and rating agencies,
including the types of information to be disclosed and the types of presentation
to be made, paying particular attention to the use of "pro forma" or "adjusted"
non-GAAP information.
The Committee shall discuss with the Chief Executive Officer and Chief
Financial Officer of the Company their review of the Company's internal controls
and disclosure controls and procedures, including whether there are any
significant deficiencies in the design or operation of such controls and
procedures, material weaknesses in such controls and procedures, any corrective
actions taken with regard to such deficiencies and weaknesses and any fraud
involving management or other employees with a significant role in such controls
and procedures.
The Committee shall discuss with management and the independent accountants
any correspondence with regulators or governmental agencies and any published
reports which raise material issues regarding the Company's financial statements
or accounting policies.
The Committee shall review and discuss with the independent accountants any
audit problems or difficulties and management's response thereto, including
those matters required to be discussed with the Committee by the independent
accountants pursuant to applicable Statements on Auditing Standards:
- any restrictions on the scope of the independent accountants' activities
or access to requested information;
- any accounting adjustments that were noted or proposed by the independent
accountants but were not effected (as immaterial or otherwise);
- any communications involving matters of potential significance between
the independent accountants for the Company and the independent
accountants' national office regarding auditing or accounting issues
presented by the engagement;
- any management or internal control letter issued, or proposed to be
issued, by the independent accountants; and
- any significant disagreements between the Company's management and the
independent accountants.
The Committee shall have the sole authority over the resolution of any
disagreements between management and the independent accountants regarding the
Company's financial reporting.
The Committee shall review the Company's policies and practices with
respect to risk assessment and risk management, including discussing with
management the Company's major financial risk exposures and the steps that have
been taken to monitor and control such exposures.
INDEPENDENT ACCOUNTANTS
The Committee has the sole authority to retain and terminate the
independent accountants of the Company (subject to any requested shareholder
ratification), including sole authority to approve all audit engagement fees and
terms and all non-audit services to be provided by the independent accountants.
The Committee shall pre-approve each such non-audit service to be provided by
the Company's independent accountants. The Committee may consult with management
in the decision-making process, but may not delegate this authority to
management. The Committee may, from time to time, delegate its authority to pre-
approve non-audit services on a preliminary basis to one or more Committee
members, provided that such designee(s) present any such approvals to the full
Committee at the next Committee meeting.
A-2
The Committee shall review and approve the scope and staffing of the
independent accountants' annual audit plan.
The Committee shall evaluate the independent accountants' qualifications,
performance and independence, and shall present its conclusions and
recommendations with respect to the independent accountants to the full Board on
at least an annual basis. As part of such evaluation, at least annually, the
Committee shall:
- obtain and review a report or reports from the Company's independent
accountants describing:
- the independent accountants' internal quality-control procedures;
- any material issues raised by (i) the most recent internal
quality-control review or peer review of the independent accountants'
firm, or (ii) any inquiry or investigation by governmental or
professional authorities, within the preceding five years, regarding one
or more independent audits carried out by the independent accountants'
firm; and any steps taken to deal with any such issues;
- all relationships between the independent accountants and the Company;
and
- such other matters as to which the independent accountants are required
to report.
- review and evaluate the lead audit partner of the independent
accountants' team(s);
- consider whether the independent accountants should be rotated, so as to
assure continuing auditor independence; and
- obtain the opinion of management and the internal auditors of the
independent accountants' performance.
The Committee shall establish policies for the Company's hiring of current
or former employees of the independent accountants.
INTERNAL AUDITORS
The head of the Company's internal audit department shall report to the
Audit Committee, in addition to all other reporting obligations such individual
may have within the Company.
At least annually, the Committee shall evaluate the performance,
responsibilities, budget and staffing of the Company's internal audit function
and review the internal audit plan. Such evaluation shall include a review of
the responsibilities, budget and staffing of the Company's internal audit
function with the independent accountants. The Committee shall review the
significant reports to management prepared by the internal audit department and
management's responses thereto. The Committee shall also review the department's
Charter (Statement of Responsibility and Activity of the Internal Audit
Department), the independence and authority of the department's reporting
obligations and its qualifications to perform its duties.
OTHER MATTERS
The Committee shall meet separately, periodically, with appropriate members
of management, with internal auditors or other personnel responsible for the
internal audit function and with the independent accountants. The Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent accountants to meet with any members of, or advisors to, the
Committee. The Committee has the authority to retain and terminate, and shall
have sole authority over any independent legal, financial or other advisors as
it may consider necessary to carry out its responsibilities under this charter,
without conferring with or obtaining the approval of management or the full
Board.
CODE OF BUSINESS CONDUCT AND ETHICS
The Committee shall develop and recommend to the Board the Company's Code
of Business Conduct and Ethics as it relates to employees and officers. The
Committee shall periodically review and reassess the adequacy of the Company's
Code of Business Conduct and Ethics. The Committee shall periodically obtain
A-3
updates from management and the General Counsel of the Company regarding
compliance by employees and officers with legal, tax and other regulatory agency
rules and the Company's Code of Business Conduct and Ethics. The Committee will
also oversee the process by which employees may report illegal or unethical
behavior including cases alleging "insider trading", sexual harassment and
breach of non-discrimination laws.
The Committee shall establish procedures for:
- the receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or auditing
matters, and
- the confidential, anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.
COMMITTEE CHARTER
The Committee shall annually review and assess the adequacy of the
Committee's Charter and recommend any proposed changes to the Board for
approval.
---------------------
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountants. Furthermore, while
the Committee is responsible for reviewing the Company's policies and practices
with respect to risk assessment and management, it is the responsibility of the
Chief Executive Officer and senior management to determine the appropriate level
of the Company's exposure to risk.
IV. REPORTING
The Committee will regularly report to the Board of Directors. This report
shall include a review of any issues that arise with respect to: the quality or
integrity of the Company's financial statements; the Company's compliance with
legal and regulatory requirements; the qualifications, independence and
performance of the Company's independent accountants; the performance of the
internal audit function; the administration of the Company's Code of Business
Conduct and Ethics as it relates to employees and officers; and any other
matters that the Committee deems appropriate or is requested to be included by
the Board. At least annually, the Committee shall evaluate its own performance
and report to the Board on such evaluation. When presenting any recommendation
or advice to the Board, the Committee will provide such background and
supporting information as may be necessary for the Board to make an informed
decision. In addition, the Committee shall prepare the audit committee report
that the Securities and Exchange Commission rules require to be included in the
Company's annual proxy statement.
A-4
MASCO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
AT MASCO CORPORATE HEADQUARTERS
21001 VAN BORN ROAD
TAYLOR, MICHIGAN 48180
[MAP]
FROM DOWNTOWN DETROIT (EAST)
- Take I-94 west to the Pelham Road exit.
- Turn right onto Pelham Road and travel to Van Born Road.
- Turn left onto Van Born Road and proceed to the corporate headquarters.
FROM METRO AIRPORT (WEST)
- Take I-94 east to the Pelham Road exit.
- Turn left onto Pelham and travel to Van Born Road.
- Turn left onto Van Born Road and proceed to the corporate headquarters.
FROM SOUTHFIELD/BIRMINGHAM (NORTH)
- Take the Southfield Freeway to the Outer Drive/ Van Born Road exit.
- Stay on the service drive and proceed to Van Born Road.
- Bear right onto Van Born Road and travel to the corporate headquarters.
FROM TOLEDO (SOUTH)
- Take I-75 north to the Telegraph Road north exit.
- Proceed on Telegraph Road north to Van Born Road.
- Turn right on Van Born Road and proceed to the corporate headquarters.
MASCO CORPORATION VOTE BY TELEPHONE OR INTERNET 24 HOURS A DAY,
7 DAYS A WEEK UNTIL 5 P.M. ON MAY 13, 2003
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TELEPHONE INTERNET
1-866-564-2331 OR HTTPS://WWW.PROXYVOTENOW.COM/MAS OR MAIL
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Use any touch-tone telephone Use the Internet to vote your Mark, sign and date your Proxy
to vote your Proxy. Have your Proxy. Have your Proxy Card in Card and return it in the
Proxy Card in hand when you hand when you access the postage-paid envelope we have
call. You will be prompted to website. You will be prompted provided.
enter your control number, to enter your control number,
located in the box below, and located in the box below, to
then follow the simple create an electronic ballot.
directions.
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Your telephone or Internet
vote authorizes the named
proxies to vote your shares in
the same manner as if you
marked, signed and returned
the Proxy Card.
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If you have submitted your
Proxy by telephone or the
Internet there is no need for
you to mail back your Proxy
Card.
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If you have chosen to view the
Proxy Statement and Annual
Report over the Internet
instead of receiving paper
copies in the mail, you can
access the Proxy Statement and
2002 Annual Report
electronically at the
Company's website,
www.masco.com.
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CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
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1-866-564-2331
CALL TOLL-FREE TO VOTE
\/ DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET \/
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[ ] IF VOTING BY MAIL, PLEASE [X]
SIGN, DATE AND RETURN THIS VOTES MUST BE INDICATED
PROXY CARD PROMPTLY IN THE (X) IN BLACK OR BLUE INK.
ENCLOSED ENVELOPE.
(1) Election of Directors (3) In the proxies' discretion upon such other
business as may properly come before the
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ] meeting.
listed below for all nominees listed below
The shares represented by this Proxy will be
Class III Directors to hold office until the Annual Meeting of Stockholders in voted in accordance with the specifications
2006 or until their respective successors are elected and qualified. above. IF SPECIFICATIONS ARE NOT MADE, THE
PROXY WILL BE VOTED FOR THE ELECTION OF ALL
Nominees: THOMAS G. DENOMME, MARY ANN VAN LOKEREN AND RICHARD A. MANOOGIAN NOMINEES, FOR RATIFICATION OF INDEPENDENT
AUDITORS AND IN THE PROXIES' DISCRETION ON ANY
*INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
THE "EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S NAME. MEETING.
FOR AGAINST ABSTAIN
(2) Ratification of the selection of PricewaterhouseCoopers [ ] [ ] [ ]
LLP as independent auditors for the Company for the
year 2003.
MARK HERE IF YOU WISH TO ACCESS
THE ANNUAL REPORT AND PROXY
STATEMENT ELECTRONICALLY IN THE
FUTURE INSTEAD OF BY MAIL. [ ]
To change your address, please
mark this box. [ ]
To include any comments,
please mark this box. [ ]
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SCAN LINE
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Please sign exactly as name appears at left. Executors,
administrators, trustees, et al. should so indicate when
signing. If the signature is for a corporation, please
sign the full corporate name by an authorized officer. If
the signature is for a partnership or a limited liability
company, please sign the full partnership or limited
liability company name by an authorized person. If shares
are registered in more than one name, all holders must sign.
|
_____| Date Share Owner sign here Co-Owner sign here
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IF YOU HAVE CHOSEN TO VIEW THE PROXY STATEMENT AND ANNUAL REPORT OVER THE
INTERNET INSTEAD OF RECEIVING PAPER COPIES IN THE MAIL, YOU CAN ACCESS THE PROXY
STATEMENT AND 2002 ANNUAL REPORT ELECTRONICALLY AT THE COMPANY'S WEBSITE,
WWW.MASCO.COM.
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PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 14, 2003
MASCO CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby revoking any Proxy heretofore given, appoints
RICHARD A. MANOOGIAN and EUGENE A. GARGARO, JR. and each of them attorneys and
proxies for the undersigned, each with full power of substitution, to vote the
shares of Company Common Stock and Series B Participating Preferred Stock
registered in the name of the undersigned to the same extent the undersigned
would be entitled to vote if then personally present at the Annual Meeting of
Stockholders of Masco Corporation to be held at the offices of the Company at
21001 Van Born Road, Taylor, Michigan 48180, on Wednesday, May 14, 2003, at
10:00 a.m. and at any adjournment thereof.
The undersigned hereby acknowledges receipt of the accompanying Notice of
Annual Meeting of Stockholders and Proxy Statement.
(Continued and to be signed and dated on the reverse side.)
MASCO CORPORATION
P.O. BOX 11261
NEW YORK, N.Y. 10203-0261