Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2007	Commission File Number 1-5794	
 
MASCO CORPORATION
(Exact name of Registrant as Specified in its Charter)

Delaware	 	38-1794485	
(State of Incorporation)	 	(I.R.S. Employer Identification No.)	
21001 Van Born Road, Taylor, Michigan
 (Address of Principal Executive Offices)	 	48180
 (Zip Code)	

Registrant’s telephone number, including area code: 313-274-7400
 
Securities Registered Pursuant to Section 12(b) of the Act:

 	 	Name of Each Exchange	
Title of Each Class	 	On Which Registered	
 		
Common Stock, $1.00 par value
Zero Coupon Convertible Senior
Notes Series B Due 2031	 	New York Stock Exchange, Inc.

New York Stock Exchange, Inc.	

Securities Registered Pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  þ      No  o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o      No  þ
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ	 	Accelerated filer  o	 	Non-accelerated filer  o
(Do not check if a smaller reporting company)	 	Smaller reporting company  o	

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ
 
The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant on June 29, 2007 (based on the closing sale price of $28.47 of the Registrant’s Common Stock, as reported by the New York Stock Exchange on such date) was approximately $10,405,753,000.
 
Number of shares outstanding of the Registrant’s Common Stock at January 31, 2008:
 
364,700,000 shares of Common Stock, par value $1.00 per share
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s definitive Proxy Statement to be filed for its 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

 

Masco Corporation
2007 Annual Report on Form 10-K

TABLE OF CONTENTS

Item	 	 	 	Page	
 		
PART I	
1.	 	Business	 	 	2	 	
1A.	 	Risk Factors	 	 	6	 	
1B.	 	Unresolved Staff Comments	 	 	10	 	
2.	 	Properties	 	 	10	 	
3.	 	Legal Proceedings	 	 	11	 	
4.	 	Submission of Matters to a Vote of Security Holders	 	 	11	 	
 	 	Supplementary Item. Executive Officers of the Registrant	 	 	11	 	
 	
PART II	
5.	 	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	 	 	12	 	
6.	 	Selected Financial Data	 	 	15	 	
7.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	16	 	
7A.	 	Quantitative and Qualitative Disclosures About Market Risk	 	 	37	 	
8.	 	Financial Statements and Supplementary Data	 	 	38	 	
9.	 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	 	 	82	 	
9A.	 	Controls and Procedures	 	 	82	 	
9B.	 	Other Information	 	 	82	 	
 	
PART III	
10.	 	Directors, Executive Officers and Corporate Governance	 	 	82	 	
11.	 	Executive Compensation	 	 	83	 	
12.	 	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	 	 	83	 	
13.	 	Certain Relationships and Related Transactions, and Director Independence	 	 	83	 	
14.	 	Principal Accountant Fees and Services	 	 	83	 	
 	
PART IV	
15.	 	Exhibits and Financial Statement Schedule	 	 	84	 	
 	 	Signatures	 	 	88	 	
 	
FINANCIAL STATEMENT SCHEDULE	
 	 	Schedule II. Valuation and Qualifying Accounts	 	 	89	 	
  5-7/8% Notes Due July 15, 2012	
  6-1/2% Notes Due August 15, 2032	
  Non-Employee Directors Equity Program under Masco's 2005 Long-Term Stock Incentive Plan	
  Restricted Stock Award Agreement	
  Stock Option Grant Agreement	
  Forms of Masco Corporation Supplemental Executive Retirement and Disability Plan	
  Compensation of Non-Employee Directors	
  Letter from Masco Corporation to Donald DeMarie regarding relocation arrangements	
  Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends	
  List of Subsidiaries	
  Consent of Independent Registered Public Accounting Firm	
  Certification by Chief Executive Officer Required by 13a-14(a)/15d-14(a)	
  Certification by Chief Financial Officer Required by 13a-14(a)/15d-14(a)	
  Certifications Required by Rule 13a-14(b) or Rule 15d-14(b)	

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PART I

Item 1. 	Business.	
 
Masco Corporation manufactures, distributes and installs home improvement and building products, with emphasis on brand name consumer products and services holding leadership positions in their markets. The Company is among the largest manufacturers in North America of a number of home improvement and building products, including faucets, cabinets, architectural coatings and windows and is one of the largest installers of building products for the new home construction market. The Company generally provides broad product offerings in a variety of styles and price points and distributes products through multiple channels including home builders and wholesale and retail channels. Approximately 80 percent of the Company’s 2007 sales were generated by North American operations. The balance of sales were made by our other operations, located principally in Belgium, China, Denmark, Germany, The Netherlands and the United Kingdom.
 
The Company’s businesses operate in five segments arranged by similarity in products and services. The following table sets forth, for the three years ended December 31, 2007, the contribution of the Company’s segments to net sales and operating profit. Additional financial information concerning the Company’s operations by segment and by geographic regions, as well as general corporate expense, as of and for the three years ended December 31, 2007, is set forth in Note P to the Company’s Consolidated Financial Statements included in Item 8 of this Report.

 	 	 	 	 	(In Millions)	 	
 	 	Net Sales (1)	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Cabinets and Related Products	 	$	2,829	 	 	$	3,286	 	 	$	3,324	 	
Plumbing Products	 	 	3,449	 	 	 	3,296	 	 	 	3,176	 	
Installation and Other Services	 	 	2,615	 	 	 	3,158	 	 	 	3,063	 	
Decorative Architectural Products	 	 	1,771	 	 	 	1,717	 	 	 	1,612	 	
Other Specialty Products	 	 	1,106	 	 	 	1,261	 	 	 	1,325	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	11,770	 	 	$	12,718	 	 	$	12,500	 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Operating Profit (1)(2)(3)(4)	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Cabinets and Related Products	 	$	   336	 	 	$	   122	 	 	$	   515	 	
Plumbing Products	 	 	265	 	 	 	280	 	 	 	367	 	
Installation and Other Services	 	 	176	 	 	 	344	 	 	 	382	 	
Decorative Architectural Products	 	 	383	 	 	 	371	 	 	 	275	 	
Other Specialty Products	 	 	(28	)	 	 	225	 	 	 	229	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	1,132	 	 	$	1,342	 	 	$	1,768	 	

 

			
 	(1) 	Amounts exclude discontinued operations.	
 		
 	(2) 	Operating profit is before general corporate expense and gains on sale of corporate fixed assets, net.	
 		
 	(3) 	Operating profit is before income regarding the Behr litigation settlement of $1 million and $6 million in 2006 and 2005, respectively, pertaining to the Decorative Architectural Products segment.	
 		
 	(4) 	Operating profit includes impairment charges for goodwill and other intangible assets as follows: For 2007 – Plumbing Products – $69 million; and Other Specialty Products – $158 million. For 2006 – Cabinets and Related Products – $316 million; and Plumbing Products – $1 million. For 2005 – Plumbing Products – $7 million; and Other Specialty Products – $36 million.	

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Except as the context otherwise indicates, the terms “Masco” and the “Company” refer to Masco Corporation and its consolidated subsidiaries.
 
Cabinets and Related Products
 
In North America, the Company manufactures and sells economy, stock, semi-custom, assembled and ready-to-assemble cabinetry for kitchen, bath, storage, home office and home entertainment applications in a broad range of styles and price points. In Europe, the Company manufactures and sells assembled and ready-to-assemble kitchen, bath, storage, home office and home entertainment cabinetry. These products are sold under a number of trademarks including KRAFTMAID ® , MILL’S PRIDE ® , TVILUM- SCANBIRK tm and WOODGATE tm primarily to dealers and home centers, and under the names MERILLAT ® , MOORES tm and QUALITY CABINETS ® primarily to distributors and homebuilders for both the home improvement and new home construction markets. Cabinet sales are significantly affected by levels of activity in both new home construction and retail consumer spending, particularly spending for major home improvement products. A significant portion of our sales for the home improvement market are made through home center retailers.
 
The cabinet manufacturing industry in the United States and Europe is highly competitive, with several large competitors and numerous local and regional competitors. In addition to price, the Company believes that competition in this industry is based largely on product quality, responsiveness to customer needs and product features. Significant North American competitors include American Woodmark Corporation, Fortune Brands, Inc. and Cardell Cabinetry.
 
In 2007, the Company completed additions to its North American cabinet manufacturing capacity, which were undertaken in order to meet increased demand for cabinet products. The anticipated benefits of the new capacity have not been realized due to the decline in new home construction and consumer spending activity since 2006.
 
Plumbing Products
 
In North America, the Company sells a wide variety of faucet and showering devices that are manufactured by or for the Company. Products are sold under various brand names including DELTA ® , PEERLESS ® , HANSGROHE ® , BRASSTECH ® , BRIZO ® , NEWPORT BRASS ® , AXOR ® , ALSONS ® and PLUMB SHOP ® . Products include single- and double-handle faucets, showerheads, handheld showers and valves, which are sold by manufacturers’ representatives and Company sales personnel to major retail accounts and to distributors who sell these products to plumbers, building contractors, remodelers, smaller retailers and others. The Company sells kitchen and bath faucets, showering devices and various other plumbing products for European markets under the brand names HANSGROHE, BRISTAN tm , AXOR and DAMIXA ® , which are sold through multiple distribution channels.
 
Masco believes that its faucet operations are among the leaders in sales in the North American market, with American Standard, Kohler, Moen and Price Pfister as major brand competitors. The Company also has several major competitors among the European manufacturers, primarily in Germany and Italy, including Friedrich Grohe. The Company faces significant competition from private label products (including house brands sold by certain of the Company’s customers). Many of the faucet and showering products with which the Company’s products compete are manufactured in Asia. As part of the Company’s strategy for the Plumbing Products segment, these businesses have been reducing the volume of products manufactured domestically and increasing their Asian manufacturing and sourcing of products.
 
Other plumbing products manufactured and sold by the Company include AQUA GLASS ® , MIROLIN ® and AMERICAN SHOWER & BATH tm acrylic and gelcoat bath and shower enclosure units, shower trays and laundry tubs, which are sold primarily to wholesale plumbing distributors and home center retailers for the North American home improvement and new home construction markets. The Company’s spas are manufactured and sold under HOT SPRING ® , CALDERA ® and other trademarks directly to independent dealers. Major competitors include Kohler, Lasco, Maax and Jacuzzi. HÜPPE ® and BREUER tm shower enclosures are sold by the Company through wholesale channels and home

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centers primarily in Germany and western Europe. HERITAGE tm ceramic and acrylic bath fixtures and faucets are principally sold in the United Kingdom directly to selected retailers. GLASS tm and PHARO tm acrylic bathtubs and steam shower enclosures are also sold in Europe.
 
Also included in the Plumbing Products segment are brass and copper plumbing system components and other plumbing specialties, which are sold to plumbing, heating and hardware wholesalers and to home center retailers, hardware stores, building supply outlets and other mass merchandisers. These products are marketed in North America for the wholesale trade under the BRASSCRAFT ® and BRASSTECH trademarks and for the “do-it-yourself” market under the MASTER PLUMBER ® and PLUMB SHOP trademarks and are also sold under private label.
 
In addition to price, the Company believes that competition in its Plumbing Products markets is based largely on brand reputation, product quality, product features, and breadth of product offering.
 
A substantial portion of the Company’s plumbing products are made from brass, the major components of which are copper and zinc. From time to time, the Company has encountered volatility in the price of brass. In addition, legislation enacted in California to become effective in January 2010 mandates new standards for acceptable lead content in plumbing products sold in California. Similar legislation is being considered by other states. Faucet manufacturers, including the Company, will be required to obtain adequate supplies of lead-free brass or suitable alternative materials for continued production of faucets. An increase in the demand for lead-free brass may cause a shortage of supply and resulting price increases and could adversely impact this segment’s operating results.
 
Installation and Other Services
 
The Company’s Installation and Other Services segment sells installed building products and distributes building products primarily to the new home construction industry, and to a lesser extent, the commercial construction market, throughout the United States. Historically, the Company concentrated on the installation and distribution of insulation, which comprised approximately 12 percent, 15 percent and 15 percent of the Company’s consolidated net sales for the years ended December 31, 2007, 2006 and 2005, respectively. Net sales of non-insulation products (both installed and distributed) in 2007 represented approximately 46 percent of the segment’s net sales. Our offering of installed building products includes insulation, cabinetry, gutters, fireplaces, garage doors and framing components. Distributed products include insulation, insulation accessories, gutters, roofing, cabinetry and fireplaces. Collaboration with other Company businesses has resulted in sales of installed Company products, such as cabinetry, windows, paint and bath accessories. Installed building products are sold primarily to custom and production homebuilders by the Company’s network of branch locations throughout most of the United States. Distributed products are sold primarily to contractors and dealers from distribution centers in various parts of the United States. As discussed under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” sales and operating results for the Installation and Other Services segment are significantly affected by the level of new home construction activity.
 
In addition to price, the Company believes that competition in this industry is based largely on customer service, range of products and services offered, and quality of installation service. The Company believes it is the largest national provider of installed insulation in the United States. Competitors include several regional contractors, as well as numerous local contractors and lumber yards.
 
The Company buys insulation from a limited number of large suppliers in the United States market. Historically, during periods of rapid growth in the new home construction market, the industry has encountered shortages of insulation, leading to price volatility and allocations of supply. As one of the country’s largest purchasers of insulation, the Company has been able to successfully meet its needs in the past, although the volatility of material costs does impact our financial performance.

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The Installation and Other Services segment is a labor-intensive business. Significant changes in federal, state and local regulations addressing immigration and wages, as well as collective bargaining arrangements affecting wages and working conditions, could adversely affect the financial performance of the Company’s business.
 
Decorative Architectural Products
 
The Company manufactures architectural coatings including paints, specialty paint products, stains, varnishes and waterproofing products. The products are sold in the United States and Canada under the brand names BEHR ® , KILZ ® and EXPRESSIONS ® to the “do-it-yourself” and professional markets through home centers, paint stores and other retailers. BEHR products were also recently introduced in China. The KILZ brand is sold in North America through home center retailers and discount retailers, and through hardware stores, paint stores and dealers. Net sales of architectural coatings comprised approximately 13 percent, 11 percent and 11 percent of the Company’s consolidated net sales for the years ended December 31, 2007, 2006 and 2005, respectively. Competitors in the architectural coatings market include large national and international brands such as Benjamin Moore, Glidden, Olympic, Sherwin-Williams, Valspar and Zinsser, as well as many regional and other national brands. In addition to price, the Company believes that competition in this industry is based largely on product quality, technology and product innovation, customer service and brand reputation.
 
The BEHR brand is sold through The Home Depot, the segment’s and the Company’s largest customer. The paint departments at The Home Depot stores include the Behr color center and computer kiosk with the COLOR SMART BY BEHR ® computerized color-matching system that enables consumers to select and coordinate their paint-color selection. The loss of The Home Depot as a customer would significantly impact the segment’s business and that of the Company as a whole.
 
Titanium dioxide is a major ingredient in the manufacture of paint. Shortages of supply and cost increases for titanium dioxide in the past have resulted from surges in global demand and from disruption of refining capacity (i.e., Hurricane Katrina in the fall of 2005). Similar events in the future could adversely impact the financial performance of the Company’s business. Petroleum products are also used in the manufacture of architectural coatings. Significant increases in the cost of crude oil lead to higher raw material costs (i.e., for resins, solvents, packaging), which can adversely affect the segment’s results of operations.
 
The Decorative Architectural Products segment also includes LIBERTY ® door, window and other hardware, which is manufactured for the Company and sold to home centers, other retailers, original equipment manufacturers and wholesale markets. Key competitors in North America include Amerock, Belwith, Umbra and Stanley. Decorative bath hardware and shower accessories are sold under the brand names FRANKLIN BRASS ® and DECOR BATHWARE ® to distributors, home center retailers and other retailers. Competitors include Moen and Globe Union.
 
Other Specialty Products
 
The Company manufactures and sells vinyl, fiberglass and aluminum windows and doors under the MILGARD WINDOWS ® brand name to the new home construction and home improvement markets, principally in the western United States. MILGARD WINDOWS products are sold primarily through dealers and, to a lesser extent, direct to production homebuilders and through lumberyards and home center retailers. The segment’s competitors in North America include national brands, such as Jeld-Wen, Simonton, Pella and Andersen, and numerous regional brands. In the United Kingdom, the Company manufactures and sells windows, related products and components under several brand names including GRIFFIN tm , CAMBRIAN tm , PREMIER tm and DURAFLEX tm . Sales are primarily through dealers and wholesalers to the repair and remodeling markets. United Kingdom competitors include many small and mid-sized firms and a few large, vertically integrated competitors. In addition to price, the Company believes that competition in this industry is based largely on customer service and product quality.

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The Company manufactures and sells a complete line of manual and electric staple gun tackers, staples and other fastening tools under the brand names ARROW ® and POWERSHOT ® . These products are sold through various distribution channels including home center and other retailers and wholesalers. The principal North American competitor in this product line is Stanley.
 
The Company also manufactures residential hydronic radiators and heat convectors under the brand names BRUGMAN ® , SUPERIA tm , THERMIC tm and VASCO ® , which are sold to the European wholesale market and to retail home centers from operations in Belgium, The Netherlands and Poland.
 
Additional Information

 	• 	The Company holds United States and foreign patents, patent applications, licenses, trademarks and trade names. As a manufacturer and distributor of brand name products, we view our trademarks and other proprietary rights as important, but do not believe that there is any reasonable likelihood of a loss of such rights that would have a material adverse effect on our present business as a whole.	
 		
 	• 	All of the Company’s operating segments, except the Plumbing Products segment, normally experience stronger sales during the second and third calendar quarters, corresponding with the peak season for new home construction and remodeling.	
 		
 	• 	Compliance with federal, state and local regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to result in material capital expenditures by the Company or to have a material adverse effect on the Company’s earning or competitive position.	
 		
 	• 	The Company does not consider backlog orders to be material.	
 		
 	• 	At December 31, 2007, the Company employed approximately 52,000 people. Satisfactory relations have generally prevailed between the Company and its employees.	
 
Available Information
 
The Company’s website is www.masco.com. The Company’s periodic reports and all amendments to those reports required to be filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are available free of charge through its website. The Company will continue to post its periodic reports on Form 10-K and Form 10-Q and its current reports on Form 8-K and any amendments to those documents to its website as soon as reasonably practicable after those reports are filed with or furnished to the Securities and Exchange Commission. Material contained on the Company’s website is not incorporated by reference into this Report on Form 10-K.

Item 1A.	Risk Factors.	
 
There are a number of business risks and uncertainties that may affect our Company. These risks and uncertainties could cause future results to differ from past performance or expected results, including results described in statements elsewhere in this Report that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. The impact on our Company of certain of these risk factors is discussed below under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additional risks and uncertainties not presently known to us, or that we currently believe to be immaterial, also may adversely impact our Company. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations. These risks and uncertainties include, but are not limited to, the following, which we consider to be most relevant to our specific business activities.

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A significant portion of our business relies on residential construction activity and general economic conditions.
 
A significant part of our business is affected by levels of home improvement (including repair and remodeling) and new home construction activity, principally in North America and Europe. Demographic factors, such as changes in population growth and household formations, affect levels of home improvement and new home construction over the long term. Significant factors that impact demand for home improvement and new home construction in the short term include the inventory levels of unsold new and existing homes, general and regional economic conditions, consumer confidence and credit, terms and availability of financing, affordability of homes, interest rates, energy costs, and, on a more localized basis, weather conditions and natural disasters. The new home construction market, in particular, is cyclical in nature. A discussion of the impact of the decline in new home construction and in consumer spending for home improvement items on our various segments and on the Company’s operating results is located under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this Report.
 
We rely on key customers and may encounter conflicts within and between our distribution channels.
 
The size and importance of individual customers to our businesses has increased as customers in our major distribution channels have consolidated. Larger customers can effect significant changes in their volume of purchases and can otherwise significantly affect the terms and conditions on which we do business. Further, during downturns in our markets, declines in the financial condition and creditworthiness of significant customers may impact the volume of our business, the credit risk involved and our terms of doing business with them. Sales of our home improvement and building products to home center retailers are substantial. In 2007, sales to the Company’s largest customer, The Home Depot, were $2.4 billion (approximately 20 percent of the Company’s consolidated net sales). Although builders, dealers and other retailers represent other channels of distribution for the Company’s products and services, the loss of a substantial portion of our sales to The Home Depot would have a material adverse impact on the Company.
 
As some of our customers expand their markets and their targeted customers, conflicts occur and in some instances we may also become their competitor. Increasingly, we are transacting business directly with our larger customers. These arrangements may undermine the business relationships we have with customers who purchase our products through traditional wholesale means. In addition, our large retail customers are increasingly requesting product exclusivity, which may impact our product offerings to other customers.
 
Our principal markets are becoming more competitive.
 
The major geographic markets for our products and services are highly competitive and, in recent years, competition has intensified significantly. Competition is further exacerbated during economic downturns. Home center retailers are increasing their purchases of products directly from manufacturers, particularly low-cost suppliers in Asia, for sale as private label and house brand merchandise. Also, home center retailers, which have historically concentrated their sales efforts on retail consumers and remodelers, are increasingly turning their marketing efforts directly toward professional contractors and installers. The Company believes that competition in our industries is based largely on price, product and service quality, brand reputation, customer service and product features. Although the relative importance of such factors varies among customers and product categories, price is often a primary factor.
 
Although we view the long term demographic trends for our markets as generally favorable, our markets are mature, cyclical and growing slowly. Additionally, our market position in and the competitive composition of our traditional markets affect our ability to expand our market share. In recent years, we have directed our strategic focus to organic growth and on developing new products and

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expanding our services, rather than on growth through acquisitions. However, our ability to maintain our competitive positions in our markets and to grow our businesses is challenged since it depends to a large extent upon successfully maintaining our relationships with major customers, implementing growth strategies in our existing markets and entering new geographic markets, capitalizing on and strengthening our brand names, managing our cost structure, accommodating shorter life-cycles for our products and identifying and effectively responding to changing consumer preferences and spending patterns through product development and innovation.
 
The importance of sophisticated information technology to our industry is increasing. In order to remain competitive and respond to customer requirements and changes in their business processes, such as inventory replenishment, merchandise ordering, transportation and payment processing, the Company must be able to identify and implement comprehensive enterprise resource planning (“ERP”) systems. ERP systems are also critical to our supply chain management and logistics capabilities. The successful implementation of ERP systems also requires significant investment by the Company of both time and capital. Difficulties encountered in the deployment of significant new systems and other technology could be disruptive to the operation of our businesses.
 
The cost and availability of materials and labor and the performance of our supply chain affect our operating results.
 
When we incur cost increases for commodities or materials that are major components of our products or services, such as brass, insulation or titanium dioxide, it can be difficult for us to offset the impact on our operating results on a timely basis. Delays in adjusting or inability to adjust prices may be due to such factors as our existing arrangements with customers, competitive considerations, or customer resistance to such price increases. When the number of available sources for raw materials is limited, price volatility is more likely to occur and with longer duration when demand exceeds supply. In addition to their impact on our production expenses, increased costs of energy and other commodities, such as crude oil, can significantly affect the cost to transport our products and adversely affect our results of operations. See “Installation and Other Services” for a discussion of the impact of cost of raw materials and availability of labor and materials on that segment of our business.
 
We may also be adversely affected if our homebuilder customers encounter difficulty or delays in obtaining required materials from their other suppliers or if they encounter labor shortages. This is particularly likely to occur during periods of rapid growth in the new home construction market. Under such circumstances, homebuilders may delay their construction schedules and, as a result, may reduce or delay their purchase of products and services from us.
 
We rely heavily or exclusively on outside suppliers for certain of our products or key components. If there is an interruption in these sources of supply, we may experience difficulty or delay in substituting alternatives and our business may be disrupted.
 
International political, economic and social developments impact our business.
 
Over 20 percent of our sales are derived outside of North America (principally in Europe) and are transacted in currencies other than U.S. dollars (principally European euros and Great Britain pounds). Our international business faces risks associated with changes in political, monetary, economic and social environments, local labor conditions and practices, the laws, regulations and policies of foreign governments, cultural differences and differences in enforcement of contract and intellectual property rights. The financial reporting of our consolidated operating results is affected by fluctuations in currency exchange rates, which may present challenges in comparing operating performance from period to period and in forecasting future performance. U.S. laws affecting activities of U.S. companies doing business abroad, including tax laws and laws regulating various business practices, also impact our international business. Our international operating results may be influenced, when compared to our North American results, in part due to relative economic conditions in the European markets and due to competitive pricing pressures on certain products.

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Increasingly, we are manufacturing in Asia and sourcing products and components from third parties in Asia. The distances involved in these arrangements, together with differences in business practices, shipping and delivery requirements, the limited number of suppliers, and laws and regulations, have increased the difficulty of managing our supply chain, the complexity of our supply chain logistics and the potential for interruptions in our production scheduling.
 
We have financial commitments and investments in financial assets, including assets that are not readily marketable and involve financial risk.
 
We have maintained investments in available-for-sale securities (including marketable and auction rate securities) and a number of private equity funds. Since there is no active trading market for investments in private equity funds, they are for the most part illiquid. These investments, by their nature, can also have a relatively higher degree of business risk, including financial leverage, than other financial investments. Future changes in market conditions, the future performance of the underlying investments or new information provided by private equity fund managers could affect the recorded values of such investments or the amounts realized upon liquidation. In addition, we have commitments that require us to contribute additional capital to these private equity funds upon receipt of a capital call from the private equity fund.
 
Product liability claims and other litigation could be costly.
 
Increasingly, homebuilders, including our customers, are subject to construction defect and home warranty claims in the ordinary course of their business. Our contractual arrangements with these customers typically include the agreement to indemnify them against liability for the performance of our products or services or the performance of other products that we install. These claims frequently result in lawsuits against the homebuilders and many of their subcontractors, including the Company, and require defense costs even when such products or services are not the principal basis for the claims.
 
We are also subject to product safety regulations, recalls and direct claims for product liability, including putative class actions. Product liability claims can result in significant liability and, regardless of the ultimate outcome, can be costly to defend. Also, we increasingly rely on other manufacturers to provide us with products or components for products that we sell. Because of the difficulty of controlling the quality of products or components sourced from other manufacturers, we are exposed to risks relating to the quality of such products and to limitations on our recourse against such suppliers.
 
The Company has experienced an increase in the number of putative class action lawsuits in recent years predicated upon claims for antitrust violations, product liability, wage and hour issues and other matters. The Company has generally denied liability and vigorously defends these cases. However, even when there is no basis for imposing liability on the Company, such lawsuits are particularly costly to resolve due to their scope, complexity and the potentially significant exposure that is alleged.
 
See Note T to the consolidated financial statements included in Item 8 of this Report for additional information about litigation involving our businesses.
 
Government and industry responses to environmental and health and safety concerns could impact our capital expenditures and operating results.
 
Government and other regulations pertaining to health and safety (including protection of employees as well as consumers) and environmental concerns continue to emerge, domestically as well as internationally. In addition to having to comply with current requirements (including requirements that do not become effective until a future date), even more stringent requirements could be imposed on our industries in the future. Compliance with these regulations (such as the restrictions on lead content in plumbing products and on volatile organic compounds and formaldehyde emissions that are applicable to certain of our businesses), may require us to alter our manufacturing and installation processes and our sourcing. Such actions could adversely impact our operating results, and our ability to effectively and timely meet such regulations could adversely impact our competitive position.

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The long-term performance of our businesses relies on our ability to attract, develop and retain talented management.
 
To be successful, we must attract, develop and retain highly qualified and talented personnel in management, sales, marketing, research and development and, as we enter new international markets, skilled personnel familiar with these markets. We compete with multinational firms in manufacturing and other industries for these employees and we invest significant resources in recruiting, developing and motivating them. The failure to attract, motivate, develop and retain key managers and other key employees could negatively affect our competitive position and our operating results.
 
Item 1B. Unresolved Staff Comments.
 
None.
 
Item 2. Properties.
 
The table below lists the Company’s principal North American properties for segments other than Installation and Other Services.

 	 	 	 	 	Warehouse and	 	
Business Segment	 	Manufacturing	 	 	Distribution	 	
 		
Cabinets and Related Products	 	 	19	 	 	 	23	 	
Plumbing Products	 	 	24	 	 	 	9	 	
Decorative Architectural Products	 	 	10	 	 	 	11	 	
Other Specialty Products	 	 	15	 	 	 	6	 	
 	 	 	 	 	 	 	 	 	
Totals	 	 	68	 	 	 	49	 	

 
Most of the Company’s North American manufacturing facilities range in size from single buildings of approximately 10,000 square feet to complexes that exceed 1,000,000 square feet. The Company owns most of its North American manufacturing facilities, none of which are subject to significant encumbrances. A substantial number of our warehouse and distribution facilities are leased.
 
In addition, the Company’s Installation and Other Services segment operates over 230 local installation branch locations and over 60 local distribution centers in the United States, most of which are leased.
 
The table below lists the Company’s principal properties outside of North America.

 	 	 	 	 	Warehouse and	 	
Business Segment	 	Manufacturing	 	 	Distribution	 	
 		
Cabinets and Related Products	 	 	13	 	 	 	15	 	
Plumbing Products	 	 	25	 	 	 	29	 	
Decorative Architectural Products	 	 	1	 	 	 	2	 	
Other Specialty Products	 	 	12	 	 	 	3	 	
 	 	 	 	 	 	 	 	 	
Totals	 	 	51	 	 	 	49	 	

 
Most of these international facilities are located in Belgium, China, Denmark, Germany, The Netherlands and the United Kingdom. The Company generally owns its international manufacturing facilities, none of which are subject to significant encumbrances, and leases its warehouse and distribution facilities.
 
The Company’s corporate headquarters are located in Taylor, Michigan and are owned by the Company. The Company owns an additional building near its corporate headquarters that is used by our corporate research and development department.

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Each of the Company’s operating divisions assesses the manufacturing, distribution and other facilities needed to meet its operating requirements. The Company’s buildings, machinery and equipment have been generally well maintained and are in good operating condition. In general, the Company’s facilities have sufficient capacity and are adequate for its production and distribution requirements.
 
Item 3. Legal Proceedings.
 
Information regarding legal proceedings involving the Company is set forth in Note T to the Company’s consolidated financial statements included in Item 8 of this Report.
 
Item 4. Submission of Matters to a Vote of Security Holders.
 
Not applicable.
 
Supplementary Item. Executive Officers of the Registrant
(Pursuant to Instruction 3 to Item 401(b) of Regulation S-K).

 	 	 	 	 	 	 	Executive	 	
 	 	 	 	 	 	 	Officer	 	
Name	 	Position	 	Age	 	 	Since	 	
 		
Richard A. Manoogian	 	Executive Chairman	 	 	71	 	 	 	1962	 	
Timothy Wadhams	 	President and Chief Executive Officer	 	 	59	 	 	 	2001	 	
Donald J. DeMarie	 	Executive Vice President and Chief Operating Officer	 	 	44	 	 	 	2007	 	
Eugene A. Gargaro, Jr. 	 	Vice President and Secretary	 	 	65	 	 	 	1993	 	
John R. Leekley	 	Senior Vice President and General Counsel	 	 	64	 	 	 	1979	 	
John G. Sznewajs	 	Vice President, Treasurer and Chief Financial Officer	 	 	40	 	 	 	2005	 	

Executive officers are elected annually by the Board of Directors. Each of the above executive officers has been employed in a managerial capacity with the Company for at least five years. Mr. DeMarie was elected Executive Vice President in July 2007 and became Chief Operating Officer in December 2007. He had previously served as Group President of the Company’s Installation and Other Services segment since 2003. Previously, he had served as President and Chief Executive Officer of Masco Contractor Services and in other managerial roles since 1995. Mr. Sznewajs was elected to his current position in July 2007. He had previously served as Vice President and Treasurer since 2005 and Vice President – Business Development since 2003 and before that time served in various capacities in the Business Development Department from 1996 to 2003.

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PART II

Item 5. 	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	
 
The New York Stock Exchange is the principal market on which the Company’s common stock is traded. The following table indicates the high and low sales prices of the Company’s common stock as reported by the New York Stock Exchange and the cash dividends declared per common share for the periods indicated:

 	 	Market Price	 	 	Dividends	 	
Quarter	 	High	 	 	Low	 	 	Declared	 	
 		
2007	 	 	 	 	 	 	 	 	 	 	 	 	
Fourth	 	$	25.28	 	 	$	20.89	 	 	$	.23	 	
Third	 	 	29.00	 	 	 	22.65	 	 	 	.23	 	
Second	 	 	31.58	 	 	 	26.26	 	 	 	.23	 	
First	 	 	34.72	 	 	 	27.00	 	 	 	.23	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	 	 	 	 	$	.92	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2006	 	 	 	 	 	 	 	 	 	 	 	 	
Fourth	 	$	30.53	 	 	$	26.85	 	 	$	.22	 	
Third	 	 	29.90	 	 	 	25.85	 	 	 	.22	 	
Second	 	 	33.70	 	 	 	27.63	 	 	 	.22	 	
First	 	 	32.95	 	 	 	29.00	 	 	 	.22	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	 	 	 	 	$	.88	 	

 
On February 15, 2008 there were approximately 5,500 holders of record of the Company’s common stock.
 
The Company expects that its practice of paying quarterly dividends on its common stock will continue, although the payment of future dividends is at the discretion of the Company’s Board of Directors and will depend upon the Company’s earnings, capital requirements, financial condition and other factors.

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Performance Graph
 
The table below sets forth a line graph comparing the cumulative total shareholder return on Masco’s common stock with the cumulative total return of (i) the Standard & Poor’s 500 Composite Stock Index (“S&P 500”), (ii) The Standard & Poor’s Industrials Index (“S&P Industrials Index”) and (iii) the Standard & Poor’s Consumer Durables & Apparel Index (“S&P Consumer Durables & Apparel Index”), from December 31, 2002 through December 31, 2007, when the closing price of Masco’s common stock was $21.61. The graph assumes investments of $100 on December 31, 2002 in Masco common stock and in each of these three indices and the reinvestment of dividends.

 
The table below sets forth the value, as of December 31 for each of the years indicated, of a $100 investment made on December 31, 2002 in each of Masco common stock, the S&P 500 Index, the S&P Industrials Index and the S&P Consumer Durables & Apparel Index and the reinvestment of dividends.

 	 	2002	 	2003	 	2004	 	2005	 	2006	 	2007	
Masco	 	$	100.00	 	 	$	132.97	 	 	$	180.41	 	 	$	152.95	 	 	$	155.69	 	 	$	117.38	 	
S&P 500 Index	 	$	100.00	 	 	$	128.36	 	 	$	142.14	 	 	$	149.01	 	 	$	172.27	 	 	$	181.72	 	
S&P Industrials Index	 	$	100.00	 	 	$	131.79	 	 	$	155.28	 	 	$	158.77	 	 	$	179.65	 	 	$	201.19	 	
S&P Consumer Durables & Apparel Index	 	$	100.00	 	 	$	124.66	 	 	$	154.04	 	 	$	156.87	 	 	$	166.53	 	 	$	132.55	 	

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The following table provides information regarding the Company’s purchase of Company common stock for the three months ended December 31, 2007, in millions except average price paid per common share data:

 	 	 	 	 	 	 	 	Total Number of Shares	 	 	Maximum Number of	 	
 	 	 	 	 	 	 	 	Purchased as Part of	 	 	Shares That May Yet	 	
 	 	Total Number of	 	 	Average Price Paid	 	 	Publicly Announced	 	 	Be Purchased Under	 	
Period	 	Shares Purchased	 	 	Per Common Share	 	 	Plans or Programs	 	 	the Plans or Programs	 	
 		
10/01/07 – 10/31/07	 	 	1	 	 	$	22.92	 	 	 	1	 	 	 	42	 	
11/01/07 – 11/30/07	 	 	1	 	 	$	22.21	 	 	 	1	 	 	 	41	 	
12/01/07 – 12/31/07	 	 	—	 	 	 	—	 	 	 	—	 	 	 	41	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total for the quarter	 	 	2	 	 	$	22.31	 	 	 	2	 	 	 	 	 	

In July 2007, the Company’s Board of Directors authorized the purchase of up to 50 million shares of the Company’s common stock in open-market transactions or otherwise, replacing the May 2006 authorization.
 
On October 17, 2007 the Company redeemed the outstanding balance of its Zero Coupon Convertible Senior Notes due 2031 (“Old Notes”) for cash of $85,000. This redemption retired the balance of a $1.9 billion series originally issued in 2001 that was exchanged in December 2004 for the Company’s Zero Coupon Convertible Senior Notes Series B due July 2031 (“New Notes”). See Note K to the consolidated financial statements included in Item 8 of this Report for additional information about the Old Notes and the New Notes.
 
For information regarding securities authorized for issuance under the Company’s equity compensation plans, see Part III, Item 12 of this Report.

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Item 6. 	Selected Financial Data.	

 	 	(Dollars In Millions, Except Per Common Share Data)	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	
 		
Net sales (1)	 	$	11,770	 	 	$	12,718	 	 	$	12,500	 	 	$	11,713	 	 	$	10,251	 	
Operating profit (1),(2),(3),(4),(5),(6)	 	$	959	 	 	$	1,140	 	 	$	1,590	 	 	$	1,651	 	 	$	1,504	 	
Income from continuing operations (1),(2),(3),(4),(5),(6)	 	$	397	 	 	$	478	 	 	$	889	 	 	$	1,015	 	 	$	810	 	
Per share of common stock:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	1.08	 	 	$	1.21	 	 	$	2.11	 	 	$	2.28	 	 	$	1.69	 	
Diluted	 	$	1.06	 	 	$	1.20	 	 	$	2.07	 	 	$	2.23	 	 	$	1.65	 	
Dividends declared	 	$	.92	 	 	$	0.88	 	 	$	0.80	 	 	$	0.68	 	 	$	0.60	 	
Dividends paid	 	$	.91	 	 	$	0.86	 	 	$	0.78	 	 	$	0.66	 	 	$	0.58	 	
Income from continuing operations as a % of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	 	3%	 	 	 	4%	 	 	 	7%	 	 	 	9%	 	 	 	8%	 	
Shareholders’ equity (7)	 	 	9%	 	 	 	10%	 	 	 	16%	 	 	 	19%	 	 	 	15%	 	
At December 31:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	10,907	 	 	$	12,325	 	 	$	12,559	 	 	$	12,541	 	 	$	12,173	 	
Long-term debt	 	$	3,966	 	 	$	3,533	 	 	$	3,915	 	 	$	4,187	 	 	$	3,848	 	
Shareholders’ equity	 	$	4,025	 	 	$	4,471	 	 	$	4,848	 	 	$	5,423	 	 	$	5,456	 	

 
		
(1) 	Amounts exclude discontinued operations.	
 		
(2) 	The year 2007 includes non-cash impairment charges for goodwill and other intangible assets aggregating $208 million after tax ($227 million pre-tax).	
 		
(3) 	The year 2006 includes non-cash impairment charges for goodwill aggregating $317 million after tax ($317 million pre-tax) and income of $1 million after tax ($1 million pre-tax) regarding the Behr litigation settlement.	
 		
(4) 	The year 2005 includes non-cash impairment charges for goodwill aggregating $43 million after tax ($43 million pre-tax) and income of $4 million after tax ($6 million pre-tax) regarding the Behr litigation settlement.	
 		
(5) 	The year 2004 includes non-cash impairment charges for goodwill aggregating $42 million after tax ($50 million pre-tax) and income of $19 million after tax ($30 million pre-tax) regarding the Behr litigation settlement.	
 		
(6) 	The year 2003 includes non-cash impairment charges for goodwill aggregating $42 million after tax ($48 million pre-tax) and income of $45 million after tax ($72 million pre-tax) regarding the Behr litigation settlement.	
 		
(7) 	Based on shareholders’ equity as of the beginning of the year.	

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Item 7. 	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	
 
The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of its consolidated financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.
 
The following discussion and certain other sections of this Report contain statements reflecting the Company’s views about its future performance and constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These views involve risks and uncertainties that are difficult to predict and, accordingly, the Company’s actual results may differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including those discussed in Item 1A “Risk Factors” of this Report, the “Executive Level Overview,” “Critical Accounting Policies and Estimates” and “Outlook for the Company” sections, may affect the Company’s performance. The Company undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.
 
Executive Level Overview
 
The Company manufactures, distributes and installs home improvement and building products. These products are sold to the home improvement and new home construction markets through mass merchandisers, hardware stores, home centers, builders, distributors and other outlets for consumers and contractors.
 
Factors that affect the Company’s results of operations include the levels of new home construction and home improvement activity principally in North America and Europe, the importance of and the Company’s relationships with key customers (including The Home Depot, which represented approximately 20 percent of the Company’s net sales in 2007), the Company’s ability to maintain its leadership positions in its U.S. and global markets in the face of increasing competition, the Company’s ability to effectively manage its overall cost structure, and the cost and availability of labor and materials. The Company’s international business faces political, monetary, economic and other risks that vary from country to country, as well as fluctuations in currency exchange rates. Further, the Company has financial commitments and investments in financial assets that are not readily marketable and that involve financial risk. In addition, product liability claims and other litigation could be costly. These and other factors are discussed in more detail in Item 1A “Risk Factors” of this Report.
 
Critical Accounting Policies and Estimates
 
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company regularly reviews its estimates and assumptions, which are based upon historical experience, as well as current economic conditions and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.
 
The Company believes that the following critical accounting policies are affected by significant judgments and estimates used in the preparation of its consolidated financial statements.

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     	Revenue Recognition and Receivables	
 
The Company recognizes revenue as title to products and risk of loss is transferred to customers or when services are rendered. The Company records revenue for unbilled services performed based upon estimates of labor incurred in the Installation and Other Services segment; such amounts are recorded in Receivables. The Company records estimated reductions to revenue for customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. Allowances for doubtful accounts receivable are maintained for estimated losses resulting from the inability of customers to make required payments.

     	Inventories	
 
Inventories are recorded at the lower of cost or net realizable value, with expense estimates made for obsolescence or unsaleable inventory equal to the difference between the recorded cost of inventories and their estimated market value based upon assumptions about future demand and market conditions. On an on-going basis, the Company monitors these estimates and records adjustments for differences between estimates and actual experience. Historically, actual results have not significantly deviated from those determined using these estimates.

     	Financial Investments	
 
The Company has maintained investments in available-for-sale and marketable securities and a number of private equity funds, which aggregated $114 million and $173 million, respectively, at December 31, 2007. Investments in available-for-sale and marketable securities are recorded at fair value, and unrealized gains or losses (that are deemed to be temporary) are recognized, net of tax, through shareholders’ equity, as a component of other comprehensive income in the Company’s consolidated balance sheet. The Company records an impairment charge to earnings when an investment has experienced a decline in value that is deemed to be other-than-temporary. During 2007, the Company recognized non-cash, pre-tax impairment charges of $6 million related to its investment in Furniture Brands International common stock and $3 million related to its investment in Asahi Tec common stock.
 
From time to time, the Company invests its excess cash in short-term financial instruments including auction rate securities. Auction rate securities are investment securities that have interest rates which are reset every 7, 28 or 35 days. During the third quarter of 2007, the Company revised the classification of investments in auction rate securities from cash and cash investments to available-for-sale securities included in other assets on the consolidated balance sheet. The Company has also made corresponding adjustments to the consolidated statements of cash flows for the periods ended December 31, 2007, 2006 and 2005, to reflect the gross cash purchases and sales of these securities in cash flows (for) from investing activities. These changes in classification do not affect previously reported consolidated statements of income or cash flows from operating activities in any prior period. During 2007, the Company recognized a non-cash, pre-tax impairment charge of $3 million related to auction rate securities.
 
On January 11, 2007, the acquisition of Metaldyne Corporation (“Metaldyne”) (formerly MascoTech, Inc.) by Asahi Tec Corporation (“Asahi Tec”), a Japanese automotive supplier, was finalized. The combined fair value of the Asahi Tec common and preferred stock, as well as the derivative related to the conversion feature on the preferred stock, received in exchange for the Company’s investment in Metaldyne, was $72 million. As a result of the transaction, the Company recognized a gain of $14 million, net of transaction fees, included in the Company’s consolidated statement of income for the year ended December 31, 2007, in income from other investments, net. Subsequent to the transaction, the Company’s investment in Asahi Tec common and preferred stock is accounted for as available-for-sale and unrealized gains or losses related to the change in fair value of the Asahi Tec common and preferred stock at December 31, 2007 have been recognized, net of tax, through shareholders’ equity, as a component of other comprehensive income in the Company’s consolidated balance sheet. For the year ended December 31, 2007, the unrealized loss of $17 million related to the change in fair value of the derivative

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related to the conversion feature on the preferred stock, has been included in income from other investments, net.
 
In addition, immediately prior to its sale, Metaldyne distributed shares of TriMas Corporation (“TriMas”) common stock as a dividend to the holders of Metaldyne common stock; the Company recognized income of $4 million included in the Company’s consolidated statement of income, in dividend income from other investments. In May 2007, TriMas made an initial public offering; subsequent to the offering, the Company’s investment in TriMas is accounted for as available-for-sale and unrealized gains or losses related to the change in fair value of the investment have been recognized, net of tax, through shareholders’ equity, as a component of other comprehensive income in the Company’s consolidated balance sheet.
 
The Company’s investments in private equity funds and other private investments are carried at cost and are evaluated for potential impairment when impairment indicators are present, or when an event or change in circumstances has occurred, that may have a significant adverse effect on the fair value of the investment. Impairment indicators the Company considers include the following: whether there has been a significant deterioration in earnings performance, asset quality or business prospects; a significant adverse change in the regulatory, economic or technological environment; a significant adverse change in the general market condition or geographic area in which the investment operates; and any bona fide offers to purchase the investment for less than the carrying value. Since there is no active trading market for these investments, they are for the most part illiquid. These investments, by their nature, can also have a relatively higher degree of business risk, including financial leverage, than other financial investments. Future changes in market conditions, the future performance of the underlying investments or new information provided by private equity fund managers could affect the recorded values of such investments and the amounts realized upon liquidation. During 2007, the Company recognized non-cash, pre-tax impairment charges of $10 million related to certain of its investments in private equity funds.

     	Goodwill and Other Intangible Assets	
 
The Company records the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” in the fourth quarter of each year, or as an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting business unit below its carrying amount, the Company completes the impairment testing of goodwill utilizing a discounted cash flow method.
 
Determining market values using a discounted cash flow method requires the Company to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. The Company’s judgments are based upon historical experience, current market trends, consultations with external valuation specialists and other information. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different estimates and assumptions could result in a different outcome. In estimating future cash flows, the Company relies on internally generated five-year forecasts for sales and operating profits, including capital expenditures, and generally a one to three percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast. The Company generally develops these forecasts based upon, among other things, recent sales data for existing products, planned timing of new product launches, estimated housing starts and repair and remodeling estimates for existing homes.
 
In the fourth quarter of 2007, the Company estimated that future discounted cash flows projected for most of its reporting business units were greater than the carrying values. Any increases in estimated discounted cash flows would have no impact on the reported value of goodwill.
 
If the carrying amount of a reporting business unit exceeds its fair value, the Company measures the possible goodwill impairment based upon an allocation of the estimate of fair value of the reporting business unit to all of the underlying assets and liabilities of the reporting business unit, including any

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previously unrecognized intangible assets. The excess of the fair value of a reporting business unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting business unit’s recorded goodwill exceeds the implied fair value of goodwill.
 
In 2007, the Company recognized non-cash, pre-tax impairment charges for goodwill of $177 million ($177 million, after tax). The pre-tax impairment charges recorded in 2007 were as follows: Plumbing Products segment — $69 million related to a North American manufacturer of plumbing-related products; and Other Specialty Products segment — $108 million related to a European manufacturer of heating products.
 
The Company reviews its other indefinite-lived intangible assets for impairment annually or as events occur or circumstances change that indicate the assets may be impaired without regard to the reporting unit. The Company considers the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near-and long-term. In 2007, the Company recognized a non-cash, pre-tax impairment charge for other indefinite-lived intangible assets of $50 million ($31 million, after tax) in the Other Specialty Products segment related to the value of a registered trademark.
 
Intangible assets with finite useful lives are amortized over their estimated useful lives. The Company evaluates the remaining useful lives of amortizable identifiable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization.

     	Stock-Based Compensation	
 
The Company’s 2005 Long Term Stock Incentive Plan (the “2005 Plan”) replaced the 1991 Long Term Stock Incentive Plan (the “1991 Plan”) in May 2005 and provides for the issuance of stock-based incentives in various forms. At December 31, 2007, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights. Additionally, the Company’s 1997 Non-Employee Directors Stock Plan (the “1997 Plan”) provides for the payment of part of the compensation to non-employee Directors in Company common stock. The 1997 Plan expired in May 2007; subsequently, compensation to non-employee Directors in Company common stock will be made from the 2005 Plan.
 
The Company elected to begin recording expense for stock options granted or modified subsequent to January 1, 2003. Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment,” (“SFAS No. 123R”) using the Modified Prospective Application (“MPA”) method. The MPA method requires the Company to recognize expense for unvested stock options that were awarded prior to January 1, 2003 through the remaining vesting periods. The MPA method did not require the restatement of prior-year information. In accordance with SFAS No. 123R, the Company utilized the shortcut method to determine the tax windfall pool associated with stock options as of the date of adoption.

     	Long-Term Stock Awards	
 
Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of repurchasing and retiring an equal number of shares on the open market. There was $175 million (9 million common shares) of total unrecognized compensation expense related to unvested stock awards at December 31, 2007, which was included as a reduction of common stock and retained earnings. Effective January 1, 2006, such expense is being recognized ratably over the shorter of the vesting period of the stock awards, typically 10 years (except for stock awards held by grantees age 66 or older, which vest over five years), or the length of time until the grantee becomes retirement-eligible at age 65. For stock awards granted prior to January 1, 2006, such expense is being recognized over the vesting period of the stock awards, typically

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10 years, or for executive grantees that are, or will become, retirement-eligible during the vesting period, the expense is being recognized over five years, or immediately upon a grantee’s retirement. Pre-tax compensation expense for the annual vesting of long-term stock awards was $52 million for 2007.

     	Stock Options	
 
Stock options are granted to key employees and non-employee Directors of the Company. The exercise price equals the market price of the Company’s common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date. The 2005 Plan does not permit the granting of restoration stock options, except for restoration options resulting from options granted under the 1991 Plan. Restoration stock options become exercisable six months from the date of grant.
 
The Company measures compensation expense for stock options using a Black-Scholes option pricing model. For stock options granted subsequent to January 1, 2006, such expense is being recognized ratably over the shorter of the vesting period of the stock options, typically five years, or the length of time until the grantee becomes retirement-eligible at age 65. The expense for unvested stock options at January 1, 2006 is based upon the grant date fair value of those options as calculated using a Black-Scholes option pricing model for pro forma disclosures under SFAS No. 123. For stock options granted prior to January 1, 2006, such expense is being recognized ratably over the vesting period of the stock options, typically five years. Pre-tax compensation expense for stock options was $49 million for 2007.
 
The fair value of stock options was estimated at the grant date using a Black-Scholes option pricing model with the following assumptions for 2007: risk-free interest rate – 4.74%, dividend yield – 3.0%, volatility factor – 31.8% and expected option life – 7 years. For SFAS No. 123R calculation purposes, the weighted average grant-date fair value of option shares, including restoration options, granted in 2007 was $8.92 per option share.
 
If the Company increased its assumptions for the risk-free interest rate and the volatility factor by 50 percent, the expense related to the fair value of stock options granted in 2007 would increase 48 percent. If the Company decreased its assumptions for the risk-free interest rate and the volatility factor by 50 percent, the expense related to the fair value of stock options granted in 2007 would decrease 59 percent.

     	Employee Retirement Plans	
 
Accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future, based upon vested years of service, and attributing those costs over the time period each employee works. Pension costs and obligations of the Company are developed from actuarial valuations. Inherent in these valuations are key assumptions regarding inflation, expected return on plan assets, mortality rates, compensation increases and discount rates for obligations and expenses. The Company considers current market conditions, including changes in interest rates, in selecting these assumptions. Changes in assumptions used could result in changes to reported pension costs and obligations within the Company’s consolidated financial statements in any given period.
 
In 2007, the Company increased its discount rate for obligations to an average of 6.25 percent from 5.50 percent. The discount rate for obligations was based upon the expected duration of each defined-benefit pension plan’s liabilities matched to the December 31, 2007 Citigroup Pension Discount Curve. Such rates for the Company’s defined-benefit pension plans ranged from 5.00 percent to 6.50 percent, with the most significant portion of the liabilities having a discount rate for obligations of 6.25 percent or higher. The assumed asset return was primarily 8.25 percent, reflecting the expected long-term return on plan assets.
 
The Company’s net underfunded amount for its qualified defined-benefit pension plans, the difference between the projected benefit obligation and plan assets, decreased to $114 million at December 31, 2007 from $186 million at December 31, 2006, primarily due to asset returns and funding

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contributions; in accordance with SFAS No. 158, the underfunded amount has been recognized on the Company’s consolidated balance sheets at December 31, 2007 and 2006. Qualified domestic pension plan assets in 2007 had a net return of approximately seven percent compared to average returns of six percent for the largest 1,000 Plan Benchmark.
 
The Company’s projected benefit obligation for its unfunded non-qualified defined-benefit pension plans was $138 million at December 31, 2007 compared with $144 million at December 31, 2006; in accordance with SFAS No. 158, the unfunded amount has been recognized on the Company’s consolidated balance sheets at December 31, 2007 and 2006.
 
The Company expects pension expense for its qualified defined-benefit pension plans to be $13 million in 2008 compared with $17 million in 2007. If the Company assumed that the future return on plan assets was one-half percent lower than the assumed asset return, the 2008 pension expense would increase by $3 million. The Company expects pension expense for its non-qualified defined-benefit pension plans to decrease by $1 million in 2008 compared with 2007.

     	Income Taxes	
 
The Company has considered potential sources of future foreign taxable income in assessing the need for establishing a valuation allowance against its deferred tax assets related to its foreign tax credit carryforward of $45 million at December 31, 2007. Should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, a valuation allowance would be recorded in the period such determination is made.
 
Historically, the Company established reserves for tax contingencies in accordance with SFAS 5, “Accounting for Contingencies,” (“SFAS No. 5”). Under this standard, reserves for tax contingencies were established when it was probable that an additional tax may be owed and the amount can be reasonably estimated. In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109,” (“FIN No. 48”). FIN No. 48 allows the recognition of only those income tax benefits that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. The adoption of FIN No. 48 was effective January 1, 2007.
 
FIN No. 48 establishes a lower threshold than SFAS No. 5 for recognizing reserves for income tax contingencies on uncertain tax positions (referred to by FIN No. 48 as “unrecognized tax benefits”). Therefore, the Company believes that there is a greater potential for volatility in its effective tax rate because this lower threshold allows changes in the income tax environment and the inherent complexities of income tax law in a substantial number of jurisdictions to affect our unrecognized tax benefits computation to a greater degree than with SFAS No. 5.
 
While the Company believes it has adequately provided for its uncertain tax positions, amounts asserted by taxing authorities could vary from our accrued liability for unrecognized tax benefits. Accordingly, additional provisions for tax-related matters, including interest and penalties, could be recorded in income tax expense in the period revised estimates are made or the underlying matters are settled or otherwise resolved.

     	Other Commitments and Contingencies	
 
Certain of the Company’s products and product finishes and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to the life of the product. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. The Company’s estimate of costs to service its warranty obligations is based upon historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly.

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A significant portion of the Company’s business is at the consumer retail level through home centers and major retailers. A consumer may return a product to a retail outlet that is a warranty return. However, certain retail outlets do not distinguish between warranty and other types of returns when they claim a return deduction from the Company. The Company’s revenue recognition policy takes into account this type of return when recognizing revenue, and deductions are recorded at the time of sale.
 
The Company is subject to lawsuits and pending or asserted claims with respect to matters generally arising in the ordinary course of business. Liabilities and costs associated with these matters require estimates and judgments based upon the professional knowledge and experience of management and its legal counsel. When estimates of the Company’s exposure for lawsuits and pending or asserted claims meet the criteria for recognition under SFAS No. 5, amounts are recorded as charges to earnings. The ultimate resolution of any such exposure to the Company may differ due to subsequent developments. See Note T to the Company’s consolidated financial statements for information regarding certain legal proceedings involving the Company.
 
Corporate Development Strategy
 
In past years, acquisitions have enabled the Company to build strong positions in the markets it serves and have increased the Company’s importance to its customers. The Company’s focus includes the rationalization of its business units, including consolidations, as well as pursuing synergies among the Company’s business units. The Company expects to maintain a more balanced growth strategy with emphasis on organic growth, share repurchases and fewer acquisitions with increased emphasis on cash flow and return on invested capital. As part of its strategic planning, the Company continues to review all of its businesses to determine which businesses may not be core to the Company’s long-term growth strategy.
 
During 2007, the Company completed the sale of a European business unit in the Decorative Architectural Products segment. In 2006, the Company completed the sale of a North American business unit in the Other Specialty Products segment. These dispositions were completed pursuant to the Company’s determination that these business units were not core to the Company’s long-term growth strategy. The Company recognized a net loss of $10 million in 2007, primarily related to the 2007 discontinued operation. The Company recognized a net gain of $50 million in 2006, primarily related to the 2006 discontinued operation.
 
During 2005, in separate transactions, the Company completed the sale of three business units in Europe, including two in the Cabinets and Related Products segment and one in the Other Specialty Products segment, as well as one business unit in North America in the Cabinets and Related Products segment. The Company recognized a net gain of $63 million in 2005, primarily related to the 2005 discontinued operations.
 
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company accounted for the business units which were sold in 2007, 2006 and 2005, except as noted below, as discontinued operations. There were no businesses held for sale at December 31, 2007.
 
The sales, results of operations and the (losses) gains from the 2007, 2006 and 2005 discontinued operations were included in (loss) income from discontinued operations, net, in the consolidated statements of income.
 
During 2007 and 2006, the Company completed the sale of several small businesses, primarily in the Plumbing Products segment, the results of which were included in continuing operations through the dates of sale. The Company received cash proceeds of $10 million and $72 million, respectively, and recognized a pre-tax net (loss) gain of $(8) million and $1 million, respectively, for the years ended December 31, 2007 and 2006, included in other, net, in continuing operations, related to the 2007 and 2006 sales of business units.
 
During 2007, the Company acquired several relatively small installation service businesses (Installation and Other Services segment), as well as Erickson Construction Company and Guy Evans, Inc.

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(Installation and Other Services segment). Erickson Construction Company, headquartered in Arizona, provides pre-fabricated wall panels and millwork for residential builders in Arizona, California and Nevada. Guy Evans, Inc., headquartered in California, is an installer of millwork, doors, windows and bath hardware for residential builders in California and Nevada. These two acquisitions allow the Company to expand the products and services it offers to its installation customers, and had combined annual sales in 2006 of approximately $200 million. The results of these acquisitions are included in the consolidated financial statement from the respective dates of acquisition. The aggregate net purchase price for all of these acquisitions was $202 million and included cash of $195 million and assumed debt of $7 million.
 
During 2006 and 2005, the Company acquired several relatively small businesses (primarily in the Installation and Other Services segment). The results of these acquisitions are included in the consolidated financial statements from the respective dates of acquisition.
 
Liquidity and Capital Resources
 
Historically, the Company has largely funded its growth through cash provided by a combination of its operations, long-term bank debt and the issuance of notes in the financial markets, and by the issuance of Company common stock, including issuances for certain mergers and acquisitions.
 
Bank credit lines are maintained to ensure the availability of funds. At December 31, 2007, the Company had a $2.0 billion 5-Year Revolving Credit Agreement with a group of banks syndicated in the United States and internationally which expires in February 2011. This agreement allows for borrowings denominated in U.S. dollars or European euros with interest payable based upon various floating-rate options as selected by the Company. There were no amounts outstanding under the 5-year Revolving Credit Agreement at December 31, 2007.
 
The 5-Year Revolving Credit Agreement contains limitations on additional borrowings; at December 31, 2007, the Company had additional borrowing capacity, subject to availability, of up to $1.9 billion. The 5-Year Revolving Credit Agreement also contains a requirement for maintaining a certain level of net worth; at December 31, 2007, the Company’s net worth exceeded such requirement by $895 million.
 
The Company had cash and cash investments of $922 million at December 31, 2007 principally as a result of strong cash flows from operations.
 
The Company has maintained investments in available-for-sale and marketable securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses. The Company determined that the longer maturity of private equity funds would be advantageous to the Company and complement the Company’s investment in more liquid available-for-sale and marketable securities to balance risk. Since the Company has significantly reduced tax capital losses in part by generating capital gains from investments and other sources, the Company has and will continue to reduce its investments in financial assets.
 
In 2007, the Company increased its quarterly common stock dividend five percent to $.23 per common share. This marks the 49th consecutive year in which dividends have been increased.
 
Maintaining high levels of liquidity and cash flow are among the Company’s financial strategies. The Company’s total debt as a percent of total capitalization decreased to 50 percent at December 31, 2007 from 53 percent at December 31, 2006. The decrease in the Company’s debt to total capitalization percent is primarily due to the repurchase of the Zero Coupon Convertible Senior Notes in January 2007.
 
On January 20, 2007, holders of $1.8 billion (94 percent) principal amount at maturity of the Company’s Zero Coupon Convertible Senior Notes (“Notes”) required the Company to repurchase their Notes at a cash value of $825 million. At December 31, 2007, there were outstanding $108 million principal amount at maturity of such Notes, with an accreted value of $52 million, which has been

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included in long-term debt, as the next put option date is July 20, 2011. The Company may at any time redeem all or part of the Notes at their then accreted value.
 
During 2007, the Company also retired $300 million of floating-rate notes due March 9, 2007 and $300 million of 4.625% notes due August 15, 2007. On March 14, 2007, the Company issued $300 million of floating-rate notes due 2010; the interest rate is determined based upon the three-month LIBOR plus 30 basis points. On March 14, 2007, the Company also issued $300 million of fixed-rate 5.85% notes due 2017. These debt issuances provided net proceeds of $596 million and were in consideration of the March and August 2007 debt maturities.
 
The Company’s working capital ratio was 2.0 to 1 and 1.5 to 1 at December 31, 2007 and 2006, respectively. The improvement in the Company’s working capital ratio is primarily due to the January 2007 payment of $825 million to repurchase the Zero Coupon Convertible Senior Notes which were included in short-term notes payable at December 31, 2006.
 
The derivatives used by the Company during 2007 consist of interest rate swaps entered into in 2004, for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. Generally, under interest rate swap agreements, the Company agrees with a counterparty to exchange the difference between fixed-rate and variable-rate interest amounts calculated by reference to an agreed notional principal amount. The derivative contracts are with two major creditworthy institutions, thereby minimizing the risk of credit loss. The interest rate swap agreements are designated as fair-value hedges, and the interest rate differential on interest rate swaps used to hedge existing debt is recognized as an adjustment to interest expense over the term of the agreement. For fair-value hedge transactions, changes in the fair value of the derivative and changes in the fair value of the item hedged are recognized in determining earnings.
 
The average variable interest rates are based upon the London Interbank Offered Rate (“LIBOR”) plus fixed adjustment factors. The average effective rate for 2007 on the interest rate swaps was 6.264%. At December 31, 2007, the interest rate swap agreements covered a notional amount of $850 million of the Company’s fixed-rate debt due July 15, 2012 with an interest rate of 5.875%. The hedges are considered 100 percent effective because all of the critical terms of the derivative financial instruments match those of the hedged item. Accordingly, no gain or loss on the value of the hedges was recognized in the Company’s consolidated statements of income for the years ended December 31, 2007, 2006 and 2005. In 2007, the Company recognized an increase in interest expense of $3 million related to this swap agreement, due to increasing interest rates.
 
Certain of the Company’s European operations also entered into foreign currency forward contracts for the purpose of managing exposure to currency fluctuations, primarily related to the European euro, the Great Britain pound and the U.S. dollar.

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Cash Flows
 
Significant sources and (uses) of cash in the past three years are summarized as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Net cash from operating activities	 	$	1,270	 	 	$	1,208	 	 	$	1,374	 	
(Decrease) increase in debt, net	 	 	(881	)	 	 	151	 	 	 	407	 	
Proceeds from disposition of:	 	 	 	 	 	 	 	 	 	 	 	 	
Businesses, net of cash disposed	 	 	45	 	 	 	160	 	 	 	278	 	
Property and equipment	 	 	45	 	 	 	16	 	 	 	37	 	
Proceeds from financial investments, net	 	 	108	 	 	 	165	 	 	 	99	 	
Issuance of Company common stock	 	 	60	 	 	 	28	 	 	 	33	 	
Tax benefit from stock-based compensation	 	 	19	 	 	 	18	 	 	 	—	 	
Acquisition of businesses, net of cash acquired	 	 	(203	)	 	 	(28	)	 	 	(25	)	
Capital expenditures	 	 	(248	)	 	 	(388	)	 	 	(282	)	
Cash dividends paid	 	 	(347	)	 	 	(349	)	 	 	(339	)	
Purchase of Company common stock	 	 	(857	)	 	 	(854	)	 	 	(986	)	
Effect of exchange rate on cash and cash investments	 	 	47	 	 	 	18	 	 	 	(5	)	
Other, net	 	 	(94	)	 	 	(57	)	 	 	(15	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash (decrease) increase	 	$	(1,036	)	 	$	88	 	 	$	576	 	

 
The Company’s cash and cash investments decreased $1.0 billion to $922 million at December 31, 2007, from $1,958 million at December 31, 2006.
 
Net cash provided by operations of $1.3 billion consisted primarily of net income adjusted for non-cash and certain other items, including depreciation and amortization expense of $248 million, net loss on disposition of businesses of $18 million, net gain on disposition of financial investments of $41 million, a $227 million charge for the impairment of goodwill and other intangible assets, a $22 million charge for the impairment of financial investments and other non-cash items, including stock-based compensation expense, amortization expense related to in-store displays and interest expense on the Zero Coupon Convertible Senior Notes, as well as a net decrease in working capital of $283 million.
 
The Company continues to emphasize balance sheet management, including working capital management and cash flow generation. Days sales in accounts receivable were 49 days at December 31, 2007 compared with 50 days at December 31, 2006, and days sales in inventories were 48 days at December 31, 2007 compared with 49 days at December 31, 2006. Accounts payable days improved to 43 days from 40 days at December 31, 2007 and 2006, respectively. Working capital (defined as accounts receivable and inventories less accounts payable) as a percent of sales was 15.4 percent and 16.1 percent at December 31, 2007 and 2006, respectively.
 
Net cash used for financing activities was $2.0 billion, and included cash outflows of $347 million for cash dividends paid, $1,425 million for the retirement of notes and $857 million for the acquisition and retirement of 31 million shares of Company common stock in open-market transactions. Cash provided by financing activities primarily included $596 million from the issuance of notes (net of issuance costs) and $60 million from the issuance of Company common stock, primarily from the exercise of stock options.
 
At December 31, 2007, the Company had remaining Board of Directors’ authorization to repurchase up to an additional 41 million shares of its common stock in open-market transactions or otherwise. In January 2008, the Company repurchased an additional three million shares of Company common stock and expects to continue its share repurchase program throughout 2008.

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Net cash used for investing activities was $347 million, and included $248 million for capital expenditures and $203 million for acquisitions. Cash provided by investing activities included primarily $45 million of net proceeds from the disposition of businesses and $108 million from the net sale of financial investments.
 
The Company invests in automating its manufacturing operations to increase its productivity to improve customer service. Capital expenditures for 2007 were $248 million, compared with $388 million for 2006 and $282 million for 2005; for 2008, capital expenditures, excluding any potential 2008 acquisitions, are expected to approximate $240 million. Depreciation and amortization expense for 2007 totaled $248 million, compared with $244 million for 2006 and $241 million for 2005; for 2008, depreciation and amortization expense, excluding any potential 2008 acquisitions, is expected to approximate $260 million. Amortization expense totaled $20 million, $14 million and $28 million in 2007, 2006 and 2005, respectively.
 
Costs of environmental responsibilities and compliance with existing environmental laws and regulations have not had, nor, in the opinion of the Company, are they expected to have, a material effect on the Company’s capital expenditures, financial position or results of operations.
 
The Company believes that its present cash balance and cash flows from operations are sufficient to fund its near-term working capital and other investment needs. The Company believes that its longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings, future financial market activities and proceeds from asset sales.
 
Consolidated Results of Operations
 
The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”) in the United States. However, the Company believes that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, the Company’s reported results.

     	Sales and Operations	
 
Net sales for 2007 were $11.8 billion, representing a decrease of seven percent from 2006. Excluding results from acquisitions and the effect of currency translation, net sales decreased 11 percent compared with 2006. The following table reconciles reported net sales to net sales excluding acquisitions and the effect of currency translation, in millions:

 	 	Twelve Months Ended December 31	 	
 	 	2007	 	 	2006	 	
 		
Net sales, as reported	 	$	11,770	 	 	$	12,718	 	
– Acquisitions	 	 	(175	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Net sales, excluding acquisitions	 	 	11,595	 	 	 	12,718	 	
– Currency translation	 	 	(207	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Net sales, excluding acquisitions and the effect of currency	 	$	11,388	 	 	$	12,718	 	

 
Net sales for 2007 were adversely affected by a continued decline in the new home construction market, which reduced sales volume, and contributed to a nine percent decline in net sales. Economic conditions remain difficult in the new home construction market. Full-year housing starts have declined from 2.1 million in 2005 to 1.3 million in 2007. Net sales for 2007 were also negatively affected by a decline in consumer spending for home improvement products, which contributed to lower sales volume, reducing net sales by two percent compared to 2006. Retail sales volume benefited from increased sales volume of paints and stains and International plumbing products.

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The Company’s gross profit margins were 27.3 percent, 27.6 percent and 28.5 percent in 2007, 2006 and 2005, respectively. The decrease in the 2007 gross profit margin reflects lower sales volume of certain products, which more than offset the benefits associated with the Company’s business rationalizations and other initiatives. The decrease in the 2006 gross profit margins reflects increased commodity, energy and freight costs, as well as a less favorable product mix, offset in part by increased selling prices for certain products.
 
Selling, general and administrative expenses as a percent of sales were 17.2 percent in 2007 compared with 16.1 percent in 2006 and 15.5 percent in 2005. Selling, general and administrative expenses in 2007 reflect lower sales volume, as well as increased advertising costs of 2.9 percent of sales compared to 2.6 percent of sales in 2006. The year 2007 also includes increased severance costs of $16 million, increased bad debt expense of $13 million and increased systems implementation costs of $7 million, which, on a combined basis, increased .3 percent of sales compared to 2006. Increased selling, general and administrative expenses in 2006, compared to 2005, reflect increased stock-based compensation expense of .8 percent of sales compared to .6 percent of sales in 2005, in part reflecting the adoption of SFAS No. 123R, and increased information systems implementation costs and other expenses.
 
Operating profit in 2007, 2006 and 2005 includes $79 million, $47 million and $12 million, respectively, of costs and charges related to the Company’s business rationalizations and other initiatives. Operating profit in 2007, 2006 and 2005 includes $227 million, $317 million and $43 million, respectively, of impairment charges for goodwill and other intangible assets. Operating profit in 2006 and 2005 includes $1 million and $6 million, respectively, of income regarding the Behr litigation settlement. Operating profit margins, as reported, were 8.1 percent, 9.0 percent and 12.7 percent in 2007, 2006 and 2005, respectively. Operating profit margins, excluding the items above, were 10.7 percent, 11.8 percent and 13.1 percent in 2007, 2006 and 2005, respectively.
 
Operating profit margins in 2007 were adversely affected by a continuing decline in new home construction and a moderation in consumer spending in North America, both of which negatively impacted the sales volume of installation and other services, assembled cabinets and windows and doors; such sales volume declines negatively impacted operating profit margin by 1.6 percentage points compared to 2006. Operating profit margins benefited from the Company’s business rationalizations and other initiatives. Operating profit margins in 2006 were negatively affected by an accelerating decline in the new home construction market and a moderation in consumer spending for certain “big ticket” home improvement items, such as cabinets, in the last half of 2006, both of which negatively impacted the sales volume of certain products and reduced operating profit margin by approximately one percent in 2006 compared to 2005. Operating profit margins in 2006 were also affected by the continuing negative impact of higher commodity costs partially offset by certain selling price increases. Operating profit margins in 2005 were impacted by increased commodity, energy and freight costs, which had only been partially offset by selling price increases.

     	Other Income (Expense), Net	
 
During 2007, the Company recognized non-cash, pre-tax impairment charges aggregating $22 million related to financial investments in Furniture Brands International common stock ($6 million), Asahi Tec common stock ($3 million), auction rate securities ($3 million) and private equity funds ($10 million).
 
Other, net, for 2007 included $5 million of realized gains, net, from the sale of marketable securities, $6 million of dividend income and $38 million of income from other investments, net. Other, net, for 2007 also included $9 million of realized currency gains and other miscellaneous items.
 
During 2006, the Company recognized non-cash, pre-tax impairment charges aggregating $101 million for its investments related to Metaldyne ($40 million), TriMas ($16 million), the Heartland fund ($29 million) and other funds ($16 million).

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Other, net, for 2006 included $4 million of realized gains, net, from the sale of marketable securities, $10 million of dividend income and $30 million of income from other investments, net. Other, net, for 2006 also included realized currency gains of $14 million and other miscellaneous items.
 
During 2005, the Company recognized non-cash, pre-tax impairment charges aggregating $45 million primarily related to its investment in Furniture Brands International common stock ($30 million) and private equity funds ($15 million).
 
Other, net, for 2005 included $30 million of realized gains, net, from the sale of marketable securities, $16 million of dividend income and $69 million of income from other investments, net. Other, net, for 2005 also included realized currency losses of $25 million and other miscellaneous items.
 
Interest expense was $258 million, $240 million and $247 million in 2007, 2006 and 2005, respectively. The increase in interest expense in 2007 is primarily due to increasing interest rates and the issuance of higher interest rate debt of 6.125% notes in October 2006 and floating-rate notes and 5.85% notes in March 2007. These debt issuances were in consideration of the 2007 debt payments. The decrease in interest expense in 2006 is primarily the result of the repayment of $800 million of 6.75% notes in March 2006, partially offset by the issuance of $1 billion of 6.125% notes in October 2006, as well as the impact of increasing interest rates.

     	Income and Earnings Per Common Share from Continuing Operations	
 
Income and diluted earnings per common share from continuing operations for 2007 were $397 million and $1.06 per common share, respectively. Income from continuing operations for 2007 included non-cash, pre-tax impairment charges for goodwill and other intangible assets of $227 million ($208 million or $.56 per common share, after tax). Income and diluted earnings per common share from continuing operations for 2006 were $478 million and $1.20 per common share, respectively. Income from continuing operations for 2006 included non-cash, pre-tax impairment charges for goodwill of $317 million ($317 million or $.79 per common share, after tax). Income and diluted earnings per common share from continuing operations for 2005 were $889 million and $2.07 per common share, respectively. Income from continuing operations for 2005 included non-cash, pre-tax impairment charges for goodwill of $43 million ($43 million or $.10 per common share, after tax) and income regarding the litigation settlement of $6 million pre-tax ($4 million or $.01 per common share, after tax).
 
The Company’s effective tax rate for income from continuing operations was 44 percent, 45 percent, and 36 percent in 2007, 2006 and 2005, respectively. The increased tax rates in 2007 and 2006 are primarily due to the impairment charges for goodwill not being deductible for tax purposes. The Company’s effective tax rate for income from continuing operations, excluding the impairment charges for goodwill and other intangible assets, was 36 percent, 33 percent and 35 percent in 2007, 2006 and 2005, respectively.
 
The Company estimates that its effective tax rate should approximate 42 to 43 percent in 2008. The expected tax rate for 2008 is higher than the statutory rate primarily due to the U.S. tax on anticipated dividend distributions from certain foreign subsidiaries whose earnings are taxed at rates less than the U.S. Federal rate of 35 percent. These dividends are being distributed to utilize certain favorable provisions of the U.S. income tax law that are scheduled to expire at December 31, 2008. The majority of the U.S. tax currently payable on these dividends will be offset by the Company’s $45 million foreign tax credit carryforward; such utilization of the foreign tax credit carryforward will be accounted for as a reversal of the $45 million deferred tax asset.

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Outlook for the Company
 
Economic conditions remain difficult in a number of the Company’s markets. Housing starts declined 25 percent in 2007 due to excessive inventories of homes and less attractive mortgage terms. As a result, full-year 2007 housing starts declined to 1.3 million from 2.1 million in 2005 and the Company expects a further decline in housing starts in 2008. In addition, the Company anticipates a decline in consumer spending for home improvement products and, notwithstanding recent actions by the Federal Reserve and the government to stimulate economic growth, the Company believes that 2008 will be a difficult year for the overall U.S. economy. In the fourth quarter of 2007, the Company also experienced a softening of demand for certain of its International products due to declining European economies.
 
The Company expects market conditions in its industry, in the next several quarters, to be very challenging. The Company is confident of its strategy of dividend increases and share repurchases while concentrating on organic growth, improving returns and generating superior cash flow. The Company’s strategy, together with the leveraging of the combined market strength of its retail service, distribution and installation capabilities, brands and scale, should allow Masco to continue to drive long-term growth and value for its shareholders.

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Business Segment and Geographic Area Results
 
The following table sets forth the Company’s net sales and operating profit information by business segment and geographic area, dollars in millions.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Percent Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	2007	 	 	2006	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	vs.	 	 	vs.	 	
 	 	 	 	 	2007	 	 	2006	 	 	2005	 	 	2006	 	 	2005	 	
 		
Net Sales:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	 	 	 	 	$	2,829	 	 	$	3,286	 	 	$	3,324	 	 	 	(14	)%	 	 	(1	)%	
Plumbing Products	 	 	 	 	 	 	3,449	 	 	 	3,296	 	 	 	3,176	 	 	 	5	%	 	 	4	%	
Installation and Other Services	 	 	 	 	 	 	2,615	 	 	 	3,158	 	 	 	3,063	 	 	 	(17	)%	 	 	3	%	
Decorative Architectural Products	 	 	 	 	 	 	1,771	 	 	 	1,717	 	 	 	1,612	 	 	 	3	%	 	 	7	%	
Other Specialty Products	 	 	 	 	 	 	1,106	 	 	 	1,261	 	 	 	1,325	 	 	 	(12	)%	 	 	(5	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	$	11,770	 	 	$	12,718	 	 	$	12,500	 	 	 	(7	)%	 	 	2	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	 	 	 	 	$	9,271	 	 	$	10,537	 	 	$	10,440	 	 	 	(12	)%	 	 	1	%	
International, principally Europe	 	 	 	 	 	 	2,499	 	 	 	2,181	 	 	 	2,060	 	 	 	15	%	 	 	6	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	$	11,770	 	 	$	12,718	 	 	$	12,500	 	 	 	(7	)%	 	 	2	%	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2007	 	 	2007 (B)	 	 	2006	 	 	2006 (B)	 	 	2005	 	 	2005 (B)	 	
 		
Operating Profit (Loss): (A)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	$	336	 	 	$	336	 	 	$	122	 	 	$	438	 	 	$	515	 	 	$	515	 	
Plumbing Products	 	 	265	 	 	 	334	 	 	 	280	 	 	 	281	 	 	 	367	 	 	 	374	 	
Installation and Other Services	 	 	176	 	 	 	176	 	 	 	344	 	 	 	344	 	 	 	382	 	 	 	382	 	
Decorative Architectural Products	 	 	383	 	 	 	383	 	 	 	371	 	 	 	371	 	 	 	275	 	 	 	275	 	
Other Specialty Products	 	 	(28	)	 	 	130	 	 	 	225	 	 	 	225	 	 	 	229	 	 	 	265	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	1,132	 	 	$	1,359	 	 	$	1,342	 	 	$	1,659	 	 	$	1,768	 	 	$	1,811	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	$	1,008	 	 	$	1,127	 	 	$	1,417	 	 	$	1,428	 	 	$	1,567	 	 	$	1,567	 	
International, principally Europe	 	 	124	 	 	 	232	 	 	 	(75	)	 	 	231	 	 	 	201	 	 	 	244	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	1,132	 	 	 	1,359	 	 	 	1,342	 	 	 	1,659	 	 	 	1,768	 	 	 	1,811	 	
General corporate expense, net	 	 	(181	)	 	 	(181	)	 	 	(203	)	 	 	(203	)	 	 	(192	)	 	 	(192	)	
Gains on sale of corporate fixed assets, net	 	 	8	 	 	 	8	 	 	 	—	 	 	 	—	 	 	 	8	 	 	 	8	 	
Income regarding litigation settlement	 	 	—	 	 	 	—	 	 	 	1	 	 	 	1	 	 	 	6	 	 	 	6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating profit	 	$	959	 	 	$	1,186	 	 	$	1,140	 	 	$	1,457	 	 	$	1,590	 	 	$	1,633	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2007	 	 	2007 (B)	 	 	2006	 	 	2006 (B)	 	 	2005	 	 	2005 (B)	 	
 		
Operating Profit (Loss) Margin: (A)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	 	11.9	%	 	 	11.9	%	 	 	3.7	%	 	 	13.3	%	 	 	15.5	%	 	 	15.5	%	
Plumbing Products	 	 	7.7	%	 	 	9.7	%	 	 	8.5	%	 	 	8.5	%	 	 	11.6	%	 	 	11.8	%	
Installation and Other Services	 	 	6.7	%	 	 	6.7	%	 	 	10.9	%	 	 	10.9	%	 	 	12.5	%	 	 	12.5	%	
Decorative Architectural Products	 	 	21.6	%	 	 	21.6	%	 	 	21.6	%	 	 	21.6	%	 	 	17.1	%	 	 	17.1	%	
Other Specialty Products	 	 	(2.5	)%	 	 	11.8	%	 	 	17.8	%	 	 	17.8	%	 	 	17.3	%	 	 	20.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	 	10.9	%	 	 	12.2	%	 	 	13.4	%	 	 	13.6	%	 	 	15.0	%	 	 	15.0	%	
International, principally Europe	 	 	5.0	%	 	 	9.3	%	 	 	(3.4	)%	 	 	10.6	%	 	 	9.8	%	 	 	11.8	%	
Total	 	 	9.6	%	 	 	11.5	%	 	 	10.6	%	 	 	13.0	%	 	 	14.1	%	 	 	14.5	%	
Total operating profit margin, as reported	 	 	8.1	%	 	 	N/A	 	 	 	9.0	%	 	 	N/A	 	 	 	12.7	%	 	 	N/A	 	

 
		
(A) 	Before: general corporate expense, net, gains on sale of corporate fixed assets, net, and income regarding the Behr litigation settlement (related to the Decorative Architectural Products segment).	
		
(B) 	Excluding impairment charges for goodwill and other intangible assets. The 2007 impairment charges for goodwill and other intangible assets were as follows: Plumbing Products – $69 million; and Other Specialty Products – $158 million. The 2006 impairment charges for goodwill were as follows: Cabinets and Related Products – $316 million; and Plumbing Products – $1 million. The 2005 impairment charges for goodwill were as follows: Plumbing Products – $7 million; and Other Specialty Products – $36 million.	

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Business Segment Results Discussion
 
Changes in operating profit margins in the following Business Segment and Geographic Area Results discussion exclude general corporate expense, net, gains on sale of corporate fixed assets, net, income regarding the litigation settlement, and impairment charges for goodwill and other intangible assets in 2007, 2006 and 2005.
 
Business Rationalizations and Other Initiatives
 
Over the past several years, the Company has been focused on the rationalization of its businesses, including sourcing programs, business consolidations, plant closures, headcount reductions, plant start-ups, systems implementations and other initiatives. For the year ended December 31, 2007, the Company incurred net costs and charges of $79 million related to these initiatives, net of an $8 million gain from the sale of fixed assets.
 
During 2006, the Company incurred $39 million pre-tax of costs and charges (primarily accelerated depreciation and severance expense) related to a plant closure and other profit improvement programs in the Plumbing Products segment. In addition, in 2006, the Company incurred $8 million pre-tax of costs and charges (including the write-down of inventories and accelerated depreciation) related to the closure of a relatively small ready-to-assemble cabinet manufacturing facility in the Cabinets and Related Products segment. In 2005, the Company also incurred approximately $12 million pre-tax of charges related to headcount reductions and the discontinuance of a product line in the Plumbing Products segment.

     	Cabinets and Related Products	
 
Net sales of Cabinets and Related Products decreased in 2007 primarily due to a decline in sales volume of assembled cabinets in the new home construction market, which reduced sales in this segment by 11 percent compared to 2006. A decline in net sales of ready-to-assemble cabinets reduced sales in this segment by five percent in 2007 compared to 2006. A weaker U.S. dollar had a positive effect on the translation of local currencies of European operations included in this segment and increased sales by two percent in 2007 compared to 2006. Net sales in this segment decreased in 2006 primarily due to lower sales of ready-to-assemble cabinets in North America and Europe, which more than offset certain selling price increases and sales volume increases of assembled cabinets in North America in the first half of 2006. Net sales in this segment in 2005 were affected by increased sales volume in the new construction market, as well as certain selling price increases.
 
Operating profit margins in the Cabinets and Related Products segment were negatively affected by the decline in sales volume in 2007, which reduced operating profit margin by three percentage points, as well as increased start-up costs and the under-utilization of two new plants in this segment, and increased severance costs. Such declines were partially offset by a gain on the sale of a manufacturing facility of $8 million and benefits associated with business rationalizations and other initiatives. In 2006, operating profit margins in this segment were negatively affected by a decline in sales volume in the last half of the year, as well as increased commodity, freight and plant start-up costs and lower results of European operations, offset in part by selling price increases. In 2006, operating profit margins in this segment were also negatively affected by $8 million of costs and charges related to the closure of a relatively small ready-to-assemble cabinet manufacturing facility. Operating profit margins in 2005 reflect increased commodity and freight costs and manufacturing and distribution inefficiencies in North America, as well as a shift to a less favorable product mix, which offset the positive impact of higher unit sales volume.

     	Plumbing Products	
 
Net sales of Plumbing Products increased in 2007 and 2006 primarily due to increased sales volume of certain European operations, which increased sales in this segment by three percent in 2007 compared to 2006. In 2007, increased selling prices also increased sales in this segment by three percent compared to

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2006. These results were partially offset by declining sales volume to North American retail and wholesale customers, which reduced sales in this segment by four percent in 2007 compared to 2006. A weaker U.S. dollar also had a positive effect on the translation of local currencies of European operations included in this segment and increased sales by four percent in 2007 compared to 2006 and increased sales by one percent in 2006 compared to 2005. Net sales in this segment in 2005 were affected by increased sales through the Company’s wholesale distribution channel and the increased sales of certain European operations included in this segment.
 
Operating profit margins in the Plumbing Products segment in 2007 were negatively affected by increased commodity costs in early 2007, which reduced operating profit margin by 1.7 percentage points compared to 2006. Such declines were partially offset by selling price increases and the reduction of certain variable expenses. Operating profit margins in this segment were adversely affected by costs and charges aggregating $39 million and $12 million in 2006 and 2005, respectively, related to certain profit improvement initiatives; excluding such charges, operating profit margins in this segment would have been 9.7 percent and 12.2 percent in 2006 and 2005, respectively. In 2006, operating profit margins in this segment were negatively affected by increased commodity costs, as well as a less favorable product mix and declining sales volume to certain retail customers. Operating profit margins in 2005 were affected by increased commodity costs, which were not offset by selling price increases and a less favorable product mix, which more than offset increased sales volume in the wholesale distribution channel.
 
The Company’s Plumbing Products segment continues to be negatively impacted by import competition, as well as a product mix shift towards lower-margin faucets within the North American retail channels. As part of the Company’s strategic review of its businesses, the Company determined that in order to remain competitive, it is necessary to increase off-shore sourcing at lower costs, while consolidating and reducing manufacturing operations in North America. Consistent with this determination, in 2006, the Company closed a North American plant in this segment.

     	Installation and Other Services	
 
Net sales of Installation and Other Services decreased in 2007 primarily due to lower sales volume related to the continued slowdown in the new home construction market, which reduced sales in this segment by 20 percent compared to 2006 and declines in selling prices, partially offset by acquisitions which increased sales in this segment by six percent compared to 2006. Net sales in this segment increased in 2006 primarily due to increased sales volume of non-insulation products and selling price increases in the first half of 2006. However, the slowdown in the new home construction market significantly reduced sales in the second half of 2006 compared to 2005. Net sales in this segment in 2005 were affected by increased selling prices, as well as increased sales volume of non-insulation products and strength in the new home construction market.
 
Operating profit margins in the Installation and Other Services segment were lower in 2007 primarily due to lower sales volume and the related under-absorption of fixed costs, which decreased operating profit margin in this segment by approximately three percentage points compared to 2006, and lower selling prices. The year 2007 also included increased bad debt expense, increased severance and location closure costs and increased systems implementation expenses, which, on a combined basis, reduced operating profit margin in this segment by one percentage point compared to 2006. Partially offsetting these declines were reductions in material costs, as well as benefits associated with the business rationalizations and other initiatives. In 2006, the operating profit margin decline in this segment was primarily attributable to increased sales volume of generally lower-margin, non-insulation products, as well as increased operating costs to support the segment’s growth in non-insulation products, new product development and technology initiatives. Operating profit margins in 2005 were affected by increases in sales of generally lower-margin, non-insulation products, as well as the time lag in implementing selling price increases related to material cost increases, partially offset by the favorable impact of higher sales volume.

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     	Decorative Architectural Products	
 
Net sales of Decorative Architectural Products increased in 2007 primarily due to higher retail sales volume from new product introductions of paints and stains, which increased sales in this segment by four percent compared to 2006, which was partially offset by sales declines related to builder’s hardware. Net sales in this segment increased in 2006 primarily due to selling price increases of paints and stains. Net sales in this segment increased in 2005 primarily due to increased sales volume of paints and stains.
 
Operating profit margins in the Decorative Architectural Products segment in 2007 primarily reflect increased sales volume of paints and stains, offset by increased advertising expenses. In 2006, operating profit margins in this segment improved due to increased selling prices of paints and stains, which partially offset commodity cost increases experienced in late 2004 and during 2005. Operating profit margins in this segment in 2005 were impacted by increased material and freight costs, which were not completely offset by increased selling prices related to paints and stains.

     	Other Specialty Products	
 
Net sales of Other Specialty Products decreased principally due to lower sales volume of windows and doors, primarily resulting from the continued slowdown in the new home construction market, particularly in the Western United States, which decreased sales in this segment by 14 percent in 2007 compared to 2006 and four percent in 2006 compared to 2005. A weaker U.S. dollar had a positive effect on the translation of local currencies of European operations included in this segment and increased sales by two percent in 2007 compared to 2006. Net sales in this segment in 2005 were affected by increased sales volume and certain selling price increases of windows and doors to the North American new home construction market, partially offset by reduced sales of European operations included in this segment.
 
Operating profit margins in the Other Specialty Products segment declined in 2007 due to lower sales volume of windows and doors in the new home construction market, which decreased operating profit margin by 3.2 percentage points compared to 2006, and lower results of European operations, which reduced operating profit by 1.6 percentage points compared to 2006. Operating profit margins in this segment declined in 2006 due to lower sales volume of windows and doors, which offset improved European operating results. Operating profit margins in this segment in 2005 were affected by increased commodity costs and the lower results of European operations, reflecting charges related to profit improvement initiatives, offset in part by reduced state use tax expense.
 
Geographic Area Results Discussion

     	North America	
 
Net sales from North American operations decreased in 2007 primarily due to the continued decline in the new home construction market, which declined 25 percent in 2007 compared to 2006 and a decline in consumer spending for home improvement products. North American sales in 2007 were negatively affected by lower sales volume of installation and other services, assembled cabinets and windows and doors in the new home construction market which decreased sales from North American operations by 11 percent compared to 2006. In addition, North American net sales were negatively affected by lower retail sales volume of certain products, partially offset by increased retail sales volume of paint and stains, which aggregated a net decrease to sales from North American operations of one percent in 2007 compared to 2006. Net sales from North American operations increased slightly in 2006 benefiting from relatively stronger market conditions in the first half of 2006, as well as increased selling prices. An accelerating decline in the new home construction market and a moderation in consumer spending reduced sales volume in the second half of 2006 particularly for assembled cabinets, windows and doors and sales of insulation products. Net sales from North American operations in 2005 were affected by the strength in the new home construction market and increased sales volume of cabinets, installation sales of insulation and non-insulation products, and sales of vinyl and fiberglass windows and patio doors, as well as increased selling prices for certain products.

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In North America, the Company manufactures products (principally windows, doors and cabinets) and provides installation of insulation and other services to homebuilders. The Company has relationships with 90 of the top 100 builders in the United States. The Company has seen an increase in bad debt expense, related to homebuilders, from $7 million in 2006 to $22 million in 2007. The Company monitors its customer receivable balances and the credit worthiness of its customers on an ongoing basis. Currently, the top ten U.S. homebuilders represent less than three percent of the Company’s consolidated receivable balance of $1.4 billion.
 
The decline in operating profit margin from North American operations in 2007 is primarily due to declines in new home construction and consumer spending, which negatively impacted the sales volume of certain products, and decreased operating profit margin by two percentage points compared to 2006. The declines in 2007 were partially offset by selling price increases, and the benefits associated with the Company’s business rationalizations and other initiatives. In 2006, the operating profit margins declined from North American operations due to sales volume declines in the second half of 2006 of ready-to-assemble cabinets, windows and doors and the installation of insulation products. Operating profit margins in 2006 were also negatively affected by increased commodity costs, partially offset by selling price increases. Operating profit margins in 2005 were impacted by continued increases in commodity, energy, freight and other petroleum-based product costs, which were only partially offset by selling price increases, and increased sales volume of cabinets, installation services and windows and patio doors to the new home construction market.

     	International, Principally Europe	
 
Net sales from International operations increased in 2007 primarily due to increased sales volume of plumbing products which increased sales from International operations in local currencies by five percent compared to 2006. A weaker U.S. dollar had a positive effect on the translation of International results in 2007, increasing International net sales by ten percent compared to 2006. Net sales from International operations increased in 2006 primarily due to increased sales of plumbing products, which increased sales from International operations in local currencies by six percent compared to 2005. A weaker U.S. dollar had a positive effect on the translation of European results, increasing European net sales by one percent in 2006 compared to 2005. Net sales from International operations in 2005 were affected by the increased local currency sales of exported plumbing products and ready-to-assemble cabinets, offset in part by declining sales of windows and other plumbing products.
 
Operating profit margins in 2007 were negatively affected by a less favorable product mix and material cost increases. Operating profit margins in 2006 were negatively affected by the lower operating results for European ready-to-assemble cabinets, which more than offset the positive effect of increased sales volume of plumbing products and improved operating results of other European operations. Operating profit margins in 2005 were negatively affected by increased commodity costs and costs associated with certain profit improvement initiatives, as well as a less favorable product mix.

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Other Matters

     	Commitments and Contingencies	

     	Litigation	
 
Information regarding legal proceedings involving the Company is set forth in Note T to the consolidated financial statements.

     	Other Commitments	
 
With respect to the Company’s investments in private equity funds, the Company had, at December 31, 2007, commitments to contribute up to $49 million of additional capital to such funds, representing the Company’s aggregate capital commitment to such funds less capital contributions made to date. The Company is contractually obligated to make additional capital contributions to its private equity funds upon receipt of a capital call from the private equity fund. The Company has no control over when or if the capital calls will occur. Capital calls are funded in cash and generally result in an increase in the carrying value of the Company’s investment in the private equity fund when paid.
 
The Company enters into contracts, which include reasonable and customary indemnifications that are standard for the industries in which it operates. Such indemnifications include claims made against builders by homeowners for issues relating to the Company’s products and workmanship. In conjunction with divestitures and other transactions, the Company occasionally provides reasonable and customary indemnifications relating to various items, including: the enforceability of trademarks; legal and environmental issues; provisions for sales returns; and asset valuations. The Company has never had to pay a material amount related to these indemnifications, and evaluates the probability that amounts may be incurred and appropriately records an estimated liability when probable.

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Contractual Obligations
 
The following table provides payment obligations related to current contracts at December 31, 2007, in millions:

 	 	Payments Due by Period	 	
 	 	Less than	 	 	2-3	 	 	4-5	 	 	More than	 	 	 	 	 	 	 	
 	 	1 Year	 	 	Years	 	 	Years	 	 	5 Years	 	 	Other (D)	 	 	Total	 	
 		
Debt (A)	 	$	122	 	 	$	314	 	 	$	926	 	 	$	2,726	 	 	$	—	 	 	$	4,088	 	
Interest (A)	 	 	240	 	 	 	456	 	 	 	411	 	 	 	1,175	 	 	 	—	 	 	 	2,282	 	
Operating leases	 	 	110	 	 	 	125	 	 	 	57	 	 	 	59	 	 	 	—	 	 	 	351	 	
Currently payable income taxes	 	 	23	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	23	 	
Defined-benefit plans	 	 	22	 	 	 	27	 	 	 	29	 	 	 	80	 	 	 	—	 	 	 	158	 	
Private equity funds (B)	 	 	16	 	 	 	16	 	 	 	17	 	 	 	—	 	 	 	—	 	 	 	49	 	
Acquisition-related commitments	 	 	3	 	 	 	6	 	 	 	1	 	 	 	—	 	 	 	—	 	 	 	10	 	
Post-retirement obligations	 	 	1	 	 	 	1	 	 	 	1	 	 	 	4	 	 	 	—	 	 	 	7	 	
Purchase commitments (C)	 	 	237	 	 	 	82	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	319	 	
Unrecognized tax benefits, including interest and penalties (D)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	95	 	 	 	95	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	774	 	 	$	1,027	 	 	$	1,442	 	 	$	4,044	 	 	$	95	 	 	$	7,382	 	

 
			
 	(A) 	The Company assumed that all debt would be held to maturity, except for the Zero Coupon Convertible Senior Notes, which would be held until the next put option date of July 20, 2011.	

 	(B) 	There is no schedule for the capital commitments to the private equity funds; such allocation was estimated by the Company.	

 	(C) 	Excludes contracts that do not require volume commitments and open or pending purchase orders.	

 	(D) 	Due to the high degree of uncertainty regarding the timing of future cash outflows associated with unrecognized tax benefits, the Company is unable to make a reasonable estimate of the period beyond the next year in which cash settlements may occur with applicable tax authorities.	
 
Recently Issued Accounting Pronouncements
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of SFAS No. 157 is effective January 1, 2008 for financial assets and liabilities and is not expected to have a material effect on the Company’s consolidated financial statements. The adoption of SFAS No. 157 is effective January 1, 2009 for non-financial assets and liabilities, and the Company is currently evaluating the impact these provisions will have on its consolidated financial statements.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of SFAS No. 115,” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The adoption of SFAS No. 159 is optional and is effective January 1, 2008. The Company has elected not to adopt SFAS No. 159.
 
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R requires that the acquisition method be applied to all business combinations and it establishes requirements for the recognition and measurement of the acquired assets and liabilities by the

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acquiring company. Further, it requires that costs incurred to complete any acquisition be recognized as expense in the consolidated statement of income. SFAS No. 141R also requires that contingent assets and liabilities be recorded at fair value and marked to market quarterly until they are settled, with any changes to the fair value to be recorded as income or expense in the consolidated statement of income. SFAS No. 141R is effective for any business combinations that are completed subsequent to January 1, 2009. The Company is currently evaluating the impact the provisions of SFAS No. 141R will have on its consolidated financial statements and its method of accounting for business combinations.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 requires the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheet as a component of shareholders’ equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS No. 160 is effective January 1, 2009, and the Company is currently evaluating the impact of this pronouncement to its consolidated financial statements.

Item 7A. 	Quantitative and Qualitative Disclosures About Market Risk.	
 
The Company has considered the provisions of Financial Reporting Release No. 48, “Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments.”
 
The Company is exposed to the impact of changes in interest rates and foreign currency exchange rates in the normal course of business and to market price fluctuations related to its marketable securities and other investments. The Company has limited involvement with derivative financial instruments and uses such instruments to the extent necessary to manage exposure to fluctuations in interest rates and foreign currency fluctuations. See Note F to the consolidated financial statements for additional information regarding the Company’s derivative instruments.
 
The derivatives used by the Company for the year ended December 31, 2007 consist of interest rate swap agreements entered into in 2004 for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. The Company, including certain European operations, also entered into foreign currency forward contracts to manage exposure to currency fluctuations related primarily to the European euro, the Great Britain pound and the U.S. dollar.
 
At December 31, 2007, the Company performed sensitivity analyses to assess the potential loss in the fair values of market risk sensitive instruments resulting from a hypothetical change of 200 basis points in average interest rates, a 10 percent change in foreign currency exchange rates or a 10 percent decline in the market value of the Company’s long-term investments. Based upon the analyses performed, such changes would not be expected to materially affect the Company’s consolidated financial position, results of operations or cash flows.

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Item 8. 	Financial Statements and Supplementary Data.	
 
Management’s Report on Internal Control Over Financial Reporting
 
The management of Masco Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Masco Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
 
The management of Masco Corporation assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework.” Based on this assessment, management has determined that the Company’s internal control over financial reporting was effective as of December 31, 2007.
 
PricewaterhouseCoopers LLP, an independent registered public accounting firm, performed an audit of the Company’s consolidated financial statements and of the effectiveness of Masco Corporation’s internal control over financial reporting as of December 31, 2007. Their report expressed an unqualified opinion on the effectiveness of Masco Corporation’s internal control over financial reporting as of December 31, 2007 and expressed an unqualified opinion on the Company’s 2007 consolidated financial statements. This report appears under Item 8. Financial Statements and Supplementary Data under the heading Report of Independent Registered Public Accounting Firm.

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Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Shareholders
of Masco Corporation:
 
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Masco Corporation and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
As discussed in Note R to the consolidated financial statements, the Company changed its method of accounting for unrecognized tax benefits in 2007. As discussed in Note M to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation in 2006. In addition, as discussed in Note N to the consolidated financial statements, the Company changed its method of accounting for defined benefit pension and other postretirement plans effective December 31, 2006.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
PricewaterhouseCoopers LLP
Detroit, Michigan
February 22, 2008

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MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
at December 31, 2007 and 2006

(In Millions, Except Share Data)	 	
 	 	2007	 	 	2006	 	
 		
ASSETS	
Current Assets:	 	 	 	 	 	 	 	 	
Cash and cash investments	 	$	922	 	 	$	1,958	 	
Receivables	 	 	1,405	 	 	 	1,613	 	
Inventories	 	 	1,126	 	 	 	1,263	 	
Prepaid expenses and other	 	 	355	 	 	 	281	 	
 	 	 	 	 	 	 	 	 	
Total current assets	 	 	3,808	 	 	 	5,115	 	
Property and equipment, net	 	 	2,367	 	 	 	2,363	 	
Goodwill	 	 	3,938	 	 	 	3,957	 	
Other intangible assets, net	 	 	323	 	 	 	306	 	
Other assets	 	 	471	 	 	 	584	 	
 	 	 	 	 	 	 	 	 	
Total Assets	 	$	10,907	 	 	$	12,325	 	

LIABILITIES and SHAREHOLDERS’ EQUITY	
Current Liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	714	 	 	$	815	 	
Notes payable	 	 	122	 	 	 	1,446	 	
Accrued liabilities	 	 	1,072	 	 	 	1,128	 	
 	 	 	 	 	 	 	 	 	
Total current liabilities	 	 	1,908	 	 	 	3,389	 	
Long-term debt	 	 	3,966	 	 	 	3,533	 	
Deferred income taxes and other	 	 	1,008	 	 	 	932	 	
 	 	 	 	 	 	 	 	 	
Total Liabilities	 	 	6,882	 	 	 	7,854	 	
 	 	 	 	 	 	 	 	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Shareholders’ Equity:	 	 	 	 	 	 	 	 	
Common shares authorized: 1,400,000,000; issued and outstanding:
2007 – 358,900,000; 2006 – 383,890,000	 	 	359	 	 	 	384	 	
Preferred shares authorized: 1,000,000; issued and outstanding: 2007 – None; 2006 – None	 	 	—	 	 	 	—	 	
Retained earnings	 	 	2,969	 	 	 	3,575	 	
Accumulated other comprehensive income	 	 	697	 	 	 	512	 	
 	 	 	 	 	 	 	 	 	
Total Shareholders’ Equity	 	 	4,025	 	 	 	4,471	 	
 	 	 	 	 	 	 	 	 	
Total Liabilities and Shareholders’ Equity	 	$	10,907	 	 	$	12,325	 	

 
See notes to consolidated financial statements.

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MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
for the years ended December 31, 2007, 2006 and 2005

(In Millions, Except Per Common Share Data)	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Net sales	 	$	11,770	 	 	$	12,718	 	 	$	12,500	 	
Cost of sales	 	 	8,559	 	 	 	9,212	 	 	 	8,932	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	3,211	 	 	 	3,506	 	 	 	3,568	 	
Selling, general and administrative expenses	 	 	2,025	 	 	 	2,050	 	 	 	1,941	 	
Income regarding litigation settlement	 	 	–	 	 	 	(1	)	 	 	(6	)	
Impairment charges for goodwill and other intangible assets	 	 	227	 	 	 	317	 	 	 	43	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating profit	 	 	959	 	 	 	1,140	 	 	 	1,590	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense), net:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	(258	)	 	 	(240	)	 	 	(247	)	
Impairment charges for financial investments	 	 	(22	)	 	 	(101	)	 	 	(45	)	
Other, net	 	 	91	 	 	 	115	 	 	 	127	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	(189	)	 	 	(226	)	 	 	(165	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net	 	 	770	 	 	 	914	 	 	 	1,425	 	
Income taxes	 	 	336	 	 	 	409	 	 	 	514	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before minority interest and cumulative effect of accounting change, net	 	 	434	 	 	 	505	 	 	 	911	 	
Minority interest	 	 	37	 	 	 	27	 	 	 	22	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	 	397	 	 	 	478	 	 	 	889	 	
(Loss) income from discontinued operations, net	 	 	(11	)	 	 	13	 	 	 	51	 	
Cumulative effect of accounting change, net	 	 	–	 	 	 	(3	)	 	 	–	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	386	 	 	$	488	 	 	$	940	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	$	1.08	 	 	$	1.21	 	 	$	2.11	 	
(Loss) income from discontinued operations, net	 	 	(.03	)	 	 	.03	 	 	 	.12	 	
Cumulative effect of accounting change, net	 	 	–	 	 	 	(.01	)	 	 	–	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.05	 	 	$	1.24	 	 	$	2.23	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	$	1.06	 	 	$	1.20	 	 	$	2.07	 	
(Loss) income from discontinued operations, net	 	 	(.03	)	 	 	.03	 	 	 	.12	 	
Cumulative effect of accounting change, net	 	 	–	 	 	 	(.01	)	 	 	–	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.03	 	 	$	1.22	 	 	$	2.19	 	

 
See notes to consolidated financial statements.

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MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
for the years ended December 31, 2007, 2006 and 2005

(In Millions)	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Cash Flows From (For) Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	386	 	 	$	488	 	 	$	940	 	
Depreciation and amortization	 	 	248	 	 	 	244	 	 	 	241	 	
Deferred income taxes	 	 	(41	)	 	 	(42	)	 	 	75	 	
Loss (gain) on disposition of businesses, net	 	 	18	 	 	 	(51	)	 	 	(63	)	
Gain on disposition of investments, net	 	 	(41	)	 	 	(31	)	 	 	(98	)	
Income regarding litigation settlement	 	 	–	 	 	 	(1	)	 	 	(6	)	
Cumulative effect of accounting change, net	 	 	–	 	 	 	3	 	 	 	–	 	
Impairment charges:	 	 	 	 	 	 	 	 	 	 	 	 	
Financial investments	 	 	22	 	 	 	101	 	 	 	45	 	
Goodwill and other intangible assets	 	 	227	 	 	 	331	 	 	 	69	 	
Stock-based compensation	 	 	94	 	 	 	100	 	 	 	71	 	
Minority interest	 	 	37	 	 	 	27	 	 	 	22	 	
Other items, net	 	 	37	 	 	 	96	 	 	 	69	 	
Decrease (increase) in receivables	 	 	243	 	 	 	106	 	 	 	(94	)	
Decrease (increase) in inventories	 	 	157	 	 	 	(126	)	 	 	(57	)	
(Decrease) increase in accounts payable and accrued liabilities, net	 	 	(117	)	 	 	(37	)	 	 	160	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash from operating activities	 	 	1,270	 	 	 	1,208	 	 	 	1,374	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Flows From (For) Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Increase in debt	 	 	4	 	 	 	21	 	 	 	33	 	
Payment of debt	 	 	(56	)	 	 	(31	)	 	 	(120	)	
Issuance of notes, net of issuance costs	 	 	596	 	 	 	988	 	 	 	494	 	
Retirement of notes	 	 	(1,425	)	 	 	(827	)	 	 	–	 	
Purchase of Company common stock	 	 	(857	)	 	 	(854	)	 	 	(986	)	
Issuance of Company common stock	 	 	60	 	 	 	28	 	 	 	33	 	
Tax benefit from stock-based compensation	 	 	19	 	 	 	18	 	 	 	–	 	
Cash dividends paid	 	 	(347	)	 	 	(349	)	 	 	(339	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash for financing activities	 	 	(2,006	)	 	 	(1,006	)	 	 	(885	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Flows From (For) Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(248	)	 	 	(388	)	 	 	(282	)	
Acquisition of businesses, net of cash acquired	 	 	(203	)	 	 	(28	)	 	 	(25	)	
Purchases of marketable securities	 	 	–	 	 	 	(142	)	 	 	(155	)	
Purchases of auction rate securities	 	 	(1,047	)	 	 	(1,035	)	 	 	(513	)	
Proceeds from disposition of auction rate securities	 	 	1,025	 	 	 	1,129	 	 	 	419	 	
Proceeds from disposition of:	 	 	 	 	 	 	 	 	 	 	 	 	
Marketable securities	 	 	55	 	 	 	174	 	 	 	301	 	
Businesses, net of cash disposed	 	 	45	 	 	 	160	 	 	 	278	 	
Property and equipment	 	 	45	 	 	 	16	 	 	 	37	 	
Other financial investments, net	 	 	75	 	 	 	39	 	 	 	47	 	
Other, net	 	 	(94	)	 	 	(57	)	 	 	(15	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash (for) from investing activities	 	 	(347	)	 	 	(132	)	 	 	92	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and cash investments	 	 	47	 	 	 	18	 	 	 	(5	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and Cash Investments:	 	 	 	 	 	 	 	 	 	 	 	 	
(Decrease) increase for the year	 	 	(1,036	)	 	 	88	 	 	 	576	 	
Cash at businesses held for sale	 	 	–	 	 	 	–	 	 	 	38	 	
At January 1	 	 	1,958	 	 	 	1,870	 	 	 	1,256	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
At December 31	 	$	922	 	 	$	1,958	 	 	$	1,870	 	

 
See notes to consolidated financial statements.

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MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
for the years ended December 31, 2007, 2006 and 2005

 	 	(In Millions, Except Per Share Data)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	
 	 	 	 	 	Common	 	 	 	 	 	 	 	 	Other	 	 	Restricted	 	
 	 	 	 	 	Shares	 	 	Paid-In	 	 	Retained	 	 	Comprehensive	 	 	Stock	 	
 	 	Total	 	 	($1 par value)	 	 	Capital	 	 	Earnings	 	 	Income	 	 	Awards	 	
 		
Balance, January 1, 2005	 	$	5,423	 	 	$	447	 	 	$	642	 	 	$	3,880	 	 	$	627	 	 	$	(173	)	
Net income	 	 	940	 	 	 	 	 	 	 	 	 	 	 	940	 	 	 	 	 	 	 	 	 	
Cumulative translation adjustments	 	 	(251	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(251	)	 	 	 	 	
Unrealized loss on marketable securities, net of income tax benefit of $5	 	 	(10	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(10	)	 	 	 	 	
Minimum pension liability, net of income tax
benefit of $23	 	 	(38	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(38	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	641	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares issued	 	 	105	 	 	 	4	 	 	 	101	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	 	 	(986	)	 	 	(31	)	 	 	(758	)	 	 	(197	)	 	 	 	 	 	 	 	 	
Surrendered (non-cash)	 	 	(33	)	 	 	(1	)	 	 	(32	)	 	 	 	 	 	 	 	 	 	 	 	 	
Cash dividends declared	 	 	(337	)	 	 	 	 	 	 	 	 	 	 	(337	)	 	 	 	 	 	 	 	 	
Stock-based compensation	 	 	35	 	 	 	 	 	 	 	47	 	 	 	 	 	 	 	 	 	 	 	(12	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2005	 	$	4,848	 	 	$	419	 	 	$	–	 	 	$	4,286	 	 	$	328	 	 	$	(185	)	
Net income	 	 	488	 	 	 	 	 	 	 	 	 	 	 	488	 	 	 	 	 	 	 	 	 	
Cumulative translation adjustments	 	 	208	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	208	 	 	 	 	 	
Unrealized loss on marketable securities, net of income tax benefit of $6	 	 	(10	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(10	)	 	 	 	 	
Minimum pension liability, net of income tax of $33	 	 	56	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	56	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	742	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrecognized prior service cost and net loss, net of income tax benefit of $38	 	 	(70	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(70	)	 	 	 	 	
Shares issued	 	 	60	 	 	 	4	 	 	 	56	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	 	 	(854	)	 	 	(29	)	 	 	(154	)	 	 	(671	)	 	 	 	 	 	 	 	 	
Surrendered (non-cash)	 	 	(20	)	 	 	(1	)	 	 	(19	)	 	 	 	 	 	 	 	 	 	 	 	 	
Cash dividends declared	 	 	(352	)	 	 	 	 	 	 	 	 	 	 	(352	)	 	 	 	 	 	 	 	 	
Stock-based compensation	 	 	117	 	 	 	 	 	 	 	117	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reclassification of restricted stock awards	 	 	–	 	 	 	(9	)	 	 	 	 	 	 	(176	)	 	 	 	 	 	 	185	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2006	 	$	4,471	 	 	$	384	 	 	$	–	 	 	$	3,575	 	 	$	512	 	 	$	–	 	
Net income	 	 	386	 	 	 	 	 	 	 	 	 	 	 	386	 	 	 	 	 	 	 	 	 	
Cumulative translation adjustments	 	 	143	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	143	 	 	 	 	 	
Unrealized loss on marketable securities, net of income tax benefit of $5	 	 	(7	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(7	)	 	 	 	 	
Unrecognized prior service cost and net loss, net of income tax of $27	 	 	49	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	49	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	571	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cumulative effect of accounting change regarding income tax uncertainties (Note R)	 	 	(26	)	 	 	 	 	 	 	 	 	 	 	(26	)	 	 	 	 	 	 	 	 	
Other	 	 	(7	)	 	 	 	 	 	 	 	 	 	 	(7	)	 	 	 	 	 	 	 	 	
Shares issued	 	 	115	 	 	 	6	 	 	 	109	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	 	 	(857	)	 	 	(31	)	 	 	(213	)	 	 	(613	)	 	 	 	 	 	 	 	 	
Surrendered (non-cash)	 	 	(14	)	 	 	 	 	 	 	(14	)	 	 	 	 	 	 	 	 	 	 	 	 	
Cash dividends declared	 	 	(346	)	 	 	 	 	 	 	 	 	 	 	(346	)	 	 	 	 	 	 	 	 	
Stock-based compensation	 	 	118	 	 	 	 	 	 	 	118	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2007	 	$	4,025	 	 	$	359	 	 	$	–	 	 	$	2,969	 	 	$	697	 	 	$	–	 	

 
See notes to consolidated financial statements.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. 	ACCOUNTING POLICIES	

Principles of Consolidation.  The consolidated financial statements include the accounts of Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. The Company consolidates the assets, liabilities and results of operations of variable interest entities, for which the Company is the primary beneficiary, in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46 – Revised, “Consolidation of Variable Interest Entities.”
 
Use of Estimates and Assumptions in the Preparation of Financial Statements.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions.
 
Revenue Recognition.  The Company recognizes revenue as title to products and risk of loss is transferred to customers or when services are rendered, net of applicable provisions for discounts, returns and allowances. The Company records revenue for unbilled services performed based upon estimates of labor incurred in the Installation and Other Services segment; such amounts are recorded in receivables. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales.
 
Customer Promotion Costs.  The Company records estimated reductions to revenue for customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. In-store displays that are owned by the Company and used to market the Company’s products are included in other assets in the consolidated balance sheets and are amortized using the straight-line method over the expected useful life of three years; related amortization expense is classified as a selling expense in the consolidated statements of income.
 
Foreign Currency.  The financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average exchange rates in effect during the year. The resulting cumulative translation adjustments have been recorded in the accumulated other comprehensive income component of shareholders’ equity. Realized foreign currency transaction gains and losses are included in the consolidated statements of income in other income (expense), net.
 
Cash and Cash Investments.  The Company considers all highly liquid investments with an initial maturity of three months or less to be cash and cash investments.
 
Receivables.  The Company does significant business with a number of customers, including certain home centers and homebuilders. The Company monitors its exposure for credit losses and records related allowances for doubtful accounts. Allowances are estimated based upon specific customer balances, where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical collection, return and write-off activity. A separate allowance is recorded for customer incentive rebates and is generally based upon sales activity. Receivables are presented net of certain allowances (including allowances for doubtful accounts) of $85 million and $84 million at December 31, 2007 and 2006, respectively. Receivables include unbilled revenue related to the Installation and Other Services segment of $31 million and $40 million at December 31, 2007 and 2006, respectively.
 
Property and Equipment.  Property and equipment, including significant betterments to existing facilities, are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A. 	ACCOUNTING POLICIES – (Continued)	

 
are removed from the accounts and any gain or loss is included in the consolidated statements of income. Maintenance and repair costs are charged against earnings as incurred.
 
Depreciation.  Depreciation expense is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 to 10 percent, and machinery and equipment, 5 to 33 percent. Depreciation expense was $226 million, $228 million and $207 million in 2007, 2006 and 2005, respectively.
 
Goodwill and Other Intangible Assets.  Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” requires goodwill and other intangible assets to be tested for impairment annually and under certain circumstances. The Company performs such testing of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting business unit below its carrying amount. The Company compares the fair value of the reporting business units to the carrying value of the reporting business units for goodwill impairment testing. Fair value is determined using a discounted cash flow method.
 
The Company reviews its other indefinite-lived intangible assets for impairment annually or as events occur or circumstances change that indicate the assets may be impaired. The Company considers the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term.
 
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. The Company evaluates the remaining useful lives of amortizable identifiable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization. See Note H for additional information regarding Goodwill and Other Intangible Assets.
 
Fair Value of Financial Instruments and Derivative Instruments.  The carrying value of financial instruments reported in the consolidated balance sheets for current assets, current liabilities and long-term floating-rate debt approximates fair value. The fair value of financial instruments that are carried as non-current investments is based principally upon information from investment fund managers and other assumptions, on quoted market prices for those or similar investments, by estimating the fair value of consideration to be received or by discounting future cash flows using a discount rate that reflects the risk of the underlying investments. The fair value of the Company’s long-term fixed-rate debt instruments is based principally upon quoted market prices for the same or similar issues or the current rates available to the Company for debt with similar terms and remaining maturities. The aggregate estimated market value of non-current investments and long-term debt at December 31, 2007 was approximately $150 million and $4,073 million, compared with the aggregate carrying value of $150 million and $3,966 million, respectively. The aggregate estimated market value of non-current investments and long-term debt at December 31, 2006 was approximately $246 million and $3,616 million, compared with the aggregate carrying value of $246 million and $3,533 million, respectively.
 
The Company uses derivative financial instruments to manage certain exposure to fluctuations in earnings and cash flows resulting from changes in foreign currency exchange rates and interest rates. Derivative financial instruments are recorded in the consolidated balance sheets as either an asset or liability measured at fair value. For each derivative financial instrument that is designated and qualifies as a fair-value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in determining current earnings during the period of the change in fair values. For derivative instruments not designated as hedging

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A. 	ACCOUNTING POLICIES – (Continued)	

 
instruments, the gain or loss is recognized in determining current earnings during the period of the change in fair value.
 
Warranty.  At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. The Company’s estimate of costs to service its warranty obligations is based upon historical experience and expectations of future conditions.
 
A significant portion of the Company’s business is at the consumer retail level through home centers and major retailers. A consumer may return a product to a retail outlet that is a warranty return. However, certain retail outlets do not distinguish between warranty and other types of returns when they claim a return deduction from the Company. The Company’s revenue recognition policy takes into account this type of return when recognizing revenue, and deductions are recorded at the time of sale.
 
Product Liability.  The Company provides for expenses associated with product liability obligations when such amounts are probable and can be reasonably estimated. The accruals are adjusted as new information develops or circumstances change that would effect the estimated liability.
 
Stock-Based Compensation.  The Company elected to change its method of accounting for stock-based compensation and implemented the fair value method prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” effective January 1, 2003. The Company used the prospective method, as defined by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment to SFAS No. 123,” for determining stock-based compensation expense. Accordingly, options granted, modified or settled subsequent to January 1, 2003 have been accounted for using the fair value method and options granted prior to January 1, 2003 were accounted for using the intrinsic value method.
 
Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment,” (“SFAS No. 123R”) using the Modified Prospective Application (“MPA”) method. The MPA method requires the Company to recognize expense for unvested stock options that were awarded prior to January 1, 2003 through the remaining vesting periods. The MPA method did not require the restatement of prior-year information. In accordance with SFAS No. 123R, the Company utilized the shortcut method to determine the tax windfall pool associated with stock options as of the date of adoption.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A. 	ACCOUNTING POLICIES – (Continued)	

 
The following table illustrates the pro forma effect on net income and earnings per common share for 2005, as if the fair value method were applied to all previously issued stock options, in millions, except per common share amounts:

 	 	2005	 	
Net income, as reported	 	$	940	 	
Add:	 	 	 	 	
Stock-based employee compensation expense included in reported net income, net of tax	 	 	47	 	
Deduct:	 	 	 	 	
Stock-based employee compensation expense, net of tax	 	 	(47	)	
Stock-based employee compensation expense determined under the fair value method for stock options granted prior to 2003, net of tax	 	 	(7	)	
 	 	 	 	 	
Pro forma net income	 	$	933	 	
 	 	 	 	 	
Earnings per common share:	 	 	 	 	
Basic as reported	 	$	2.23	 	
Basic pro forma	 	$	2.21	 	
 	 	 	 	 	
Diluted as reported	 	$	2.19	 	
Diluted pro forma	 	$	2.17	 	

Interest and Penalties on Unrecognized Tax Benefits.  The Company records interest and penalties on its unrecognized tax benefits in income tax expense.
 
Reclassifications.  Certain prior-year amounts have been reclassified to conform to the 2007 presentation in the consolidated financial statements. The results of operations related to 2007, 2006 and 2005 discontinued operations have been reclassified and separately stated in the accompanying consolidated statements of income for 2007, 2006 and 2005. In the Company’s consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.
 
Recently Issued Accounting Pronouncements.  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of SFAS No. 157 is effective January 1, 2008 for financial assets and liabilities and is not expected to have a material effect on the Company’s consolidated financial statements. The adoption of SFAS No. 157 is effective January 1, 2009 for non-financial assets and liabilities, and the Company is currently evaluating the impact these provisions will have on its consolidated financial statements.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of SFAS No. 115,” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The adoption of SFAS No. 159 is optional and is effective January 1, 2008. The Company has elected not to adopt SFAS No. 159.
 
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R requires that the acquisition method be applied to all business combinations and it establishes requirements for the recognition and measurement of the acquired assets and liabilities by the acquiring company. Further, it requires that costs incurred to complete any acquisition be recognized as expense in the consolidated statement of income. SFAS No. 141R also requires that contingent assets and

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A. 	ACCOUNTING POLICIES – (Concluded)	

 
liabilities be recorded at fair value and marked to market quarterly until they are settled, with any changes to the fair value to be recorded as income or expense in the consolidated statement of income. SFAS No. 141R is effective for any business combinations that are completed subsequent to January 1, 2009. The Company is currently evaluating the impact the provisions of SFAS No. 141R will have on its consolidated financial statements and its method of accounting for business combinations.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 requires the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheet as a component of shareholders’ equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS No. 160 is effective January 1, 2009, and the Company is currently evaluating the impact of this pronouncement to its consolidated financial statements.

B. 	DISCONTINUED OPERATIONS	

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) addresses the accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 broadens the presentation of discontinued operations to include a component of the Company, which comprises operations and cash flows, that can be clearly distinguished from the rest of the Company. In accordance with SFAS No. 144, the Company has accounted for the business units which were sold in 2007, 2006 and 2005, except as noted, as discontinued operations.
 
During 2007, the Company completed the sale of Avocet, a European business unit in the Decorative Architectural Products segment. This disposition was completed pursuant to the Company’s determination that this business unit was not core to the Company’s long-term growth strategy. Total gross proceeds from the sale were $41 million; the Company recognized a pre-tax net loss on the disposition of Avocet of $11 million. During 2007, the Company recorded other net gains of $1 million, reflecting the receipt of additional purchase price payments related to businesses disposed in 2006 and 2005.
 
During 2006, the Company completed the sale of Computerized Security Systems (“CSS”), a North American business unit in the Other Specialty Products segment. This disposition was completed pursuant to the Company’s determination that this business unit was not core to the Company’s long-term growth strategy. Total gross proceeds from the sale were $92 million; the Company recognized a pre-tax net gain on the disposition of CSS of $51 million. During 2006, the Company recorded additional net expenses of $1 million, reflecting the final purchase price payments related to businesses disposed in 2005.
 
During 2005, in separate transactions, the Company completed the sale of its Gebhardt Consolidated (Other Specialty Products segment) and GMU Group (Cabinets and Related Products segment) business units in Europe, as part of the Company’s 2004 Plan, as well as its Zenith Products (North America) and Aran Group (Europe) business units in the Cabinets and Related Products segment. Total gross proceeds from the sale of these businesses were $319 million; the Company recognized a pre-tax net gain (principally related to the sale of Gebhardt Consolidated and Zenith Products) on the disposition of these businesses of $59 million. During 2005, the Company recorded a gain on the disposition of discontinued operations of $4 million related to the reversal of certain fee and expense accruals that were recorded in 2004. During 2005, the Company also recorded income from discontinued operations of $3 million related to the reversal of severance accruals that were recorded in 2004.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

B. 	DISCONTINUED OPERATIONS – (Concluded)	

 
(Losses) gains from these 2007, 2006 and 2005 discontinued operations discussed above were included in (loss) income from discontinued operations, net, in the consolidated statements of income.
 
Selected financial information for the discontinued operations during the period owned by the Company, were as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Net sales	 	$	63	 	 	$	115	 	 	$	384	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from discontinued operations	 	$	2	 	 	$	(6	)	 	$	26	 	
(Loss) gain on disposal of discontinued operations, net	 	 	(10	)	 	 	50	 	 	 	63	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
(Loss) income before income tax	 	 	(8	)	 	 	44	 	 	 	89	 	
Income tax	 	 	(3	)	 	 	(31	)	 	 	(38	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
(Loss) income from discontinued operations, net	 	$	(11	)	 	$	13	 	 	$	51	 	

 
Income (loss) from discontinued operations also includes non-cash, pre-tax and after tax impairment charges for goodwill of $14 million and $26 million in 2006 and 2005, respectively. Included in income tax above was income tax expense related to income from discontinued operations of $2 million, $7 million and $15 million in 2007, 2006 and 2005, respectively.
 
During 2007, the Company completed the sale of two small businesses, the results of which were included in continuing operations through the dates of sale. These small businesses in the Plumbing Products segment had combined net sales and operating (loss) of $12 million and $(400,000), respectively, in 2007 through the respective dates of sale and combined net sales and operating profit of $33 million and $3 million, respectively, for the year ended December 31, 2006. Gross proceeds from the sale of these businesses were $10 million; the Company recognized a net loss of $8 million included in other, net, in continuing operations, related to the sale of these businesses, for the year ended December 31, 2007.

During 2006, the Company completed the sale of several relatively small businesses, the results of which were included in continuing operations in the Other Specialty Products and Plumbing Products segments through the dates of sale. These businesses had combined net sales and operating profit of $16 million and $5 million, respectively, in 2006 through the respective dates of sale and combined net sales and operating profit of $55 million and $12 million, respectively, in 2005. Gross proceeds from the sale of these businesses were $72 million; the Company recognized a net gain of $1 million in 2006 included in other, net, in continuing operations for the year ended December 31, 2006.

C. 	ACQUISITIONS	

During 2007, the Company acquired several relatively small installation service businesses (Installation and Other Services segment), as well as Erickson Construction Company and Guy Evans, Inc. (Installation and Other Services segment). Erickson Construction Company, headquartered in Arizona, provides pre-fabricated wall panels and millwork for residential builders in Arizona, California and Nevada. Guy Evans, Inc., headquartered in California, is an installer of millwork, doors, windows and bath hardware for residential builders in California and Nevada. These two acquisitions allow the Company to expand the products and services it offers to its installation customers, and had combined annual sales in 2006 of approximately $200 million. These acquisitions had 2007 sales and operating profit of $119 million and $5 million (including $5 million of additional expenses as a result of the acquisition), respectively, since the dates of acquisition. The results of these acquisitions are included in the consolidated financial statement from the respective dates of acquisition.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
C. ACQUISITIONS – (Concluded)

 
During 2006 and 2005, the Company acquired several relatively small businesses (primarily in the Installation and Other Services segment). The results of these acquisitions are included in the consolidated financial statements from the respective dates of acquisition.
 
The total net purchase price of these acquisitions was as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Cash, net	 	$	195	 	 	$	28	 	 	$	10	 	
Assumed debt	 	 	7	 	 	 	9	 	 	 	2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	202	 	 	$	37	 	 	$	12	 	

 
Certain purchase agreements provided for the payment of additional consideration in either cash or Company common stock, contingent upon whether certain conditions are met, including the operating performance of the acquired business and the price of the Company’s common stock. In 2007 and 2005, the Company paid in cash an additional $1 million and $15 million, respectively, of acquisition-related consideration, contingent consideration and other purchase price adjustments, relating to previously acquired companies. At December 31, 2007 and 2006, the Company had additional consideration payable in cash of $10 million and $6 million, respectively, contingent upon the operating performance of the acquired businesses.

D. 	INVENTORIES	

 	 	 	 	 	 	 	 	 	
 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Finished goods	 	$	552	 	 	$	610	 	
Raw material	 	 	418	 	 	 	480	 	
Work in process	 	 	156	 	 	 	173	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	1,126	 	 	$	1,263	 	

 
Inventories, which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

E. 	FINANCIAL INVESTMENTS	

The Company has maintained investments in available-for-sale securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses. Financial investments included in other assets were as follows, in millions:

 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Marketable securities	 	$	9	 	 	$	72	 	
Auction rate securities	 	 	22	 	 	 	–	 	
Asahi Tec Corporation – common and preferred stock	 	 	57	 	 	 	–	 	
TriMas Corporation	 	 	26	 	 	 	30	 	
Private equity funds	 	 	173	 	 	 	211	 	
Metaldyne Corporation	 	 	–	 	 	 	57	 	
Other investments	 	 	28	 	 	 	9	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	315	 	 	$	379	 	

 
Investments in marketable securities are accounted for as available-for-sale. Accordingly, the Company records these investments at fair value, and unrealized gains or losses (that are deemed to be temporary) are recognized, net of tax effect, through shareholders’ equity, as a component of other comprehensive income. Realized gains and losses and charges for other-than-temporary impairments are included in determining net income, with related purchase costs based upon specific identification.
 
The Company reviews industry analyst reports, key ratios and statistics, market analyses and other factors for each investment to determine if an unrealized loss is other-than-temporary. Based upon this review, in 2007 and 2005, the Company recognized non-cash, pre-tax impairment charges of $6 million and $28 million, respectively, related to its investment in Furniture Brands International common stock (NYSE: FBN). Based upon this review during 2007, the Company also recognized a non-cash, pre-tax impairment charge of $3 million related to its investment in Asahi Tec (Tokyo Stock Exchange: 5606.T) common stock.
 
From time to time, the Company invests its excess cash in short-term financial instruments including auction rate securities. Auction rate securities are investment securities that have interest rates which are reset every 7, 28 or 35 days. During the third quarter of 2007, the Company revised the classification of investments in auction rate securities from cash and cash investments to available-for-sale securities included in other assets on the consolidated balance sheet. The Company has also made corresponding adjustments to the consolidated statements of cash flows for the periods ended December 31, 2007, 2006 and 2005, to reflect the gross cash purchases and sales of these securities in cash flows (for) from investing activities. These changes in classification do not affect previously reported consolidated statements of income or cash flows from operating activities in any prior period. During 2007, the Company recognized a non-cash, pre-tax impairment charge of $3 million related to auction rate securities.
 
On January 11, 2007, the acquisition of Metaldyne Corporation (“Metaldyne”) (formerly MascoTech, Inc.) by Asahi Tec Corporation (“Asahi Tec”), a Japanese automotive supplier, was finalized. The combined fair value of the Asahi Tec common and preferred stock, as well as the derivative related to the conversion feature on the preferred stock, received in exchange for the Company’s investment in Metaldyne, was $72 million. The Asahi Tec common and preferred stock are restricted from sale for up to 24 months from the transaction date. The preferred stock accrues dividends at an annual rate of 3.75% pay-in-kind or 1.75% cash at the discretion of Asahi Tec; the Company has elected to record such dividends when cash proceeds are received. As a result of the transaction, the Company recognized a

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
E. FINANCIAL INVESTMENTS – (Continued)

 
gain of $14 million, net of transaction fees, included in the Company’s consolidated statement of income for the year ended December 31, 2007, in income from other investments, net. Subsequent to the transaction, the Company’s investment in Asahi Tec common and preferred stock is accounted for as available-for-sale and unrealized gains or losses related to the change in fair value of the Asahi Tec common and preferred stock at December 31, 2007 have been recognized, net of tax, through shareholders’ equity, as a component of accumulated other comprehensive income in the Company’s consolidated balance sheet. For the year ended December 31, 2007, the unrealized loss of $17 million related to the change in fair value of the derivative related to the conversion feature on the preferred stock, has been included in the Company’s consolidated statement of income, in income from other investments, net. At December 31, 2007, the Company had a net investment in Asahi Tec of $59 million, including $57 million of common and preferred stock and $2 million, included in other investments, related to the conversion derivative.
 
In addition, immediately prior to its sale, Metaldyne distributed shares of TriMas Corporation (“TriMas”) common stock as a dividend to the holders of Metaldyne common stock; the Company recognized income of $4 million included in the Company’s consolidated statement of income, in dividend income from other investments. In May 2007, TriMas made an initial public offering; subsequent to the offering, the Company’s investment in TriMas is accounted for as available-for-sale and unrealized gains or losses related to the change in fair value of the investment have been recognized, net of tax, through shareholders’ equity, as a component of accumulated other comprehensive income in the Company’s consolidated balance sheet.
 
The Company’s investments in available-for-sale securities at December 31, 2007 (including marketable securities, auction rate securities, Asahi Tec Corporation common and preferred stock and TriMas Corporation) were as follows, in millions:

 	 	 	 	Pre-tax	 	 	
 	 	 	 	Unrealized	 	Unrealized	 	Recorded	
 	 	Cost Basis	 	Gains	 	Losses	 	Basis	
 		
December 31, 2007	 	$	117	 	 	$	9	 	 	$	(12	)	 	$	114	 	
December 31, 2006	 	$	67	 	 	$	9	 	 	$	(4	)	 	$	72	 	

The Company’s investments in private equity funds and other private investments are carried at cost and are evaluated for potential impairment when impairment indicators are present, or when an event or change in circumstances has occurred, that may have a significant adverse effect on the fair value of the investment. Impairment indicators the Company considers include the following: whether there has been a significant deterioration in earnings performance, asset quality or business prospects; a significant adverse change in the regulatory, economic or technological environment; a significant adverse change in the general market condition or geographic area in which the investment operates; and any bona fide offers to purchase the investment for less than the carrying value. Since there is no active trading market for these investments, they are for the most part illiquid. These investments, by their nature, can also have a relatively higher degree of business risk, including financial leverage, than other financial investments. Future changes in market conditions, the future performance of the underlying investments or new information provided by private equity fund managers could affect the recorded values of such investments and the amounts realized upon liquidation.
 
At December 31, 2007, the Company had investments in 49 private equity funds, split between buyout funds and venture capital funds, with a carrying value of $173 million. The 31 buyout funds, which constitute approximately 72 percent of the invested value, invest in established businesses, and, other than the Heartland fund, no buyout funds have a concentration in a particular sector that is undergoing a fundamental change, such as the automotive-related market. The venture capital funds,

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
E. FINANCIAL INVESTMENTS – (Continued)

 
which constitute approximately 28 percent of the invested value, invest in start-up or smaller established businesses, principally in the areas of information technology, bio-technology and healthcare. Of the 49 funds, there are four funds with a carrying value greater than $10 million that aggregate $75 million of carrying value. It is not practical for the Company to estimate a fair value because the private equity funds have no quoted market price and sufficient information is not readily available for the Company to utilize a valuation model to determine a fair value for each fund.
 
During 2007, the Company determined that the decline in the estimated value of certain private equity fund investments, with an aggregate carrying value of $54 million prior to the impairment, was other-than-temporary. Accordingly, for the year ended December 31, 2007, the Company recognized non-cash, pre-tax impairment charges of $10 million.
 
During 2006, based upon a review of new information from the Heartland fund concerning fund investments and the continued deterioration of conditions in the automotive supplier and transportation products markets served by Metaldyne and TriMas, the Company determined that the decline in the estimated value of certain of its financial investments was other-than-temporary. Accordingly, in 2006, the Company recognized non-cash, pre-tax impairment charges aggregating $88 million for its investments in Metaldyne ($40 million), TriMas ($16 million), the Heartland fund ($29 million) and another fund ($3 million) which invested in automotive and transportation-related suppliers, including Metaldyne and TriMas. Additionally, based upon the Company’s review, the Company considered the decline in the fair value of certain of its other private equity fund investments and other investments to be other-than-temporary and, accordingly, recognized non-cash, pre-tax impairment charges of $13 million and $15 million in 2006 and 2005, respectively.
 
The Company’s investments in private equity funds for which fair value was determined with unrealized losses, were as follows, in millions:

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Unrealized Loss	
 	 	Fair Value	 	Less than 12 Months	 	Over 12 Months	
 		
December 31, 2007	 	$	 1	 	 	$	 (1	)	 	$	 –	 	
December 31, 2006	 	$	–	 	 	$	–	 	 	$	–	 	

The remaining private equity investments in 2007 and 2006 with an aggregate carrying value of $119 million and $211 million, respectively, were not evaluated for impairment, as there were no indicators of impairment or identified events or changes in circumstances that would have a significant adverse effect on the fair value of the investment.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

E. 	FINANCIAL INVESTMENTS – (Concluded)	

 
Income from financial investments, net, included in other, net, within other income (expense), net, and impairment charges for financial investments were as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Realized gains from marketable securities	 	$	9	 	 	$	14	 	 	$	39	 	
Realized losses from marketable securities	 	 	(4	)	 	 	(10	)	 	 	(9	)	
Dividend income from marketable securities	 	 	1	 	 	 	3	 	 	 	4	 	
Income from other investments, net	 	 	38	 	 	 	30	 	 	 	69	 	
Dividend income from other investments	 	 	5	 	 	 	7	 	 	 	12	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from financial investments, net	 	$	49	 	 	$	44	 	 	$	115	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Impairment charges:	 	 	 	 	 	 	 	 	 	 	 	 	
Private equity funds	 	$	(10	)	 	$	(40	)	 	$	(15	)	
Auction rate securities	 	 	(3	)	 	 	–	 	 	 	–	 	
Marketable securities	 	 	(9	)	 	 	–	 	 	 	(30	)	
Metaldyne Corporation	 	 	–	 	 	 	(40	)	 	 	–	 	
TriMas Corporation	 	 	–	 	 	 	(16	)	 	 	–	 	
Other investments	 	 	–	 	 	 	(5	)	 	 	–	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total impairment charges	 	$	(22	)	 	$	(101	)	 	$	(45	)	

 
The impairment charges, related to the Company’s financial investments, recognized during 2007, 2006 and 2005 were based upon then-current estimates for the fair value of certain financial investments; such estimates could change in the near-term based upon future events and circumstances.
 
F. DERIVATIVES

During 2003, the Company entered into interest rate swap agreements for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. In 2004, the Company terminated two interest rate swaps relating to $850 million of fixed-rate debt. These swap agreements were accounted for as fair value hedges. The gain of approximately $45 million from the termination of these swaps is being amortized as a reduction of interest expense over the remaining term of the debt, through July 2012.
 
In early 2004, the Company entered into two new interest rate swap agreements for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. The derivative contracts are with two major creditworthy institutions, thereby minimizing the risk of credit loss. The interest rate swap agreements are designated as fair-value hedges, and the interest rate differential on the interest rate swaps used to hedge existing debt is recognized as an adjustment to interest expense over the term of the agreement. The average variable interest rates are based upon LIBOR plus fixed adjustment factors. The average effective rate on the interest rate swaps was 6.264% in 2007. At December 31, 2007, the interest rate swap agreements covered a notional amount of $850 million of the Company’s fixed-rate debt due July 15, 2012 with an interest rate of 5.875%. The hedges are considered 100 percent effective.
 
In 2007 and 2006, the Company recognized an increase in interest expense of $3 million and $8 million, respectively, related to these swap agreements, due to increasing interest rates. In 2005, the Company recognized a reduction of interest expense of $3 million.
 
At December 31, 2007, the Company, including certain European operations, had entered into foreign currency forward contracts with notional amounts of $23 million, $7 million and $4 million to

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
F. DERIVATIVES – (Concluded)

 
manage exposure to currency fluctuations in the European euro, the Great Britain pound and the U.S. dollar, respectively. At December 31, 2006, the Company, including certain European operations, had entered into foreign currency forward contracts with notional amounts of $72 million and $51 million to manage exposure to currency fluctuations in the European euro and the Great Britain pound, respectively. Based upon year-end market prices, no asset or liability was recorded at December 31, 2007 and 2006, as the forward prices were substantially the same as the contract prices. Gains (losses) related to these contracts are recorded in the Company’s consolidated statements of income in other income (expense), net. The counterparties to the Company’s forward contracts are major financial institutions. In the unlikely event that the counterparties fail to meet the terms of the foreign currency forward contracts, the Company’s exposure is limited to the aggregate foreign currency rate differential with such institutions.

G. 	PROPERTY AND EQUIPMENT	

 	 	 	 	 	 	 	 	 	
 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Land and improvements	 	$	214	 	 	$	205	 	
Buildings	 	 	1,135	 	 	 	1,069	 	
Machinery and equipment	 	 	2,641	 	 	 	2,566	 	
 	 	 	 	 	 	 	 	 	
 	 	 	3,990	 	 	 	3,840	 	
Less: Accumulated depreciation	 	 	1,623	 	 	 	1,477	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	2,367	 	 	$	2,363	 	

 
The Company leases certain equipment and plant facilities under noncancellable operating leases. Rental expense recorded in the consolidated statements of income totaled approximately $166 million, $163 million and $144 million during 2007, 2006 and 2005, respectively. Future minimum lease payments at December 31, 2007 were approximately as follows: 2008 – $110 million; 2009 – $75 million; 2010 – $50 million; 2011 – $28 million; and 2012 and beyond – $88 million.
 
The Company leases operating facilities from certain related parties, primarily former owners (and in certain cases, current management personnel) of companies acquired. The Company recorded rental expense to such related parties of approximately $7 million, $9 million and $12 million in 2007, 2006 and 2005, respectively.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

H. 	GOODWILL AND OTHER INTANGIBLE ASSETS	

The changes in the carrying amount of goodwill for 2007 and 2006, by segment, were as follows, in millions:

 	 	At	 	 	 	 	 	Pre-tax	 	 	 	 	 	At	 	
 	 	December 31,	 	 	 	 	 	Impairment	 	 	 	 	 	December 31,	 	
 	 	2006	 	 	Additions (A)	 	 	Charge	 	 	Other (C)	 	 	2007	 	
 		
Cabinets and Related Products	 	$	288	 	 	$	–	 	 	$	–	 	 	$	5	 	 	$	293	 	
Plumbing Products	 	 	504	 	 	 	41	 	 	 	(69	)	 	 	23	 	 	 	499	 	
Installation and Other Services	 	 	1,740	 	 	 	77	 	 	 	–	 	 	 	(1	)	 	 	1,816	 	
Decorative Architectural Products	 	 	300	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	300	 	
Other Specialty Products	 	 	1,125	 	 	 	1	 	 	 	(108	)	 	 	12	 	 	 	1,030	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	3,957	 	 	$	119	 	 	$	(177	)	 	$	39	 	 	$	3,938	 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At	 	 	 	 	 	Deductions (B)	 	 	Pre-tax	 	 	 	 	 	At	 	
 	 	December 31,	 	 	 	 	 	Discontinued	 	 	Impairment	 	 	 	 	 	December 31,	 	
 	 	2005	 	 	Additions (A)	 	 	Operations	 	 	Charge	 	 	Other (C)	 	 	2006	 	
 		
Cabinets and Related Products	 	$	547	 	 	$	     –	 	 	$	–	 	 	$	(316	)	 	$	57	 	 	$	288	 	
Plumbing Products	 	 	461	 	 	 	–	 	 	 	–	 	 	 	(1	)	 	 	44	 	 	 	504	 	
Installation and Other Services	 	 	1,718	 	 	 	18	 	 	 	–	 	 	 	–	 	 	 	4	 	 	 	1,740	 	
Decorative Architectural Products	 	 	311	 	 	 	–	 	 	 	–	 	 	 	(14	)	 	 	3	 	 	 	300	 	
Other Specialty Products	 	 	1,134	 	 	 	–	 	 	 	(48	)	 	 	–	 	 	 	39	 	 	 	1,125	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	4,171	 	 	$	18	 	 	$	(48	)	 	$	(331	)	 	$	147	 	 	$	3,957	 	

 
			
(A)		Additions include acquisitions.	
 		
(B)		Includes the disposition of CSS (discontinued operation) and Faucet Queens in the Other Specialty Products segment.	
 		
(C)		Other principally includes the effect of foreign currency translation and purchase price adjustments related to prior-year acquisitions.	
 
The Company completed its annual impairment testing of goodwill in the fourth quarters of 2007 and 2006. This test indicated that goodwill recorded for certain of the Company’s business units was impaired. The Company recognized the non-cash, pre-tax impairment charges for goodwill of $177 million ($177 million, after tax) and $331 million ($331 million, after tax) for 2007 and 2006, respectively. The pre-tax impairment charge recognized in 2007, in the Other Specialty Products segment, related to the Company’s European manufacturer of heating products; in the Plumbing Products segment the charge related to a North American manufacturer of plumbing-related products. The pre-tax impairment charge recognized in 2006 in the Cabinets and Related Products segment related to the Company’s European manufacturer of ready-to-assemble cabinets. These charges reflect the long-term outlook for the business units, including declining demand for certain products, as well as decreased operating profit margins.
 
Other indefinite-lived intangible assets were $208 million and $246 million at December 31, 2007 and 2006, respectively, and principally included registered trademarks. The Company completed its annual impairment testing of other indefinite-lived intangible assets in the fourth quarters of 2007 and 2006. In 2007, this test indicated that the registered trademark for a North American business unit in the Other Specialty Products segment in 2007 was impaired due to changes in the long-term outlook for the

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

H. 	GOODWILL AND OTHER INTANGIBLE ASSETS – (Concluded)	

 
business unit, particularly in the new home construction market. The Company recognized a non-cash, pre-tax impairment charge for other indefinite-lived intangible assets of $50 million ($31 million, after tax) in 2007. In 2006, this test indicated that other indefinite-lived intangible assets were not impaired.
 
The carrying value of the Company’s definite-lived intangible assets was $115 million at December 31, 2007 (net of accumulated amortization of $67 million) and $60 million at December 31, 2006 (net of accumulated amortization of $51 million) and principally included customer relationships and non-compete agreements, with a weighted average amortization period of 14 years and 13 years in 2007 and 2006, respectively. In 2007, the Company increased its definite-lived intangible assets by $69 million primarily related to the acquisitions of Erickson Construction Company and Guy Evans, Inc. Amortization expense related to the definite-lived intangible assets was $15 million, $10 million and $22 million in 2007, 2006 and 2005, respectively.
 
At December 31, 2007, amortization expense related to the definite-lived intangible assets during each of the next five years was as follows: 2008 - $14 million; 2009 – $14 million; 2010 – $13 million; 2011 – $11 million; and 2012 – $9 million.

I. 	OTHER ASSETS	

 	 	 	 	 	 	 	 	 	
 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Financial investments (Note E)	 	$	315	 	 	$	379	 	
In-store displays, net	 	 	69	 	 	 	72	 	
Debenture expense	 	 	33	 	 	 	33	 	
Prepaid benefit cost (Note N)	 	 	10	 	 	 	1	 	
Notes receivable	 	 	7	 	 	 	14	 	
Other	 	 	37	 	 	 	85	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	471	 	 	$	584	 	

 
In-store displays are amortized using the straight-line method over the expected useful life of three years; the Company recognized amortization expense related to in-store displays of $46 million, $55 million and $63 million in 2007, 2006 and 2005, respectively. Cash spent for displays was $43 million, $45 million and $48 million in 2007, 2006 and 2005, respectively.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

J. 	ACCRUED LIABILITIES	

 	 	 	 	 	 	 	 	 	
 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Salaries, wages and commissions	 	$	226	 	 	$	218	 	
Insurance	 	 	217	 	 	 	207	 	
Advertising and sales promotion	 	 	146	 	 	 	165	 	
Warranty (Note T)	 	 	133	 	 	 	120	 	
Dividends payable	 	 	85	 	 	 	86	 	
Interest	 	 	72	 	 	 	76	 	
Employee retirement plans	 	 	53	 	 	 	49	 	
Property, payroll and other taxes	 	 	42	 	 	 	46	 	
Income taxes	 	 	23	 	 	 	61	 	
Litigation	 	 	6	 	 	 	8	 	
Other	 	 	69	 	 	 	92	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	1,072	 	 	$	1,128	 	

 
		
K. 	DEBT	

 	 	 	 	 	 	 	 	 	
 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Notes and debentures:	 	 	 	 	 	 	 	 	
4.625%, due Aug. 15, 2007	 	$	–	 	 	$	300	 	
5.75%, due Oct. 15, 2008	 	 	100	 	 	 	100	 	
5.875%, due July 15, 2012	 	 	850	 	 	 	850	 	
7.125%, due Aug. 15, 2013	 	 	200	 	 	 	200	 	
4.8%, due June 15, 2015	 	 	500	 	 	 	500	 	
6.125%, due Oct. 3, 2016	 	 	1,000	 	 	 	1,000	 	
5.85%, due Mar. 15, 2017	 	 	300	 	 	 	–	 	
6.625%, due Apr. 15, 2018	 	 	114	 	 	 	114	 	
7.75%, due Aug. 1, 2029	 	 	296	 	 	 	296	 	
6.5%, due Aug. 15, 2032	 	 	300	 	 	 	300	 	
Zero Coupon Convertible Senior Notes due 2031 (accreted value)	 	 	52	 	 	 	874	 	
Floating-Rate Notes, due Mar. 12, 2010	 	 	300	 	 	 	–	 	
Floating-Rate Notes, due Mar. 9, 2007	 	 	–	 	 	 	300	 	
Notes payable to banks	 	 	–	 	 	 	–	 	
Other	 	 	76	 	 	 	145	 	
 	 	 	 	 	 	 	 	 	
 	 	 	4,088	 	 	 	4,979	 	
Less: Current portion	 	 	122	 	 	 	1,446	 	
 	 	 	 	 	 	 	 	 	
Total Long-term debt	 	$	3,966	 	 	$	3,533	 	

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

K. 	DEBT – (Continued)	

 
All of the notes and debentures above are senior indebtedness and, other than the 6.625% notes due 2018 and the 7.75% notes due 2029, are redeemable at the Company’s option.
 
In July 2001, the Company issued $1.9 billion principal amount at maturity of Zero Coupon Convertible Senior Notes due 2031 (“Old Notes”), resulting in gross proceeds of $750 million. The issue price per Note was $394.45 per $1,000 principal amount at maturity, which represented a yield to maturity of 3.125% compounded semi-annually. In December 2004, the Company completed an exchange of the outstanding Old Notes for Zero Coupon Convertible Senior Notes Series B due July 2031 (“New Notes” or “Notes”). The Company will not pay interest in cash on the Notes prior to maturity, except in certain circumstances, including possible contingent interest payments that are not expected to be material. Holders of the Notes have the option to require that the Notes be repurchased by the Company on July 20, 2011 and every five years thereafter. Upon conversion of the Notes, the Company will pay the principal return, equal to the lesser of (1) the accreted value of the Notes in only cash, and (2) the conversion value, as defined, which will be settled in cash or shares of Company common stock, or a combination of both, at the option of the Company. The Notes are convertible if the average price of Company common stock for the 20 days immediately prior to the conversion date exceeds 118 1 / 3 %, declining by 1/3% each year thereafter, of the accreted value of the Notes divided by the conversion rate of 12.7317 shares for each $1,000 principal amount at maturity of the Notes. Notes also become convertible if the Company’s credit rating is reduced to below investment grade, or if certain actions are taken by the Company. The Company may at any time redeem all or part of the Notes at their then accreted value.
 
On January 20, 2007, holders of $1.8 billion (94 percent) principal amount at maturity of the Notes required the Company to repurchase their Notes at a cash value of $825 million. As a result of this repurchase, a $93 million deferred income tax liability was paid in 2007. On October 17, 2007, the Company repurchased the remaining Old Notes for cash of $85,000. At December 31, 2007, there were outstanding $108 million principal amount at maturity of Notes, with an accreted value of $52 million, which has been included in long-term debt, as the next put option date is July 20, 2011.
 
During 2007, the Company also retired $300 million of floating-rate notes due March 9, 2007 and $300 million of 4.625% notes due August 15, 2007. On March 14, 2007, the Company issued $300 million of floating-rate notes due 2010; the interest rate is determined based upon the three-month LIBOR plus 30 basis points. On March 14, 2007, the Company also issued $300 million of fixed-rate 5.85% notes due 2017. These debt issuances provided net proceeds of $596 million and were in consideration of the March and August 2007 debt maturities.
 
At December 31, 2007, the Company had a $2.0 billion 5-Year Revolving Credit Agreement with a group of banks syndicated in the United States and internationally, which expires in February 2011. This agreement allows for borrowings denominated in U.S. dollars or European euros with interest payable based upon various floating-rate options as selected by the Company. There were no amounts outstanding under the 5-Year Revolving Credit Agreement at December 31, 2007 and 2006.
 
In February 2006, the Company amended the terms of the $2.0 billion 5-Year Revolving Credit Agreement; the amendment primarily affected the requirement for the Company to maintain certain levels of net worth. At December 31, 2007, the Company’s net worth exceeded such requirement by $895 million. The 5-Year Revolving Credit Agreement, as amended, also contains limitations on additional borrowings; at December 31, 2007, the Company had additional borrowing capacity, subject to availability, of up to $1.9 billion.
 
At December 31, 2007, the maturities of long-term debt during each of the next five years were as follows: 2008 – $122 million; 2009 – $12 million; 2010 – $302 million; 2011 – $53 million; and 2012 – $873 million.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

K. 	DEBT – (Concluded)	

 
Interest paid was $262 million, $238 million and $246 million in 2007, 2006 and 2005, respectively.

L. 	MINORITY INTEREST	

The Company owned 68 percent and 64 percent of Hansgrohe AG at December 31, 2007 and 2006, respectively. The aggregate minority interest, net of dividends, of $117 million and $108 million at December 31, 2007 and 2006, respectively, was recorded in deferred income taxes and other liabilities on the Company’s consolidated balance sheets.
 
As part of the agreement relating to the Company’s acquisition of an additional 37 percent equity ownership of Hansgrohe AG in December 2002 (increasing such ownership to 64 percent), certain minority shareholders of Hansgrohe AG, representing four percent of Hansgrohe AG outstanding shares, held a put option which required the Company to purchase such shares in Hansgrohe AG with Company common stock. In May 2007, the put option was exercised and the Company issued two million shares of Company common stock with a value of $56 million for the additional four percent ownership in Hansgrohe AG.

M. 	STOCK-BASED COMPENSATION	

The Company elected to change its method of accounting for stock-based compensation and implemented the fair value method prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” effective January 1, 2003. The Company used the prospective method, as defined by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment to SFAS No. 123,” for determining stock-based compensation expense. Accordingly, options granted, modified or settled subsequent to January 1, 2003 have been accounted for using the fair value method and options granted prior to January 1, 2003 were accounted for using the intrinsic value method.
 
Effective January 1, 2006, the Company adopted SFAS No. 123R, using the Modified Prospective Application (“MPA”) method. The MPA method requires the Company to recognize expense for unvested stock options that were awarded prior to January 1, 2003 through the remaining vesting periods. The MPA method did not require the restatement of prior-year information. In accordance with SFAS No. 123R, the Company utilized the shortcut method to determine the tax windfall pool associated with stock options as of the date of adoption.
 
The Company’s 2005 Long Term Stock Incentive Plan (the “2005 Plan”) replaced the 1991 Long Term Stock Incentive Plan (the “1991 Plan”) in May 2005 and provides for the issuance of stock-based incentives in various forms. At December 31, 2007, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights. Additionally, the Company’s 1997 Non-Employee Directors Stock Plan (the “1997 Plan”) provides for the payment of part of the compensation to non-employee Directors in Company common stock. The 1997 Plan expired in May 2007; subsequently, compensation to non-employee Directors in Company common

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

M. 	STOCK-BASED COMPENSATION – (Continued)	

 
stock will be made from the 2005 Plan. Pre-tax compensation expense (income) and the related income tax benefit, related to these stock-based incentives were as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Long-term stock awards	 	$	52	 	 	$	52	 	 	$	44	 	
Stock options	 	 	49	 	 	 	46	 	 	 	29	 	
Phantom stock awards and stock appreciation rights	 	 	(7	)	 	 	2	 	 	 	2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	94	 	 	$	100	 	 	$	75	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax benefit	 	$	35	 	 	$	37	 	 	$	28	 	

 
At December 31, 2007, a total of 16,158,460 shares of Company common stock were available under the 2005 Plan for the granting of stock options and other long-term stock incentive awards.
 
Long-Term Stock Awards
 
Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of repurchasing and retiring an equal number of shares on the open market.
 
The Company’s long-term stock award activity was as follows, shares in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Unvested stock award shares at January 1	 	 	9	 	 	 	9	 	 	 	10	 	
Weighted average grant date fair value	 	$	27	 	 	$	25	 	 	$	23	 	
Stock award shares granted	 	 	2	 	 	 	2	 	 	 	2	 	
Weighted average grant date fair value	 	$	30	 	 	$	29	 	 	$	36	 	
Stock award shares vested	 	 	2	 	 	 	2	 	 	 	2	 	
Weighted average grant date fair value	 	$	25	 	 	$	24	 	 	$	21	 	
Stock award shares forfeited	 	 	–	 	 	 	–	 	 	 	1	 	
Weighted average grant date fair value	 	$	28	 	 	$	27	 	 	$	24	 	
Unvested stock award shares at December 31	 	 	9	 	 	 	9	 	 	 	9	 	
Weighted average grant date fair value	 	$	28	 	 	$	27	 	 	$	25	 	

The Company measures compensation expense for stock awards at the market price of the Company’s common stock at the grant date. Effective January 1, 2006, such expense is being recognized ratably over the shorter of the vesting period of the stock awards, typically 10 years (except for stock awards held by grantees age 66 or older, which vest over five years), or the length of time until the grantee becomes retirement-eligible at age 65. For stock awards granted prior to January 1, 2006, such expense is being recognized over the vesting period of the stock awards, typically 10 years, or for executive grantees that are, or will become, retirement-eligible during the vesting period, the expense is being recognized over five years. At December 31, 2007, the Company had remaining $12 million of unrecognized compensation expense related to stock awards granted prior to January 1, 2006 to grantees that will or have become retirement-eligible before such awards will have been fully expensed; such expense will be recognized over the next five years, or immediately upon a grantee’s retirement.
 
At December 31, 2007 and 2006, there was $175 million and $195 million, respectively, of unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of seven years. There was $185 million of unrecognized compensation expense,

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

M. 	STOCK-BASED COMPENSATION – (Continued)	

 
which was included as a reduction of shareholders’ equity, at December 31, 2005; such expense was reclassified to common stock and retained earnings on January 1, 2006 in accordance with SFAS No. 123R. At January 1, 2006, the Company estimated a forfeiture rate for long-term stock awards and applied that rate to all previously expensed stock awards; such application did not result in a change in the expense to be recorded as a cumulative effect of accounting change.
 
The total market value (at the vesting date) of stock award shares which vested during 2007, 2006 and 2005 was $48 million, $51 million and $60 million, respectively.
 
Stock Options
 
Stock options are granted to key employees and non-employee Directors of the Company. The exercise price equals the market price of the Company’s common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date. The 2005 Plan does not permit the granting of restoration stock options, except for restoration options resulting from options previously granted under the 1991 Plan. Restoration stock options become exercisable six months from the date of grant.
 
The Company granted 4,862,680 of stock option shares, including restoration stock option shares, during 2007 with a grant date exercise price range of $22 to $34 per share. During 2007, 2,032,510 stock option shares were forfeited (including options that expired unexercised).

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

M. 	STOCK-BASED COMPENSATION – (Continued)	

 
The Company’s stock option activity was as follows, shares in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Option shares outstanding at January 1	 	 	26	 	 	 	27	 	 	 	26	 	
Weighted average exercise price	 	$	26	 	 	$	26	 	 	$	25	 	
Option shares granted, including restoration options	 	 	5	 	 	 	4	 	 	 	4	 	
Weighted average exercise price	 	$	30	 	 	$	27	 	 	$	31	 	
Option shares exercised	 	 	3	 	 	 	4	 	 	 	2	 	
Aggregate intrinsic value on date of exercise (A)	 	$	26 million	 	 	$	27 million	 	 	$	32 million	 	
Weighted average exercise price	 	$	22	 	 	$	25	 	 	$	20	 	
Option shares forfeited	 	 	2	 	 	 	1	 	 	 	1	 	
Weighted average exercise price	 	$	29	 	 	$	30	 	 	$	25	 	
Option shares outstanding at
December 31	 	 	26	 	 	 	26	 	 	 	27	 	
Weighted average exercise price	 	$	27	 	 	$	26	 	 	$	26	 	
Weighted average remaining option term (in years)	 	 	6	 	 	 	6	 	 	 	6	 	
Option shares vested and expected to vest at December 31	 	 	26	 	 	 	26	 	 	 	27	 	
Weighted average exercise price	 	$	27	 	 	$	26	 	 	$	26	 	
Aggregate intrinsic value (A)	 	$	7 million	 	 	$	106 million	 	 	$	124 million	 	
Weighted average remaining option	 	 	 	 	 	 	 	 	 	 	 	 	
term (in years)	 	 	6	 	 	 	6	 	 	 	6	 	
Option shares exercisable (vested) at December 31	 	 	14	 	 	 	15	 	 	 	16	 	
Weighted average exercise price	 	$	25	 	 	$	25	 	 	$	25	 	
Aggregate intrinsic value (A)	 	$	7 million	 	 	$	75 million	 	 	$	93 million	 	
Weighted average remaining option	 	 	 	 	 	 	 	 	 	 	 	 	
term (in years)	 	 	5	 	 	 	5	 	 	 	4	 	

 
			
(A)		Aggregate intrinsic value is calculated using the Company’s stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.	
 
The Company measures compensation expense for stock options using a Black-Scholes option pricing model. For stock options granted subsequent to January 1, 2006, such expense is being recognized ratably over the shorter of the vesting period of the stock options, typically five years, or the length of time until the grantee becomes retirement-eligible at age 65. The expense for unvested stock options at January 1, 2006 is based upon the grant date fair value of those options as calculated using a Black-Scholes option pricing model for pro forma disclosures under SFAS No. 123. For stock options granted prior to January 1, 2006, such expense is being recognized ratably over the vesting period of the stock options, typically five years. At December 31, 2007, the Company had $7 million of unrecognized compensation expense related to stock options granted prior to January 1, 2006 to grantees that will or have become retirement-eligible before such options will have been fully expensed; such expense will be recognized over the next three years, or immediately upon a grantee’s retirement.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

M. 	STOCK-BASED COMPENSATION – (Continued)	

 
At December 31, 2007 and 2006, there was $73 million and $90 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of three years. At January 1, 2006, the Company estimated a forfeiture rate for stock options and applied that rate to all previously expensed stock options; such application did not result in a change in the expense to be recorded as a cumulative effect of accounting change.
 
The Company received cash of $60 million, $28 million and $33 million in 2007, 2006 and 2005, respectively, for the exercise of stock options.
 
The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model, was as follows:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Weighted average grant date fair value	 	$	8.92	 	 	$	8.24	 	 	$	10.33	 	
Risk-free interest rate	 	 	4.74%	 	 	 	4.89%	 	 	 	4.10%	 	
Dividend yield	 	 	3.0%	 	 	 	3.1%	 	 	 	2.3%	 	
Volatility factor	 	 	31.8%	 	 	 	34.0%	 	 	 	35.8%	 	
Expected option life	 	 	7 years	 	 	 	7 years	 	 	 	7 years	 	

The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2007, shares in millions:

Option Shares Outstanding	 	 	 	 	 	 	 	
 	 	 	 	 	 	Weighted	 	 	 	 	Option Shares Exercisable	 	
 	 	 	 	 	 	Average	 	Weighted	 	 	 	 	 	Weighted	 	
 	 	 	 	 	 	Remaining	 	Average	 	 	 	 	 	Average	 	
Range of	 	 	Number of	 	 	Option	 	Exercise	 	 	Number of	 	 	Exercise	 	
Prices	 	 	Shares	 	 	Term	 	Price	 	 	Shares	 	 	Price	 	
 		
$	20-23	 	 	 	7	 	 	4 Years	 	$	21	 	 	 	6	 	 	$	21	 	
$	24-28	 	 	 	7	 	 	7 Years	 	$	27	 	 	 	4	 	 	$	27	 	
$	29-32	 	 	 	12	 	 	8 Years	 	$	30	 	 	 	4	 	 	$	30	 	
$	33-38	 	 	 	–	 	 	5 Years	 	$	34	 	 	 	–	 	 	$	35	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
$	20-38	 	 	 	26	 	 	6 Years	 	$	27	 	 	 	14	 	 	$	25	 	

 
Phantom Stock Awards and Stock Appreciation Rights (“SARs”)
 
The Company grants phantom stock awards and SARs to certain non-U.S. employees.
 
Phantom stock awards are linked to the value of the Company’s common stock on the date of grant and are settled in cash upon vesting, typically over 10 years. The Company accounts for phantom stock awards as liability-based awards; the compensation expense is initially measured as the market price of the Company’s common stock at the grant date and is recognized over the vesting period. The liability is remeasured and adjusted at the end of each reporting period until the awards are fully-vested and paid to the employees. The Company recognized (income) expense of $(2) million and $1 million related to the valuation of phantom stock awards for 2007 and 2006, respectively. In 2007 and 2006, the Company granted 130,000 shares and 175,000 shares, respectively, of phantom stock awards with an aggregate fair value of $4 million and $5 million, respectively, and paid $4 million of cash in both years to settle phantom stock awards.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

M. 	STOCK-BASED COMPENSATION – (Concluded)	

 
SARs are linked to the value of the Company’s common stock on the date of grant and are settled in cash upon exercise. On January 1, 2006, the Company changed its method of accounting for SARs, in accordance with the provisions of SFAS No. 123R, from the intrinsic value method to the fair value method. The fair value method requires outstanding SARs to be classified as liability-based awards and valued using a Black-Scholes option pricing model at the grant date; such fair value is recognized as compensation expense over the vesting period, typically five years. The liability is remeasured and adjusted at the end of each reporting period until the SARs are exercised and payment is made to the employees or the SARs expire. As a result of implementing this change, during 2006, the Company recognized expense of $3 million (net of income tax benefit of $2 million) as a cumulative effect of accounting change, net. The Company recognized (income) expense of $(5) million and $400,000 related to the valuation of SARs for 2007 and 2006, respectively. During 2007 and 2006, the Company granted SARs for 521,100 shares and 422,300 shares, respectively, with an aggregate fair value of $4 million in both years.
 
Information related to phantom stock awards and SARs was as follows, in millions:

 	 	Phantom Stock	 	 	 	 	
 	 	Awards	 	 	Stock Appreciation Rights	 	
 	 	At December 31	 	 	At December 31	 	
 	 	2007	 	 	2006	 	 	2007	 	 	2006	 	
 		
Accrued compensation cost liability	 	$	9	 	 	$	15	 	 	$	3	 	 	$	9	 	
Unrecognized compensation cost	 	$	5	 	 	$	9	 	 	$	2	 	 	$	5	 	
Equivalent common shares	 	 	1	 	 	 	1	 	 	 	2	 	 	 	2	 	

		
N. 	EMPLOYEE RETIREMENT PLANS	

The Company sponsors qualified defined-benefit and defined-contribution retirement plans for most of its employees. In addition to the Company’s qualified defined-benefit pension plans, the Company has unfunded non-qualified defined-benefit pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which payments are determined annually by the Organization and Compensation Committee of the Board of Directors. Aggregate charges to earnings under the Company’s defined-benefit and defined-contribution retirement plans were $44 million and $47 million in 2007, $54 million and $44 million in 2006 and $51 million and $42 million in 2005, respectively.
 
During 2006, the Company implemented SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R),” (“SFAS No. 158”). Among other things, SFAS No. 158 requires companies to prospectively recognize a net liability or asset and to report the funded status of their defined-benefit pension and other post-retirement benefit plans on their balance sheets, with an offsetting adjustment to accumulated other comprehensive income; such recognition did not affect the Company’s consolidated statements of income.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

N. 	EMPLOYEE RETIREMENT PLANS – (Continued)	

 
Changes in the projected benefit obligation and fair value of plan assets, and the funded status of the Company’s defined-benefit pension plans were as follows, in millions:

 	 	2007	 	 	2006	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Changes in projected benefit obligation:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Projected benefit obligation at January 1	 	$	780	 	 	$	144	 	 	$	771	 	 	$	143	 	
Service cost	 	 	17	 	 	 	2	 	 	 	18	 	 	 	3	 	
Interest cost	 	 	44	 	 	 	8	 	 	 	41	 	 	 	7	 	
Participant contributions	 	 	1	 	 	 	–	 	 	 	1	 	 	 	—	 	
Plan amendments	 	 	—	 	 	 	1	 	 	 	—	 	 	 	3	 	
Actuarial (gain) loss, net	 	 	(71	)	 	 	(12	)	 	 	(28	)	 	 	(7	)	
Foreign currency exchange	 	 	11	 	 	 	—	 	 	 	21	 	 	 	—	 	
Settlements	 	 	—	 	 	 	—	 	 	 	(6	)	 	 	—	 	
Disposition	 	 	—	 	 	 	—	 	 	 	(7	)	 	 	—	 	
Benefit payments	 	 	(34	)	 	 	(5	)	 	 	(31	)	 	 	(5	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Projected benefit obligation at December 31	 	$	748	 	 	$	138	 	 	$	780	 	 	$	144	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Changes in fair value of plan assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets at January 1	 	$	594	 	 	$	—	 	 	$	540	 	 	$	—	 	
Actual return on plan assets	 	 	36	 	 	 	—	 	 	 	57	 	 	 	—	 	
Foreign currency exchange	 	 	2	 	 	 	—	 	 	 	10	 	 	 	—	 	
Company contributions	 	 	35	 	 	 	5	 	 	 	31	 	 	 	5	 	
Participant contributions	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
Settlements	 	 	—	 	 	 	—	 	 	 	(6	)	 	 	—	 	
Disposition	 	 	—	 	 	 	—	 	 	 	(7	)	 	 	—	 	
Expenses	 	 	—	 	 	 	—	 	 	 	(1	)	 	 	—	 	
Benefit payments	 	 	(34	)	 	 	(5	)	 	 	(31	)	 	 	(5	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets at December 31	 	$	634	 	 	$	—	 	 	$	594	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Funded status at December 31:	 	$	(114	)	 	$	(138	)	 	$	(186	)	 	$	(144	)	

 
Amounts in the Company’s consolidated balance sheets were as follows, in millions:

 	 	At December 31, 2007	 	 	At December 31, 2006	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Other assets	 	$	10	 	 	$	—	 	 	$	1	 	 	$	—	 	
Accrued liabilities	 	 	(3	)	 	 	(8	)	 	 	(2	)	 	 	(8	)	
Deferred income taxes and other	 	 	(121	)	 	 	(130	)	 	 	(185	)	 	 	(136	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total net liability	 	$	(114	)	 	$	(138	)	 	$	(186	)	 	$	(144	)	

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

N. 	EMPLOYEE RETIREMENT PLANS – (Continued)	

 
Amounts in accumulated other comprehensive income before income taxes were as follows, in millions:

 	 	At December 31, 2007	 	 	At December 31, 2006	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Net loss	 	$	85	 	 	$	12	 	 	$	149	 	 	$	25	 	
Net transition obligation	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
Net prior service cost	 	 	3	 	 	 	5	 	 	 	2	 	 	 	5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	89	 	 	$	17	 	 	$	152	 	 	$	30	 	

 
Information for defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets was as follows, in millions:

 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Projected benefit obligation	 	$	283	 	 	$	138	 	 	$	669	 	 	$	144	 	
Accumulated benefit obligation	 	$	282	 	 	$	131	 	 	$	613	 	 	$	135	 	
Fair value of plan assets	 	$	191	 	 	$	—	 	 	$	481	 	 	$	—	 	

The projected benefit obligation was in excess of plan assets for all except two of the Company’s qualified defined-benefit pension plans at December 31, 2007 and for all except one of the Company’s qualified defined-benefit pension plans at December 31, 2006.
 
Net periodic pension cost for the Company’s defined-benefit pension plans was as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Service cost	 	$	17	 	 	$	2	 	 	$	19	 	 	$	3	 	 	$	18	 	 	$	3	 	
Interest cost	 	 	44	 	 	 	8	 	 	 	41	 	 	 	7	 	 	 	40	 	 	 	7	 	
Expected return on plan assets	 	 	(49	)	 	 	—	 	 	 	(45	)	 	 	—	 	 	 	(42	)	 	 	—	 	
Recognized prior service cost	 	 	—	 	 	 	1	 	 	 	1	 	 	 	2	 	 	 	1	 	 	 	2	 	
Recognized curtailment (gain) loss	 	 	—	 	 	 	—	 	 	 	1	 	 	 	(1	)	 	 	—	 	 	 	—	 	
Recognized settlement loss	 	 	—	 	 	 	—	 	 	 	1	 	 	 	—	 	 	 	—	 	 	 	—	 	
Recognized net loss	 	 	5	 	 	 	1	 	 	 	8	 	 	 	4	 	 	 	5	 	 	 	5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic pension cost	 	$	17	 	 	$	12	 	 	$	26	 	 	$	15	 	 	$	22	 	 	$	17	 	

 
The Company expects to recognize $2 million and $1 million of pre-tax net loss and prior service cost, respectively, from accumulated other comprehensive income into net periodic pension cost in 2008 related to its defined-benefit pension plans.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

N. 	EMPLOYEE RETIREMENT PLANS – (Continued)	

 
Plan Assets
 
The Company’s qualified defined-benefit pension plan weighted average asset allocation, which is based upon fair value, was as follows:

 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Equity securities	 	 	67%	 	 	 	69%	 	
Debt securities	 	 	12%	 	 	 	4%	 	
Other	 	 	21%	 	 	 	27%	 	
 	 	 	 	 	 	 	 	 	
Total	 	 	100%	 	 	 	100%	 	

 
The investment objectives of the Company’s qualified defined-benefit pension plans are: 1) to earn a return, net of fees, greater than or equal to the expected long-term rate of return on plan assets; 2) to diversify the portfolio among various asset classes with the goal of reducing volatility of return and reducing principal risk; and 3) to maintain liquidity sufficient to meet Plan obligations. Long-term target allocations are: equity securities (80%), debt securities (10%) and other investments (10%).

Plan assets included 1.4 million shares of Company common stock valued at $31 million and $42 million at December 31, 2007 and 2006, respectively.
 
Assumptions
 
Major assumptions used in accounting for the Company’s defined-benefit pension plans were primarily as follows:

 	 	December 31	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Discount rate for obligations	 	 	6.25%	 	 	 	5.50%	 	 	 	5.25%	 	
Expected return on plan assets	 	 	8.25%	 	 	 	8.50%	 	 	 	8.50%	 	
Rate of compensation increase	 	 	4.00%	 	 	 	4.00%	 	 	 	4.00%	 	
Discount rate for net periodic pension cost	 	 	5.50%	 	 	 	5.25%	 	 	 	5.75%	 	

The discount rate for obligations was based upon the expected duration of each defined-benefit pension plan’s liabilities matched to the December 31, 2007 Citigroup Pension Discount Curve. Such rates for the Company’s defined-benefit pension plans ranged from 5.00 percent to 6.50 percent, with the most significant portion of the liabilities having a discount rate for obligations of 6.25 percent or higher at December 31, 2007.
 
The Company determined the expected long-term rate of return on plan assets by reviewing an analysis of expected and historical rates of return of various asset classes based upon the current and long-term target asset allocation of the plan assets. The measurement date used to determine the defined-benefit pension expense was primarily December 31.
 
Other
 
The Company sponsors certain post-retirement benefit plans that provide medical, dental and life insurance coverage for eligible retirees and dependents in the United States based upon age and length of service. The aggregate present value of the unfunded accumulated post-retirement benefit obligation was $9 million at both December 31, 2007 and 2006.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

N.  	EMPLOYEE RETIREMENT PLANS – (Concluded)	

 
Cash Flows
 
At December 31, 2007, the Company expected to contribute approximately $11 million to its qualified defined-benefit pension plans in 2008. The Company also expected to pay benefits of $3 million and $8 million to participants of its unfunded qualified and non-qualified defined-benefit pension plans, respectively, in 2008.
 
At December 31, 2007, the benefits expected to be paid in each of the next five years, and in aggregate for the five years thereafter, relating to the Company’s defined-benefit pension plans, were as follows, in millions:

 	 	Qualified	 	 	Non-Qualified	 	
 	 	Plans	 	 	Plans	 	
 		
2008	 	$	32	 	 	$	8	 	
2009	 	$	34	 	 	$	10	 	
2010	 	$	35	 	 	$	10	 	
2011	 	$	36	 	 	$	11	 	
2012	 	$	37	 	 	$	11	 	
2013-2017	 	$	218	 	 	$	59	 	

		
O. 	SHAREHOLDERS’ EQUITY	

In July 2007, the Company’s Board of Directors authorized the repurchase for retirement of up to 50 million shares of the Company’s common stock in open-market transactions or otherwise, replacing a previous Board of Directors authorization established in 2006. At December 31, 2007, the Company had remaining authorization to repurchase up to 41 million shares of its common stock in open-market transactions or otherwise. The Company repurchased and retired 31 million common shares in 2007, 29 million common shares in 2006 and 31 million common shares in 2005 for cash aggregating $857 million, $854 million and $986 million in 2007, 2006 and 2005, respectively.
 
On the basis of amounts paid (declared), cash dividends per common share were $.91 ($.92) in 2007, $.86 ($.88) in 2006 and $.78 ($.80) in 2005, respectively. In 2007, the Company increased its quarterly cash dividend by five percent to $.23 per common share from $.22 per common share.
 
Accumulated Other Comprehensive Income
 
The Company’s total comprehensive income was as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Net income	 	$	386	 	 	$	488	 	 	$	940	 	
Other comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	
Cumulative translation adjustments	 	 	143	 	 	 	208	 	 	 	(251	)	
Unrealized loss on marketable securities, net	 	 	(7	)	 	 	(10	)	 	 	(10	)	
Prior service cost and net loss, net	 	 	49	 	 	 	—	 	 	 	—	 	
Minimum pension liability, net	 	 	—	 	 	 	56	 	 	 	(38	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	571	 	 	$	742	 	 	$	641	 	

 
The unrealized loss on marketable securities, net, is net of income tax benefit of $5 million, $6 million and $5 million for 2007, 2006 and 2005, respectively. The prior service cost and net loss, net, is net of income tax of $27 million for 2007. The minimum pension liability, net, is net of income tax expense (benefit) of $33 million and $(23) million for 2006 and 2005, respectively.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

O. 	SHAREHOLDERS’ EQUITY – (Concluded)	

The components of accumulated other comprehensive income were as follows, in millions:

 	 	At December 31	 	
 	 	2007	 	 	2006	 	
 		
Cumulative translation adjustments	 	$	770	 	 	$	627	 	
Unrealized (loss) gain on marketable securities, net	 	 	(4	)	 	 	3	 	
Unrecognized prior service cost and net loss, net	 	 	(69	)	 	 	(118	)	
 	 	 	 	 	 	 	 	 	
Accumulated other comprehensive income	 	$	697	 	 	$	512	 	

 
The unrealized (loss) gain on marketable securities, net, is reported net of income tax expense (benefit) of $(3) million and $2 million at December 31, 2007 and 2006, respectively. The unrecognized prior service cost and net loss, net, is reported net of income tax benefit of $39 million and $66 million at December 31, 2007 and 2006, respectively.
 
The realized gains, net, on marketable securities of $3 million, net of tax effect, for both 2007 and 2006 were included in determining net income and were reclassified from accumulated other comprehensive income.

P. 	SEGMENT INFORMATION	
 
The Company’s reportable segments are as follows:
 
Cabinets and Related Products – principally includes assembled and ready-to-assemble kitchen and bath cabinets; home office workstations; entertainment centers; storage products; bookcases; and kitchen utility products.
 
Plumbing Products – principally includes faucets; plumbing fittings and valves; showerheads and hand showers; bathtubs and shower enclosures; and spas.
 
Installation and Other Services – principally includes the sale, installation and distribution of insulation and other building products.
 
Decorative Architectural Products – principally includes paints and stains; and door, window and other hardware.
 
Other Specialty Products – principally includes windows, window frame components and patio doors; staple gun tackers, staples and other fastening tools; and hydronic radiators and heat convectors.
 
The above products and services are sold and provided to the home improvement and new home construction markets through mass merchandisers, hardware stores, home centers, homebuilders, distributors and other outlets for consumers and contractors.
 
The Company’s operations are principally located in North America and Europe. The Company’s country of domicile is the United States of America.
 
Corporate assets consist primarily of real property, equipment, cash and cash investments and other investments.
 
The Company’s segments are based upon similarities in products and services and represent the aggregation of operating units, for which financial information is regularly evaluated by the Company’s corporate operating executives in determining resource allocation and assessing performance and is periodically reviewed by the Board of Directors. Accounting policies for the segments are the same as those for the Company. The Company primarily evaluates performance based upon operating profit and, other than general corporate expense, allocates specific corporate overhead to each segment. Income regarding the Behr litigation settlement has also been excluded from the evaluation of segment operating profit.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

P. 	SEGMENT INFORMATION — (Continued)	

 
Information about the Company by segment and geographic area was as follows, in millions:

 	 	Net Sales(1)(2)(3)(4)(5)	 	 	Operating Profit(5)(9)	 	 	Assets at December 31(6)(10)	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2007	 	 	2006	 	 	2005	 	 	2007	 	 	2006	 	 	2005	 	
 		
The Company’s operations by segment were:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	$	2,829	 	 	$	3,286	 	 	$	3,324	 	 	$	336	 	 	$	122	 	 	$	515	 	 	$	1,769	 	 	$	1,860	 	 	$	2,017	 	
Plumbing Products	 	 	3,449	 	 	 	3,296	 	 	 	3,176	 	 	 	265	 	 	 	280	 	 	 	367	 	 	 	2,320	 	 	 	2,400	 	 	 	2,206	 	
Installation and Other Services	 	 	2,615	 	 	 	3,158	 	 	 	3,063	 	 	 	176	 	 	 	344	 	 	 	382	 	 	 	2,622	 	 	 	2,488	 	 	 	2,496	 	
Decorative Architectural Products	 	 	1,771	 	 	 	1,717	 	 	 	1,612	 	 	 	383	 	 	 	371	 	 	 	275	 	 	 	916	 	 	 	1,007	 	 	 	976	 	
Other Specialty Products	 	 	1,106	 	 	 	1,261	 	 	 	1,325	 	 	 	(28	)	 	 	225	 	 	 	229	 	 	 	1,920	 	 	 	2,089	 	 	 	2,128	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	11,770	 	 	$	12,718	 	 	$	12,500	 	 	$	1,132	 	 	$	1,342	 	 	$	1,768	 	 	$	9,547	 	 	$	9,844	 	 	$	9,823	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company’s operations by geographic area were:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	$	9,271	 	 	$	10,537	 	 	$	10,440	 	 	$	1,008	 	 	$	1,417	 	 	$	1,567	 	 	$	7,089	 	 	$	7,390	 	 	$	7,443	 	
International, principally Europe	 	 	2,499	 	 	 	2,181	 	 	 	2,060	 	 	 	124	 	 	 	(75	)	 	 	201	 	 	 	2,458	 	 	 	2,454	 	 	 	2,380	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total, as above	 	$	11,770	 	 	$	12,718	 	 	$	12,500	 	 	 	1,132	 	 	 	1,342	 	 	 	1,768	 	 	 	9,547	 	 	 	9,844	 	 	 	9,823	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General corporate expense, net (7)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(181	)	 	 	(203	)	 	 	(192	)	 	 	 	 	 	 	 	 	 	 	 	 	
Gains on sale of corporate fixed assets, net	 	 	8	 	 	 	—	 	 	 	8	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income regarding litigation settlement(8)	 	 	—	 	 	 	1	 	 	 	6	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating profit, as reported	 	 	959	 	 	 	1,140	 	 	 	1,590	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense), net	 	 	(189	)	 	 	(226	)	 	 	(165	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes, minority
interest and cumulative effect of accounting change, net	 	$	770	 	 	$	914	 	 	$	1,425	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate assets	 	 	1,360	 	 	 	2,481	 	 	 	2,736	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	10,907	 	 	$	12,325	 	 	$	12,559	 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Property Additions (10)	 	 	Depreciation and Amortization (5)	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2007	 	 	2006	 	 	2005	 	
 		
The Company’s operations by segment were:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	$	70	 	 	$	169	 	 	$	77	 	 	$	67	 	 	$	60	 	 	$	58	 	
Plumbing Products	 	 	63	 	 	 	101	 	 	 	76	 	 	 	79	 	 	 	89	 	 	 	71	 	
Installation and Other Services	 	 	70	 	 	 	32	 	 	 	15	 	 	 	27	 	 	 	24	 	 	 	26	 	
Decorative Architectural Products	 	 	11	 	 	 	17	 	 	 	47	 	 	 	18	 	 	 	17	 	 	 	18	 	
Other Specialty Products	 	 	29	 	 	 	71	 	 	 	55	 	 	 	39	 	 	 	38	 	 	 	37	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	243	 	 	 	390	 	 	 	270	 	 	 	230	 	 	 	228	 	 	 	210	 	
Unallocated amounts, principally related to corporate assets	 	 	4	 	 	 	11	 	 	 	9	 	 	 	16	 	 	 	14	 	 	 	24	 	
Assets of dispositions (acquisitions), net	 	 	—	 	 	 	—	 	 	 	3	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	247	 	 	$	401	 	 	$	282	 	 	$	246	 	 	$	242	 	 	$	234	 	

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

P. 	SEGMENT INFORMATION – (Concluded)	

 
		
(1) 	Included in net sales were export sales from the U.S. of $291 million, $253 million and $244 million in 2007, 2006 and 2005, respectively.	
 		
(2) 	Intra-company sales between segments represented approximately two percent of net sales in both 2007 and 2006 and one percent of net sales in 2005.	
 		
(3) 	Included in net sales were sales to one customer of $2,403 million, $2,547 million and $2,654 million in 2007, 2006 and 2005, respectively. Such net sales were included in the following segments: Cabinets and Related Products, Plumbing Products, Decorative Architectural Products and Other Specialty Products.	
 		
(4) 	Net sales from the Company’s operations in the U.S. were $8,910 million, $10,188 million and $10,120 million in 2007, 2006 and 2005, respectively.	
 		
(5) 	Net sales, operating profit and depreciation and amortization expense for 2007, 2006 and 2005 excluded the results of businesses reported as discontinued operations in 2007, 2006 and 2005.	
 		
(6) 	Long-lived assets of the Company’s operations in the U.S. and Europe were $4,987 million and $1,477 million, $4,959 million and $1,510 million, and $4,892 million and $1,610 million at December 31, 2007, 2006 and 2005, respectively.	
 		
(7) 	General corporate expense included those expenses not specifically attributable to the Company’s segments.	
 		
(8) 	The income regarding litigation settlement related to the Company’s subsidiary, Behr Process Corporation, which is included in the Decorative Architectural Products segment.	
 		
(9) 	Included in segment operating profit for 2007 were impairment charges for goodwill and other intangible assets as follows: Plumbing Products – $69 million; and Other Specialty Products – $158 million. Included in segment operating profit for 2006 were impairment charges for goodwill as follows: Cabinets and Related Products – $316 million; and Plumbing Products – $1 million. Included in segment operating profit for 2005 were impairment charges for goodwill as follows: Plumbing Products – $7 million; and Other Specialty Products – $36 million. The impairment charges for goodwill were principally related to certain of the Company’s European businesses.	

(10) 	Segment assets excluded the assets of businesses reported as discontinued operations.	

Q. 	OTHER INCOME (EXPENSE), NET	

Other, net, which is included in other income (expense), net, was as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Income from cash and cash investments	 	$	37	 	 	$	44	 	 	$	35	 	
Other interest income	 	 	3	 	 	 	2	 	 	 	6	 	
Income from financial investments, net (Note E)	 	 	49	 	 	 	44	 	 	 	115	 	
Other items, net	 	 	2	 	 	 	25	 	 	 	(29	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other, net	 	$	91	 	 	$	115	 	 	$	127	 	

 
Other items, net, included realized foreign currency transaction gains (losses) of $9 million, $14 million and $(25) million in 2007, 2006 and 2005, respectively, as well as other miscellaneous items.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

R. 	INCOME TAXES	

 	 	 	 	 	(In Millions)	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S	 	$	606	 	 	$	969	 	 	$	1,218	 	
Foreign	 	 	164	 	 	 	(55	)	 	 	207	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	770	 	 	$	914	 	 	$	1,425	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Provision (benefit) for income taxes on income from continuing operations before minority interest and cumulative effect of accounting change, net:	 	 	 	 	 	 	 	 	 	 	 	 	
Currently payable:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Federal	 	$	263	 	 	$	342	 	 	$	346	 	
State and local	 	 	33	 	 	 	44	 	 	 	37	 	
Foreign	 	 	81	 	 	 	66	 	 	 	80	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Federal	 	 	(18	)	 	 	(51	)	 	 	52	 	
State and local	 	 	(11	)	 	 	(3	)	 	 	6	 	
Foreign	 	 	(12	)	 	 	11	 	 	 	(7	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	336	 	 	$	409	 	 	$	514	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred tax assets at December 31:	 	 	 	 	 	 	 	 	 	 	 	 	
Receivables	 	$	21	 	 	$	21	 	 	 	 	 	
Inventories	 	 	32	 	 	 	31	 	 	 	 	 	
Other assets, including stock-based compensation	 	 	119	 	 	 	102	 	 	 	 	 	
Accrued liabilities	 	 	122	 	 	 	163	 	 	 	 	 	
Long-term liabilities	 	 	120	 	 	 	106	 	 	 	 	 	
Foreign tax credit carryforward	 	 	45	 	 	 	61	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	459	 	 	 	484	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred tax liabilities at December 31:	 	 	 	 	 	 	 	 	 	 	 	 	
Property and equipment	 	 	308	 	 	 	288	 	 	 	 	 	
Investment in foreign subsidiaries	 	 	19	 	 	 	13	 	 	 	 	 	
Intangibles	 	 	374	 	 	 	352	 	 	 	 	 	
Other, principally notes payable	 	 	52	 	 	 	161	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	753	 	 	 	814	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net deferred tax liability at December 31	 	$	294	 	 	$	330	 	 	 	 	 	

 
At December 31, 2007 and 2006, the net deferred tax liability consisted of net short-term deferred tax assets included in prepaid expenses and other of $216 million and $137 million, respectively, and net long-term deferred tax liabilities included in deferred income taxes and other of $510 million and $467 million, respectively.
 
The Company made dividend distributions of accumulated earnings from certain of its foreign subsidiaries from 2004 to 2007. A substantial portion of these dividend distributions generated significant foreign tax credits that were used to offset the majority of the U.S. tax on the dividend distributions and resulted in a $45 million and $61 million foreign tax credit carryforward at December 31, 2007 and 2006, respectively. The Company believes that the foreign tax credit carryforward will be utilized before the 10-year carryforward periods, from December 31, 2014 to December 31, 2016, expire principally with

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

R. 	INCOME TAXES — (Continued)	

 
identified potential sources of future income taxed in foreign jurisdictions at rates less than the present U.S. Federal rate of 35 percent; therefore, a valuation allowance was not required at December 31, 2007 and 2006.
 
A reconciliation of the U.S. Federal statutory rate to the provision for income taxes on income from continuing operations before minority interest and cumulative effect of accounting change, net, was as follows:

 	 	2007	 	 	2006	 	 	2005	 	
 		
U.S. Federal statutory rate	 	 	35	%	 	 	35	%	 	 	35	%	
State and local taxes, net of U.S. Federal tax benefit	 	 	2	 	 	 	3	 	 	 	2	 	
Lower taxes on foreign earnings	 	 	(2	)	 	 	(1	)	 	 	(1	)	
Change in U.S. and foreign taxes on distributed and undistributed foreign earnings, including the impact of foreign tax credit	 	 	5	 	 	 	(3	)	 	 	—	 	
Goodwill impairment charges providing no tax benefit	 	 	8	 	 	 	12	 	 	 	1	 	
Domestic production deduction	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Change in foreign tax rates	 	 	(2	)	 	 	—	 	 	 	—	 	
Other, net	 	 	(1	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Effective tax rate	 	 	44	%	 	 	45	%	 	 	36	%	

 
Income taxes paid were $363 million, $496 million and $457 million in 2007, 2006 and 2005, respectively.
 
During 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109,” (“FIN No. 48”). FIN No. 48 allows the recognition of only those tax benefits that the Company estimates have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. FIN No. 48 also provides guidance on financial statement classification and disclosure, and the accounting for interest, penalties, interim periods and transition.

Historically, the Company has established reserves for tax contingencies in accordance with SFAS No. 5, “Accounting for Contingencies,” (“SFAS No. 5”). Under this standard, accounting reserves for tax contingencies are established when it is probable that an additional tax may be owed and the amount can be reasonably estimated. FIN No. 48 establishes a threshold for recognizing accounting reserves for income tax contingencies on uncertain tax positions lower than the threshold under SFAS No. 5. Therefore, as a result of adopting FIN No. 48, the Company has increased its accounting reserves for income tax contingencies (referred to by FIN No. 48 as “unrecognized tax benefits”) to $91 million as of January 1, 2007, the date of adoption. If recognized, $62 million, net of any U.S. Federal tax benefit, would affect the Company’s effective tax rate. The cumulative effect of adopting FIN No. 48 resulted in a reduction to beginning retained earnings of $26 million, net of any U.S. Federal tax benefit, as of January 1, 2007, and the majority of the Company’s unrecognized tax benefits were reclassified from current to non-current liabilities in accordance with the provisions of FIN No. 48.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

R. 	INCOME TAXES – (Concluded)	

 
A reconciliation of the beginning and ending amount of unrecognized tax benefits, including related interest and penalties, is as follows:

 	 	(In Millions)	 	
 	 	Unrecognized	 	 	Interest and	 	 	 	 	
 	 	Tax Benefits	 	 	Penalties	 	 	Total	 	
 		
Balance at January 1, 2007	 	$	91	 	 	$	19	 	 	$	110	 	
Current year tax positions:	 	 	 	 	 	 	 	 	 	 	 	 	
Additions	 	 	13	 	 	 	—	 	 	 	13	 	
Reductions	 	 	(1	)	 	 	—	 	 	 	(1	)	
Prior year tax positions:	 	 	 	 	 	 	 	 	 	 	 	 	
Additions	 	 	6	 	 	 	—	 	 	 	6	 	
Reductions	 	 	(21	)	 	 	—	 	 	 	(21	)	
Settlements with tax authorities	 	 	(11	)	 	 	(2	)	 	 	(13	)	
Lapse of applicable statute of limitations	 	 	(2	)	 	 	—	 	 	 	(2	)	
Interest and penalties recognized in income tax expense	 	 	—	 	 	 	2	 	 	 	2	 	
Effect of exchange rate changes	 	 	1	 	 	 	—	 	 	 	1	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2007	 	$	76	 	 	$	19	 	 	$	95	 	

 
If recognized, $50 million of the unrecognized tax benefits at December 31, 2007, net of any U.S. Federal tax benefit, would affect the Company’s effective tax rate.
 
At December 31, 2007, the total unrecognized tax benefits, including related interest and penalties, is recorded in deferred income taxes and other.
 
The Company files income tax returns in the U.S. Federal jurisdiction, and various local, state and foreign jurisdictions. Beginning with the 2006 consolidated U.S. Federal income tax return, the Company has been selected by the Internal Revenue Service (“IRS”) to participate in the Compliance Assurance Program (“CAP”). CAP is a real-time audit of the U.S. Federal income tax return that allows the IRS, working in conjunction with the Company, to determine tax return compliance with the U.S. Federal tax law prior to filing the return. This program provides the Company with greater certainty about its tax liability for a given year within months, rather than years, of filing its annual tax return and greatly reduces the need for recording U.S. Federal unrecognized tax benefits. The IRS has completed their examination of the Company’s consolidated U.S. Federal tax returns through 2006. With few exceptions, the Company is no longer subject to state or foreign income tax examinations on filed returns for years before 2000.
 
The Company does not anticipate that it is reasonably possible that any material increase or decrease in its liability for unrecognized tax benefits will occur within the next twelve months.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

S. 	EARNINGS PER COMMON SHARE	
 
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions:

 	 	2007	 	 	2006	 	 	2005	 	
 		
Numerator (basic and diluted):	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	$	397	 	 	$	478	 	 	$	889	 	
(Loss) income from discontinued operations, net	 	 	(11	)	 	 	13	 	 	 	51	 	
Cumulative effect of accounting change, net	 	 	—	 	 	 	(3	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	386	 	 	$	488	 	 	$	940	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Denominator:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic common shares (based on weighted average)	 	 	369	 	 	 	394	 	 	 	422	 	
Add:	 	 	 	 	 	 	 	 	 	 	 	 	
Contingent common shares	 	 	3	 	 	 	5	 	 	 	4	 	
Stock option dilution	 	 	1	 	 	 	1	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted common shares	 	 	373	 	 	 	400	 	 	 	430	 	

 
At December 31, 2007, 2006 and 2005, the Company did not include any common shares related to the Zero Coupon Convertible Senior Notes (“Notes”) in the calculation of diluted earnings per common share, as the price of the Company’s common stock at December 31, 2007, 2006 and 2005 did not exceed the equivalent accreted value of the Notes.
 
Additionally, 19 million common shares, 16 million common shares and 13 million common shares for 2007, 2006 and 2005, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect.
 
Common shares outstanding included on the Company’s balance sheet and for the calculation of earnings per common share do not include unvested stock awards (nine million common shares at both December 31, 2007 and 2006); shares outstanding for legal requirements included all common shares that have voting rights (including unvested stock awards).

T. 	OTHER COMMITMENTS AND CONTINGENCIES	

Litigation
 
The Company is subject to lawsuits and pending or asserted claims with respect to matters generally arising in the ordinary course of business.
 
Early in 2003, a suit was brought against the Company and a number of its insulation installation companies in the federal court in Atlanta, Georgia, alleging that certain practices violate provisions of federal and state antitrust laws. The plaintiff publicized the lawsuit with a press release and stated in that release that the U.S. Department of Justice was investigating the business practices of the Company’s insulation installation companies. Although the Company was unaware of any investigation at that time, the Company was later advised that an investigation had been commenced but was subsequently closed without any enforcement action recommended. Two additional lawsuits were subsequently brought in Virginia making similar claims under the antitrust laws. Both of these lawsuits have since been dismissed without any payment or requirement for any change in business practices. During the second half of 2004, the same counsel who commenced the initial action in Atlanta filed six additional lawsuits on

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

T. 	OTHER COMMITMENTS AND CONTINGENCIES — (Continued)	

 
behalf of several of Masco’s competitors in the insulation installation business. The plaintiffs then dismissed all of these lawsuits and, represented by the same counsel, filed another action in the same federal court as a putative class action against the Company, a number of its insulation installation companies and certain of their suppliers. All of the Company’s suppliers, who are co-defendants in this lawsuit, have settled this case. This suit currently seeks class representation for residential insulation contractors (other than the defendants and their affiliates) that have directly purchased fiberglass insulation suitable for residential installation from certain insulation manufacturers. The Company is opposing certification of this lawsuit which seeks to proceed on a class representation basis. Two additional lawsuits, seeking class action status and alleging anticompetitive conduct, were filed against the Company and a number of its insulation suppliers. One of these lawsuits was filed in a Florida state court and has been dismissed by the court with prejudice. The other lawsuit was filed in federal court in northern California and was recently transferred to federal court in Atlanta, Georgia. The Company is vigorously defending these remaining cases, including opposing class certification of the direct purchasers of insulation who are competitors of the Company and who constitute the purported class in one such case, and California indirect purchasers of insulation who are either consumers or builders and who constitute the purported class in the other such case. Based upon the advice of its outside counsel, the Company believes that the conduct of the Company and its insulation installation companies, which has been the subject of the above-described lawsuits, has not violated any antitrust laws. There cannot, however, be any assurance that the Company will ultimately prevail in the remaining lawsuits or, if unsuccessful, that the ultimate liability would not be material. The Company is unable at this time to reliably estimate any potential liability which might occur from an adverse judgment but does not believe that any adverse judgment would have a material adverse effect on its businesses or the methods used by its insulation installation companies in doing business.
 
In February 2003, a suit was served upon the Company’s subsidiary, Milgard Manufacturing, in the Solano County, California Superior Court, alleging design defects in certain of Milgard’s aluminum windows. The complaint requests class action status for all owners of homes in California in which the windows are installed, and seeks replacement costs and other damages. Milgard denies that the windows are defective and is vigorously defending the case. In August 2006 the trial court denied plaintiffs’ motion for class certification. Plaintiffs filed a notice of appeal to the California Court of Appeals. Based upon the advice of its outside counsel, Milgard believes that the trial court ruling should be affirmed by the appellate court. The Company believes that it will not incur material liability as a result of this lawsuit.
 
In 2004, the Company learned that European governmental authorities were investigating possible anticompetitive business practices relating to the plumbing and heating industries in Europe. The investigations involve a number of European companies, including certain of the Company’s European manufacturing divisions and a number of other large businesses. As part of its broadened governance activities, the Company, with the assistance of its outside counsel, completed a review of the competition practices of its European divisions, including those in the plumbing and heating industries, and the Company is cooperating fully with the European governmental authorities. Several private antitrust lawsuits have been filed in the United States as putative class actions against, among others, the Company and certain of the other companies being investigated relating to the defendants’ plumbing operations. These appear to be an outgrowth of the investigations being conducted by European governmental authorities. These lawsuits have been dismissed, however, the Company has been notified that a notice of appeal has been filed in one of these lawsuits. Based upon the advice of its outside counsel, the review of the competition practices of its European divisions referred to above and other factors, the Company believes that it will not incur material liability as a result of the matters that are the subject of these investigations.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

T. 	OTHER COMMITMENTS AND CONTINGENCIES — (Continued)	

 
Warranty
 
Certain of the Company’s products and product finishes and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to the life of the product. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. The Company’s estimate of costs to service its warranty obligations is based upon historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly.
 
Changes in the Company’s warranty liability were as follows, in millions:

 	 	2007	 	 	2006	 	
 		
Balance at January 1	 	$	120	 	 	$	105	 	
Accruals for warranties issued during the year	 	 	56	 	 	 	69	 	
Accruals related to pre-existing warranties	 	 	16	 	 	 	7	 	
Settlements made (in cash or kind) during the year	 	 	(57	)	 	 	(62	)	
Other, net (including currency translation)	 	 	(2	)	 	 	1	 	
 	 	 	 	 	 	 	 	 	
Balance at December 31	 	$	133	 	 	$	120	 	

 
Acquisition-Related Commitments
 
The Company, as part of certain acquisition agreements, provided for the payment of additional consideration in either cash or Company common stock, contingent upon whether certain conditions are met, including the operating performance of the acquired business and the price of the Company’s common stock. At December 31, 2007, the Company had additional consideration payable in cash of $10 million contingent upon the operating performance of the acquired businesses.
 
Investments
 
With respect to the Company’s investments in private equity funds, the Company had, at December 31, 2007, commitments to contribute up to $49 million of additional capital to such funds representing the Company’s aggregate capital commitment to such funds less capital contributions made to date. The Company is contractually obligated to make additional capital contributions to certain of its private equity funds upon receipt of a capital call from the private equity fund. The Company has no control over when or if the capital calls will occur. Capital calls are funded in cash and generally result in an increase in the carrying value of the Company’s investment in the private equity fund when paid.
 
Residual Value Guarantees
 
The Company has residual value guarantees resulting from operating leases, primarily related to certain of the Company’s trucks and other vehicles, in the Installation and Other Services segment. The operating leases are generally for a minimum term of 24 months and are renewable monthly after the initial term. After the end of the initial term, if the Company cancels the leases, the Company must pay the lessor the difference between the guaranteed residual value and the fair market value of the related vehicles. The value of lease-related guarantees, including the obligation payable under the residual value guarantees, assuming the fair value at lease termination is zero, was approximately $88 million at December 31, 2007.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

T. 	OTHER COMMITMENTS AND CONTINGENCIES – (Concluded)	

 
For all operating leases that contain residual value guarantee provisions (principally related to vehicles), the Company calculates the amount due under the guarantees and compares such amount to the fair value of the leased assets. If the amount payable under the residual value guarantee exceeds the fair value at lease termination, the Company would record a liability equal to such excess with a corresponding charge to earnings. At December 31, 2007, the estimated fair market value exceeded the amount payable under the residual value guarantees and no liability was recorded.
 
Other Matters
 
The Company enters into contracts, which include reasonable and customary indemnifications that are standard for the industries in which it operates. Such indemnifications include customer claims against builders for issues relating to the Company’s products and workmanship. In conjunction with divestitures and other transactions, the Company occasionally provides reasonable and customary indemnifications relating to various items including: the enforceability of trademarks; legal and environmental issues; provisions for sales returns; and asset valuations. The Company has never had to pay a material amount related to these indemnifications and evaluates the probability that amounts may be incurred and appropriately records an estimated liability when probable.

U. 	SUBSEQUENT EVENT	
 
The Company reviews its business portfolio on an ongoing basis as part of its corporate strategic planning and has determined that several of its European business units are not core to the Company’s long-term growth strategy and, accordingly, has embarked on a plan of disposition. These business units had combined 2007 net sales in excess of $270 million and aggregate operating profit of $13 million (excluding an impairment charge for goodwill of $108 million), or an operating loss of $(95) million, including the impairment charge for goodwill. The Company expects proceeds from the dispositions to exceed $140 million. The dispositions are expected to be completed within the next twelve months.

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MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

V. 	INTERIM FINANCIAL INFORMATION (UNAUDITED)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	(In Millions, Except Per Common Share Data)	 	
 	 	Total	 	 	Quarters Ended	 	
 	 	Year	 	 	December 31	 	 	September 30	 	 	June 30	 	 	March 31	 	
 		
2007:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	11,770	 	 	$	2,698	 	 	$	3,059	 	 	$	3,148	 	 	$	2,865	 	
Gross profit	 	$	3,211	 	 	$	690	 	 	$	862	 	 	$	907	 	 	$	752	 	
Income (loss) from continuing operations	 	$	397	 	 	$	(140	)	 	$	209	 	 	$	186	 	 	$	142	 	
Net income (loss)	 	$	386	 	 	$	(151	)	 	$	205	 	 	$	189	 	 	$	143	 	
Earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations	 	$	1.08	 	 	$	(.39	)	 	$	.57	 	 	$	.50	 	 	$	.37	 	
Net income (loss)	 	$	1.05	 	 	$	(.42	)	 	$	.56	 	 	$	.51	 	 	$	.37	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations	 	$	1.06	 	 	$	(.39	)	 	$	.57	 	 	$	.50	 	 	$	.37	 	
Net income (loss)	 	$	1.03	 	 	$	(.42	)	 	$	.56	 	 	$	.51	 	 	$	.37	 	
2006:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	12,718	 	 	$	2,931	 	 	$	3,279	 	 	$	3,354	 	 	$	3,154	 	
Gross profit	 	$	3,506	 	 	$	740	 	 	$	919	 	 	$	976	 	 	$	871	 	
Income (loss) from continuing operations before cumulative effect of accounting change, net	 	$	478	 	 	$	(169	)	 	$	225	 	 	$	215	 	 	$	207	 	
Net income (loss)	 	$	488	 	 	$	(187	)	 	$	252	 	 	$	219	 	 	$	204	 	
Earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations before cumulative effect of accounting change, net	 	$	1.21	 	 	$	(.44	)	 	$	.58	 	 	$	.54	 	 	$	.51	 	
Net income (loss)	 	$	1.24	 	 	$	(.49	)	 	$	.65	 	 	$	.55	 	 	$	.50	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations before cumulative effect of accounting change, net	 	$	1.20	 	 	$	(.44	)	 	$	.57	 	 	$	.53	 	 	$	.50	 	
Net income (loss)	 	$	1.22	 	 	$	(.49	)	 	$	.64	 	 	$	.54	 	 	$	.50	 	

Earnings (loss) per common share amounts for the four quarters of 2007 and 2006 may not total to the earnings per common share amounts for the years ended December 31, 2007 and 2006 due to the timing of common stock repurchases. The first quarters of 2007 and 2006 have been restated to reflect the 2007 discontinued operation.
 
Fourth quarter 2007 loss from continuing operations and net loss include non-cash impairment charges for goodwill and other intangible assets of $208 million after tax ($227 million pre-tax). Income from continuing operations and net income include after-tax impairment charges for financial investments of $7 million ($10 million pre-tax) and $8 million ($12 million pre-tax) in the second and third quarters of 2007, respectively. Net income for 2007 includes after-tax (loss) income, net, related to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Concluded)

V. 	INTERIM FINANCIAL INFORMATION (UNAUDITED) – (Concluded)	

 
discontinued operations of $1 million ($1 million pre-tax), $3 million ($4 million pre-tax), $(4) million ($(4) million pre-tax) and $(11) million ($(9) million pre-tax) in the first, second, third and fourth quarters of 2007, respectively.
 
Fourth quarter 2006 loss from continuing operations before cumulative effect of accounting change, net and net loss include non-cash impairment charges for goodwill of $307 million after tax ($307 million pre-tax), and income regarding litigation settlement of $1 million after tax ($1 million pre-tax). Income from continuing operations before cumulative effect of accounting change, net and net income include after-tax impairment charges for financial investments of $51 million ($78 million pre-tax), $5 million ($8 million pre-tax) and $10 million ($15 million pre-tax) in the second, third and fourth quarters of 2006, respectively. Net income for 2006 includes after-tax income (loss), net, related to discontinued operations of $0 million ($1 million pre-tax), $4 million ($5 million pre-tax), $27 million ($53 million pre-tax) and $(18) million ($(15) million pre-tax) in the first, second, third and fourth quarters of 2006, respectively.

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Item 9. 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	
 
Not applicable.

Item 9A. 	Controls and Procedures.	
 
(a) Evaluation of Disclosure Controls and Procedures.
 
The Company, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of its disclosure controls and procedures as required by Exchange Act Rules 13a-15(b) and 15d-15(b) as of December 31, 2007. Based on this evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
 
(b) Management’s Report on Internal Control over Financial Reporting.
 
Management’s report on the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is included in this Report under Item 8. Financial Statements and Supplementary Data under the heading Management’s Report on Internal Control over Financial Reporting and the report of our independent registered public accounting firm is included under the heading “Report of Independent Registered Public Accounting Firm” under the same Item.
 
(c) Changes in Internal Control over Financial Reporting.
 
In connection with the evaluation of the Company’s “internal control over financial reporting” that occurred during the quarter ended December 31, 2007, which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15, (as defined in paragraph (f) of Rule 13a-15), management determined that, except as noted below, there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting.
 
During the fourth quarter of 2007, the Company continued a phased deployment of a new Enterprise Resource Planning (“ERP”) system at Masco Contractor Services, one of the Company’s larger business units. The new ERP system is a process improvement initiative and is not in response to any identified deficiency or weakness in the Company’s internal control over financial reporting. The business process engineering of this initiative is significant in scale and complexity, and will result in significant modifications to certain internal controls. The implementation of the new ERP system has been designed to enhance the overall system of internal control over financial reporting through further automation and integration of business processes.

Item 9B. 	Other Information.	
 
Not applicable.
 
PART III

Item 10. 	Directors, Executive Officers and Corporate Governance.	
 
Certain information regarding executive officers required by this Item is set forth as a Supplementary Item at the end of Part I hereof (pursuant to Instruction 3 to Item 401(b) of Regulation S-K). The Company’s Code of Business Ethics applies to all employees, officers and directors including the Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer, and is posted on the Company’s website at www.masco.com. Other information required by this Item will be contained in the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders, to be filed on or before April 29, 2008, and such information is incorporated herein by reference.

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Item 11. 	Executive Compensation.	
 
Information required by this Item will be contained in the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders, to be filed on or before April 29, 2008, and such information is incorporated herein by reference.

Item 12. 	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	
 
Equity Compensation Plan Information
 
The Company has three equity compensation plans, the 1991 Long Term Stock Incentive Plan (under which further grants have been discontinued), the 2005 Long Term Stock Incentive Plan and the 1997 Non-Employee Directors Stock Plan (under which further grants have been discontinued). The following table sets forth information as of December 31, 2007 concerning the Company’s three equity compensation plans, each of which was approved by stockholders. The Company does not have any equity compensation plans that are not approved by stockholders.

 	 	 	 	 	 	 	 	Number of Securities	 	
 	 	Number of	 	 	 	 	 	Remaining Available for	 	
 	 	Securities to be	 	 	 	 	 	Future Issuance Under	 	
 	 	Issued Upon	 	 	Weighted-Average	 	 	Equity Compensation Plans	 	
 	 	Exercise of Outstanding	 	 	Exercise Price of	 	 	(Excluding Securities	 	
 	 	Options, Warrants	 	 	Outstanding Options,	 	 	Reflected in the	 	
Plan Category	 	and Rights	 	 	Warrants and Rights	 	 	First Column)	 	
 		
Equity compensation plans approved by stockholders	 	 	26,139,400	 	 	$	27.11	 	 	 	16,158,500	 	

The remaining information required by this Item will be contained in the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders, to be filed on or before April 29, 2008, and such information is incorporated herein by reference.

Item 13. 	Certain Relationships and Related Transactions, and Director Independence.	
 
Information required by this Item will be contained in the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders, to be filed on or before April 29, 2008, and such information is incorporated herein by reference.

Item 14. 	Principal Accountant Fees and Services.	
 
Information required by this Item will be contained in the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders, to be filed on or before April 29, 2008, and such information is incorporated herein by reference.

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PART IV

Item 15. 	Exhibits and Financial Statement Schedule.	
 
(a) Listing of Documents.

 	(1) 	Financial Statements.  The Company’s Consolidated Financial Statements included in Item 8 hereof, as required at December 31, 2007 and 2006, and for the years ended December 31, 2007, 2006 and 2005, consist of the following:	
 
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements

 	(2) 	Financial Statement Schedule.	

 	(i) 	Financial Statement Schedule of the Company appended hereto, as required for the years ended December 31, 2007, 2006 and 2005, consists of the following:	
 
II. Valuation and Qualifying Accounts

 	(3) 	Exhibits.	

Exhibit	 	 	
Number	 	 	
 		
3.i	 	Restated Certificate of Incorporation of Masco Corporation and amendments thereto ( Incorporated by reference to Exhibit 3.i of Masco’s 2005 Form 10-K filed 3-2-2006 ).	
3.ii	 	Bylaws of Masco Corporation, as Amended and Restated June 2, 2007 ( Incorporated by reference to Exhibit 3.ii of Masco’s Form 8-K filed 6-6-2007 ).	
4.a.i	 	Indenture dated as of December 1, 1982 between Masco Corporation and Bank of New York Trust Company, N.A., as successor trustee under agreement originally with Morgan Guaranty Trust Company of New York, as Trustee ( Incorporated by reference to Exhibit 4.a.i of Masco’s 2006 Form 10-K filed 2-27-07) and Directors’ resolutions establishing Masco Corporation’s	
 	 	(i)  7 1 / 8 % Debentures Due August 15, 2013 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2003 Form 10-K filed 2-27-2004 );	
 	 	(ii)  6.625% Debentures Due April 15, 2018 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2003 Form 10-K filed 2-27-2004) ;	
 	 	(iii) 5.75% Notes Due October 15, 2008 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2003 Form 10-K filed 2-27-2004); and	
 	 	(iv) 7 3 / 4 % Debentures Due August 1, 2029 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2004 Form 10-K filed 3-16-2005).	
4.a.ii	 	Agreement of Appointment and Acceptance of Successor Trustee dated as of July 25, 1994 among Masco Corporation, Morgan Guaranty Trust Company of New York and The First National Bank of Chicago ( Incorporated by reference to Exhibit 4.a.ii of Masco’s 2004 Form 10-K filed 3-16-2005 ).	
4.a.iii	 	Supplemental Indenture dated as of July 26, 1994 between Masco Corporation and Bank of New York Trust Company, N.A., as successor trustee under agreement originally with The First National Bank of Chicago, as Trustee ( Incorporated by reference to Exhibit 4.a.iii of Masco’s 2004 Form 10-K filed 3-16-2005 ).	

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Exhibit	 	 	
Number	 	 	
 		
4.b.i	 	Indenture dated as of February 12, 2001 between Masco Corporation and Bank of New York Trust Company, N.A., as successor trustee under agreement originally with Bank One Trust Company, National Association, as Trustee ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2006 Form 10-K filed 2-27-07) and Directors’ Resolutions establishing Masco Corporation’s	
 	 	(i)  5 7 / 8 % Notes Due July 15, 2012 (Filed herewith);	
 	 	(ii)  6 1 / 2 % Notes Due August 15, 2032 (Filed herewith);	
 	 	(iii) 4.80% Notes Due June 15, 2015 (Incorporated by reference to Exhibit 4.b.i of Masco’s 2nd Quarter Form 10-Q filed 8-4-2005) ;	
 	 	(iv)  6.125% Notes Due October 3, 2016 (Incorporated by reference to Masco’s 2006 Form 10-K filed 2-27-2007) ;	
 	 	(v)  Floating Rate Notes Due 2010 (Incorporated by reference to Exhibit 4.b.i of Masco’s Form 10-Q filed 5-3-2007) ; and	
 	 	(vi) 5.85% Notes Due 2017 (Incorporated by reference to Exhibit 4.b.ii of Masco’s Form 10-Q filed 5-3-2007).	
4.b.ii	 	Supplemental Indenture dated as of November 30, 2006 to the Indenture dated February 12, 2001 by and among Masco Corporation and Bank of New York Trust Company, N.A., as Trustee (Incorporated by reference to Exhibit 4.b.iii of Masco’s 2006 Form 10-K filed 2-27-2007).	
4.b.iii	 	Second Supplemental Indenture between Masco Corporation and J.P. Morgan Trust Company, National Association, as trustee dated as of December 23, 2004 (including form of Zero Coupon Convertible Senior Note, Series B due 2031) ( Incorporated by reference to Exhibit 10.1 of Masco’s Form 8-K filed 12-23-2004 ).	
4.c	 	U.S. $2 billion 5-Year Revolving Credit Agreement dated as of November 5, 2004 among Masco Corporation and Masco Europe, S.á r.l. as borrowers, the banks party thereto, as lenders, J.P. Morgan Securities Inc. and Citigroup Global Markets, Inc., as Joint Lead Arrangers and Joint Book Runners and Citibank, N.A., as Syndication Agent, Sumitomo Mitsui Banking Corporation, as Documentation Agent, and Bank One, N.A. (Main Office Chicago), as Administrative Agent ( Incorporated by reference to Exhibit 4 of Masco’s Form 8-K filed 11-12-2004 ), as amended by Amendment No. 1 dated February 10, 2006 ( Incorporated by reference to Exhibit 4 of Masco’s Form 8-K filed February 15, 2006 ).	
Note:	 	Other instruments, notes or extracts from agreements defining the rights of holders of long-term debt of Masco Corporation or its subsidiaries have not been filed since(i) in each case the total amount of long-term debt permitted thereunder does not exceed 10 percent of Masco Corporation’s consolidated assets, and (ii) such instruments, notes and extracts will be furnished by Masco Corporation to the Securities and Exchange Commission upon request.	
Note:	 	Exhibits 10.a through 10.j constitute the management contracts and executive compensatory plans or arrangements in which certain of the Directors and executive officers of the Company participate.	
10.a	 	Masco Corporation 1991 Long Term Stock Incentive Plan (as amended and restated October 26, 2006) Incorporated by reference to Exhibit 10.a of Masco’s 2006 Form 10-K filed 2-27-2007)	
 	 	(i)  Forms of Restricted Stock Award Agreement for awards prior to January 1, 2005 ( Incorporated by reference to Exhibit 10.a.i of Masco’s 3rd Quarter Form 10-Q filed 11-04-2004 ) and for awards on and after January 1, 2005 ( Incorporated by reference to Exhibit 10.1 of Masco’s Form 8-K filed 1-06-2005 );	
 	 	(ii)  Forms of Restoration Stock Option ( Incorporated by reference to Exhibit 10.a.ii of Masco’s 3rd Quarter Form 10-Q filed 11-4-2004 );	
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Exhibit	 	 	
Number	 	 	
 		
 	 	(iii) Forms of Stock Option Grant ( Incorporated by reference to Exhibit 10.a.iii of Masco’s 3rd Quarter Form 10-Q filed 11-4-2004 );	
 	 	(iv)  Forms of Stock Option Grant for Non-Employee Directors (Incorporated by reference to Exhibit 10.a.iv of Masco’s 3rd Quarter Form 10-Q filed 11-4-2004); and	
 	 	(v)  Forms of amendment to Award Agreements (Incorporated by reference to Exhibit 10.a of Masco’s 2005 Form 10-K filed 3-2-2006).	
10.b.i	 	Masco Corporation 2005 Long Term Stock Incentive Plan (as amended and restated October 26, 2006) (Incorporated by reference to Exhibit 10.b if Masco’s 2006 Form 10-k filed 2-27-2007)	
 	 	(i)  Form of Restricted Stock Award (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2- 2006) ;	
 	 	(ii)  Form of Stock Option Grant (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2-2006);	
 	 	(iii)  Form of Restoration Stock Option (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2-2006) ; and	
 	 	(iv)  Form of Stock Option Grant for Non-Employee Directors (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2-2006).	
10.b.ii	 	Non-Employee Directors Equity Program under Masco’s 2005 Long Term Stock Incentive Plan (Filed herewith)	
 	 	(i)  Form of Restricted Stock Award Agreement (Filed herewith) ; and	
 	 	(ii)  Form of Stock Option Grant Agreement (Filed herewith).	
10.c	 	Forms of Masco Corporation Supplemental Executive Retirement and Disability Plan and amendments (Filed herewith).	
10.d	 	Masco Corporation 1997 Non-Employee Directors Stock Plan (as amended and restated October 27, 2005) ( Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006 )	
 	 	(i)  Form of Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006);	
 	 	(ii)  Form of Stock Option Grant (Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006); and	
 	 	(iii)  Form of amendment to Award Agreements (Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006).	
10.e	 	Other compensatory arrangements for executive officers ( Incorporated by reference to Exhibit 10.f of Masco’s 2005 Form 10-K filed 3-2-2006 ).	
10.f	 	Masco Corporation 2004 Restricted Stock Award Program ( Incorporated by reference to Exhibit 10.b of Masco’s Form 10-Q filed 8-5-2004 ).	
10.g	 	Compensation of Non-Employee Directors ( Filed herewith).	
10.h	 	Masco Corporation Retirement Benefit Restoration Plan dated January 1, 1995, as amended October 1, 2004 ( Incorporated by reference to Exhibit 10.p of Masco’s 2004 Form 10-K filed 3-16-2005 ).	
10.i	 	Agreement dated as of April 3, 2007 between Richard A. Manoogian and Masco Corporation (Incorporated by reference to Exhibit 10 of Masco’s Current Report on Form 8-K filed 4-9-2007).	
10.j	 	Letter from Masco Corporation to Donald DeMarie regarding relocation arrangements (Filed herewith).	
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Exhibit	 	 	
Number	 	 	
 		
10.k	 	Amended and Restated Shareholders’ Agreement, dated as of November 27, 2006, between RHJ International SA, Asahi Tec Corporation and The Principal Company Shareholders Listed on Schedule I thereto (Incorporated by reference to Exhibit 10.i of Masco’s 2006 Form 10-K filed 2-27-2007).	
10.l	 	Shareholders Agreement, dated as of June 6, 2002, as amended and restated as of July 19, 2002, by and among Trimas Corporation, Metaldyne Company LLC, and the Heartland Entities listed therein and the Other Shareholders named therein or added as parties thereto from time to time (Incorporated by reference to Exhibit 10.j of Masco’s 2006 Form 10-K filed 2-27-2007).	
10.m	 	Amendment No. 1, dated as of August 31, 2006, to Shareholders Agreement, dated as of June 6, 2002, as amended and restated as of July 19, 2002, by and among Trimas Corporation, Metaldyne Company LLC, Heartland Industrial Partners, L.P. and the Heartland Entities listed therein and the parties identified on the signature pages thereto as “Metaldyne Shareholder Parties” (Incorporated by reference to Exhibit 10.k of Masco’s 2006 Form 10-K filed 2-27-2007).	
12	 	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Filed herewith).	
21	 	List of Subsidiaries (Filed herewith).	
23	 	Consent of Independent Registered Public Accounting Firm relating to Masco Corporation’s Consolidated Financial Statements and Financial Statement Schedule (Filed herewith).	
31.a	 	Certification by Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) (Filed herewith).	
31.b	 	Certification by Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) (Filed herewith).	
32	 	Certifications required by Rule 13a-14(b) or Rule 15d-14(b)and Section 1350 of Chapter 63 of the United States Code (Filed herewith).	

The Company will furnish to its stockholders a copy of any of the above exhibits not included herein upon the written request of such stockholder and the payment to the Company of the reasonable expenses incurred by the Company in furnishing such copy or copies.
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
MASCO CORPORATION

 	By: 	/s/   John G. Sznewajs	

John G. Sznewajs
Vice President, Treasurer and Chief Financial Officer
 
February 22, 2008
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Principal Executive Officer:	 	 	 	 	
 	 	 	 	 	
/s/   Timothy Wadhams

Timothy Wadhams	 	President, Chief Executive Officer and Director	 	 	
 	 	 	 	 	
Principal Financial Officer and	 	 	 	 	
Principal Accounting Officer:	 	 	 	 	
 	 	 	 	 	
/s/   John G. Sznewajs

John G. Sznewajs	 	Vice President, Treasurer and Chief
  Financial Officer	 	 	
 	 	 	 	 	
/s/   Dennis W. Archer

Dennis W. Archer	 	Director	 	 	
 	 	 	 	 	
/s/   Thomas G. Denomme

Thomas G. Denomme	 	Director	 	 	
 	 	 	 	 	
/s/   Peter A. Dow

Peter A. Dow	 	Director	 	 	
 	 	 	 	 	
/s/   Anthony F. Earley, Jr.

Anthony F. Earley, Jr.	 	Director	 	February 22, 2008	
 	 	 	 	 	
/s/   Verne G. Istock

Verne G. Istock	 	Director	 	 	
 	 	 	 	 	
/s/   David L. Johnston

David L. Johnston	 	Director	 	 	
 	 	 	 	 	
/s/   J. Michael Losh

J. Michael Losh	 	Director	 	 	
 	 	 	 	 	
/s/   Richard A. Manoogian

Richard A. Manoogian	 	Executive Chairman	 	 	
 	 	 	 	 	
/s/   Lisa A. Payne

Lisa A. Payne	 	Director	 	 	
 	 	 	 	 	
/s/   Mary Ann Van Lokeren

Mary Ann Van Lokeren	 	Director	 	 	

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MASCO CORPORATION
 
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
 
for the years ended December 31, 2007, 2006 and 2005

 	 	 	 	 	 	 	 	 	 	 	 	 	 	(In Millions)	 	
Column A	 	Column B	 	 	Column C	 	 	Column D	 	 	Column E	 	
 	 	 	 	 	Additions	 	 	 	 	 	 	 	
 	 	Balance at	 	 	Charged to	 	 	Charged to	 	 	 	 	 	Balance at	 	
 	 	Beginning	 	 	Costs and	 	 	Other	 	 	 	 	 	End of	 	
Description	 	of Period	 	 	Expenses	 	 	Accounts (a)	 	 	Deductions (b)	 	 	Period	 	
 		
Allowance for doubtful accounts, deducted from accounts receivable in the balance sheet:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2007	 	$	84	 	 	$	27	 	 	$	(1	)	 	$	(25	)	 	$	85	 	
2006	 	$	78	 	 	$	14	 	 	$	(2	)	 	$	(6	)	 	$	84	 	
2005	 	$	82	 	 	$	13	 	 	$	(5	)	 	$	(12	)	 	$	78	 	

			
(a)		Allowance of companies acquired and companies disposed of, net.	
 		
(b)		Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years.	

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EXHIBIT INDEX

Exhibit	 	 	
Number	 	Description of Exhibits	
 		
 	3	.i	 	Restated Certificate of Incorporation of Masco Corporation and amendments thereto ( Incorporated by reference to Exhibit 3.i of Masco’s 2005 Form 10-K filed 3-2-2006 ).	
 	3	.ii	 	Bylaws of Masco Corporation, as Amended and Restated June 2, 2007 ( Incorporated by reference to Exhibit 3.ii of Masco’s Form 8-K filed 6-6-2007 ).	
 	4	.a.i	 	Indenture dated as of December 1, 1982 between Masco Corporation and Bank of New York Trust Company, N.A., as successor trustee under agreement originally with Morgan Guaranty Trust Company of New York, as Trustee ( Incorporated by reference to Exhibit 4.a.i of Masco’s 2006 Form 10-K filed 2-27-07) and Directors’ resolutions establishing Masco Corporation’s	
 	 	 	 	(i)  7 1 / 8 % Debentures Due August 15, 2013 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2003 Form 10-K filed 2-27-2004 );	
 	 	 	 	(ii)  6.625% Debentures Due April 15, 2018 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2003 Form 10-K filed 2-27-2004) ;	
 	 	 	 	(iii) 5.75% Notes Due October 15, 2008 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2003 Form 10-K filed 2-27-2004); and	
 	 	 	 	(iv) 7 3 / 4 % Debentures Due August 1, 2029 (Incorporated by reference to Exhibit 4.a.i of Masco’s 2004 Form 10-K filed 3-16-2005).	
 	4	.a.ii	 	Agreement of Appointment and Acceptance of Successor Trustee dated as of July 25, 1994 among Masco Corporation, Morgan Guaranty Trust Company of New York and The First National Bank of Chicago ( Incorporated by reference to Exhibit 4.a.ii of Masco’s 2004 Form 10-K filed 3-16-2005 ).	
 	4	.a.iii	 	Supplemental Indenture dated as of July 26, 1994 between Masco Corporation and Bank of New York Trust Company, N.A., as successor trustee under agreement originally with The First National Bank of Chicago, as Trustee ( Incorporated by reference to Exhibit 4.a.iii of Masco’s 2004 Form 10-K filed 3-16-2005 ).	
 	4	.b.i	 	Indenture dated as of February 12, 2001 between Masco Corporation and Bank of New York Trust Company, N.A., as successor trustee under agreement originally with Bank One Trust Company, National Association, as Trustee ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2006 Form 10-K filed 2-27-07) and Directors’ Resolutions establishing Masco Corporation’s	
 	 	 	 	(i)  5 7 / 8 % Notes Due July 15, 2012 (Filed herewith);	
 	 	 	 	(ii)  6 1 / 2 % Notes Due August 15, 2032 (Filed herewith);	
 	 	 	 	(iii) 4.80% Notes Due June 15, 2015 (Incorporated by reference to Exhibit 4.b.i of Masco’s 2nd Quarter Form 10-Q filed 8-4-2005) ;	
 	 	 	 	(iv) 6.125% Notes Due October 3, 2016 (Incorporated by reference to Masco’s 2006 Form 10-K filed 2-27-2007) ;	
 	 	 	 	(v)  Floating Rate Notes Due 2010 (Incorporated by reference to Exhibit 4.b.i of Masco’s Form 10-Q filed 5-3-2007) ; and	
 	 	 	 	(vi) 5.85% Notes Due 2017 (Incorporated by reference to Exhibit 4.b.ii of Masco’s Form 10-Q filed 5-3-2007).	
 	4	.b.ii	 	Supplemental Indenture dated as of November 30, 2006 to the Indenture dated February 12, 2001 by and among Masco Corporation and Bank of New York Trust Company, N.A., as Trustee (Incorporated by reference to Exhibit 4.b.iii of Masco’s 2006 Form 10-K filed 2-27-2007).	

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Exhibit	 	 	
Number	 	Description of Exhibits	
 		
 	4	.b.iii	 	Second Supplemental Indenture between Masco Corporation and J.P. Morgan Trust Company, National Association, as trustee dated as of December 23, 2004 (including form of Zero Coupon Convertible Senior Note, Series B due 2031) ( Incorporated by reference to Exhibit 10.1 of Masco’s Form 8-K filed 12-23-2004 ).	
 	4	.c	 	U.S. $2 billion 5-Year Revolving Credit Agreement dated as of November 5, 2004 among Masco Corporation and Masco Europe, S.á r.l. as borrowers, the banks party thereto, as lenders, J.P. Morgan Securities Inc. and Citigroup Global Markets, Inc., as Joint Lead Arrangers and Joint Book Runners and Citibank, N.A., as Syndication Agent, Sumitomo Mitsui Banking Corporation, as Documentation Agent, and Bank One, N.A. (Main Office Chicago), as Administrative Agent ( Incorporated by reference to Exhibit 4 of Masco’s Form 8-K filed 11-12-2004 ), as amended by Amendment No. 1 dated February 10, 2006 ( Incorporated by reference to Exhibit 4 of Masco’s Form 8-K filed February 15, 2006 ).	
 	Note:	 	 	Other instruments, notes or extracts from agreements defining the rights of holders of long-term debt of Masco Corporation or its subsidiaries have not been filed since(i) in each case the total amount of long-term debt permitted thereunder does not exceed 10 percent of Masco Corporation’s consolidated assets, and (ii) such instruments, notes and extracts will be furnished by Masco Corporation to the Securities and Exchange Commission upon request.	
 	Note:	 	 	Exhibits 10.a through 10.j constitute the management contracts and executive compensatory plans or arrangements in which certain of the Directors and executive officers of the Company participate.	
 	10	.a	 	Masco Corporation 1991 Long Term Stock Incentive Plan (as amended and restated October 26, 2006) Incorporated by reference to Exhibit 10.a of Masco’s 2006 Form 10-K filed 2-27-2007)	
 	 	 	 	(i)  Forms of Restricted Stock Award Agreement for awards prior to January 1, 2005 ( Incorporated by reference to Exhibit 10.a.i of Masco’s 3rd Quarter Form 10-Q filed 11-04-2004 ) and for awards on and after January 1, 2005 ( Incorporated by reference to Exhibit 10.1 of Masco’s Form 8-K filed 1-06-2005 );	
 	 	 	 	(ii)  Forms of Restoration Stock Option ( Incorporated by reference to Exhibit 10.a.ii of Masco’s 3rd Quarter Form 10-Q filed 11-4-2004 );	
 	 	 	 	(iii) Forms of Stock Option Grant ( Incorporated by reference to Exhibit 10.a.iii of Masco’s 3rd Quarter Form 10-Q filed 11-4-2004 );	
 	 	 	 	(iv) Forms of Stock Option Grant for Non-Employee Directors (Incorporated by reference to Exhibit 10.a.iv of Masco’s 3rd Quarter Form 10-Q filed 11-4-2004); and	
 	 	 	 	(v) Forms of amendment to Award Agreements (Incorporated by reference to Exhibit 10.a of Masco’s 2005 Form 10-K filed 3-2-2006) .	
 	10	.b.i	 	Masco Corporation 2005 Long Term Stock Incentive Plan (as amended and restated October 26, 2006) (Incorporated by reference to Exhibit 10.b if Masco’s 2006 Form 10-k filed 2-27-2007)	
 	 	 	 	(i)  Form of Restricted Stock Award (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2-2006) ;	
 	 	 	 	(ii)  Form of Stock Option Grant (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2-2006);	
 	 	 	 	(iii) Form of Restoration Stock Option (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2-2006) ; and	
 	 	 	 	(iv) Form of Stock Option Grant for Non-Employee Directors (Incorporated by reference to Exhibit 10.b of Masco’s 2005 Form 10-K filed 3-2-2006).	

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Table of Contents

 	 	 	 	 	
Exhibit	 	 	
Number	 	Description of Exhibits	
 		
 	10	.b.ii	 	Non-Employee Directors Equity Program under Masco’s 2005 Long Term Stock Incentive Plan (Filed herewith)	
 	 	 	 	(i)  Form of Restricted Stock Award Agreement (Filed herewith) ; and	
 	 	 	 	(ii)  Form of Stock Option Grant Agreement (Filed herewith).	
 	10	.c	 	Forms of Masco Corporation Supplemental Executive Retirement and Disability Plan (Filed herewith).	
 	10	.d	 	Masco Corporation 1997 Non-Employee Directors Stock Plan (as amended and restated October 27, 2005) ( Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006 ).	
 	 	 	 	(i)  Form of Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006);	
 	 	 	 	(ii)  Form of Stock Option Grant (Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006); and	
 	 	 	 	(iii) Form of amendment to Award Agreements (Incorporated by reference to Exhibit 10.e of Masco’s 2005 Form 10-K filed 3-2-2006).	
 	10	.e	 	Other compensatory arrangements for executive officers ( Incorporated by reference to Exhibit 10.f of Masco’s 2005 Form 10-K filed 3-2-2006 ).	
 	10	.f	 	Masco Corporation 2004 Restricted Stock Award Program ( Incorporated by reference to Exhibit 10.b of Masco’s Form 10-Q filed 8-5-2004 ).	
 	10	.g	 	Compensation of Non-Employee Directors ( Filed herewith ).	
 	10	.h	 	Masco Corporation Retirement Benefit Restoration Plan dated January 1, 1995, as amended October 1, 2004 ( Incorporated by reference to Exhibit 10.p of Masco’s 2004 Form 10-K filed 3-16-2005 ).	
 	10	.i	 	Agreement dated as of April 3, 2007 between Richard A. Manoogian and Masco Corporation (Incorporated by reference to Exhibit 10 of Masco’s Current Report on Form 8-K filed 4-9-2007).	
 	10	.j	 	Letter from Masco Corporation to Donald DeMarie regarding relocation arrangements (Filed herewith).	
 	10	.k	 	Amended and Restated Shareholders’ Agreement, dated as of November 27, 2006, between RHJ International SA, Asahi Tec Corporation and The Principal Company Shareholders Listed on Schedule I thereto (Incorporated by reference to Exhibit 10.i of Masco’s 2006 Form 10-K filed 2-27-2007).	
 	10	.l	 	Shareholders Agreement dated, as of June 6, 2002, as amended and restated as of July 19, 2002, by and among Trimas Corporation, Metaldyne Company LLC, and the Heartland Entities listed therein and the Other Shareholders named therein or added as parties thereto from time to time ( Incorporated by reference to Exhibit 10.j of Masco’s 2006 Form 10-K filed 2-27-2007 ).	
 	10	.m	 	Amendment No. 1, dated as of August 31, 2006, to Shareholders Agreement, dated as of June 6, 2002, as amended and restated as of July 19, 2002, by and among Trimas Corporation, Metaldyne Company LLC, Heartland Industrial Partners, L.P. and the Heartland Entities listed therein and the parties identified on the signature pages thereto as “Metaldyne Shareholder Parties” ( Incorporated by reference to Exhibit 10.k of Masco’s 2006 Form 10-K filed 2-27-2007 ).	
 	12	 	 	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Filed herewith).	
 	21	 	 	List of Subsidiaries (Filed herewith).	

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Table of Contents

 	 	 	 	 	
Exhibit	 	 	
Number	 	Description of Exhibits	
 		
 	23	 	 	Consent of Independent Registered Public Accounting Firm relating to Masco Corporation’s Consolidated Financial Statements and Financial Statement Schedule (Filed herewith).	
 	31	.a	 	Certification by Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) (Filed herewith).	
 	31	.b	 	Certification by Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) (Filed herewith).	
 	32	 	 	Certifications required by Rule 13a-14(b) or Rule 15d-14(b)and Section 1350 of Chapter 63 of the United States Code (Filed herewith).	

93

Exhibit 4.b.i(i)
RESOLUTIONS OF THE PRICING COMMITTEE
OF THE BOARD OF DIRECTORS OF
MASCO CORPORATION
OCTOBER 10, 2002
     WHEREAS, Masco Corporation, a Delaware corporation (the “Company”), has filed Registration Statement (No. 333-73802) on Form S-3 with the Securities and Exchange Commission, which is in effect;
     WHEREAS, pursuant to resolutions adopted by this Board on February 13, 2002, the Company is authorized to maintain and have available for issuance from time to time up to $2 billion initial offering price of securities;
     WHEREAS, under the authority heretofore granted by this Board and pursuant to Rule 462(b) of the Securities Exchange Act of 1933, as amended, the Company intends to file a Registration Statement on Form S-3.
     WHEREAS, on June 27, 2002 the Company issued a series of securities designated as the “5-7/8% Notes Due 2012” (the “Initial Securities”) in the amount of $500,000,000 under the indenture dated as of February 12, 2001 (the “Indenture”), with Bank One Trust Company, National Association, (the “Trustee”), which Indenture provides for the issuance from time to time of unsecured debentures, notes or other evidences of indebtedness of this Company in one or more series under such Indenture;
     WHEREAS, the Company desires to issue $350,000,000 aggregate principal amount of 5-7/8% Notes Due 2012 having all the attributes and in the same series as the Initial Securities;
     WHEREAS, capitalized terms used in these resolutions and not otherwise defined are used with the same meaning ascribed to such terms in the Indenture;
     THEREFORE, BE IT RESOLVED, that the Company is authorized to issue an additional $350,000,000 of the 5-7/8% Notes Due 2012 (the “Additional Securities”), which notes together with the $500,000,000 aggregate principal amount of the Initial Securities issued on June 27, 2002 will constitute one series of notes for all purposes under the Indenture;
     RESOLVED, that the aggregate principal amount of the Additional Securities which may be authenticated and delivered under the Indenture is limited to Three Hundred Fifty Million Dollars ($350,000,000), except for Additional Securities of such series authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other securities of such series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07 of the Indenture;

 

     FURTHER RESOLVED, that the Additional Securities shall be issued initially in the form of global securities registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), and will be held by the Trustee as custodian for DTC, and the Additional Securities shall be subject to the procedures of DTC and will not be issued in definitive registered form;
     FURTHER RESOLVED, that the Additional Securities shall be issuable at a price such that this Company shall receive Three Hundred Fifty-Six Million Sixty-Nine Thousand Dollars ($356,069,000) after an underwriting discount of Two Million Two Hundred Seventy-Five Thousand Dollars ($2,275,000) and shall bear interest from June 27, 2002;
     FURTHER RESOLVED, that the Chairman of the Board, the President or any Vice President of the Company is authorized to execute, on the Company’s behalf and in its name, and the Secretary or any Assistant Secretary of the Company is authorized to attest to such execution and under the Company’s seal (which may be in the form of a facsimile of the Company’s seal), $350,000,000 aggregate principal amount of the Additional Securities (and in addition Securities to replace lost, stolen, mutilated or destroyed Additional Securities and Securities required for exchange, substitution or transfer, all as provided in the Indenture) and to deliver such Additional Securities to the Trustee for authentication, and the Trustee is authorized and directed thereupon to authenticate and deliver the same to or upon the written order of this Company as provided in the Indenture;
     FURTHER RESOLVED, that the signatures of the Company officers so authorized to execute the Additional Securities of such series may be the manual or facsimile signatures of the present or any future authorized officers and may be imprinted or otherwise reproduced thereon, and the Company for such purpose adopts each facsimile signature as binding upon it notwithstanding the fact that at the time the respective Additional Securities shall be authenticated and delivered or disposed of, the individual so signing shall have ceased to hold such office;
     FURTHER RESOLVED, that Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Banc One Capital Markets, Inc., Barclays Capital Inc. and Commerzbank Capital Markets Corp. are appointed underwriters for the issuance and sale of the Additional Securities, and the Chairman of the Board, the President or any Vice President of the Company is authorized, in the Company’s name and on its behalf, to execute and deliver an Underwriting Agreement, substantially in the form heretofore approved by the Company’s Board of Directors, with such underwriters, with such changes and insertions therein as are appropriate to conform such Underwriting Agreement to the terms set forth herein or otherwise as the officer executing such Underwriting Agreement shall approve and as are not inconsistent with these resolutions, such approval to be conclusively evidenced by such officer’s execution and delivery of the Underwriting Agreement;

 

     FURTHER RESOLVED, that Bank One Trust Company, National Association, the Trustee under the Indenture and for the Initial Securities, is appointed trustee for the Additional Securities, and as Agent of this Company for the purpose of effecting the registration, transfer and exchange of the Additional Securities as provided in the Indenture, and the corporate trust office of Bank One Trust Company, National Association, in Chicago, Illinois is designated pursuant to the Indenture as the office or agency of the Company where such Additional Securities may be presented for registration, transfer and exchange and where notices and demands to or upon this Company in respect of the Additional Securities and the Indenture may be served;
     FURTHER RESOLVED, that Bank One Trust Company, National Association, is appointed Paying Agent of this Company for the payment of interest on and principal of the Additional Securities of such series, and the corporate trust office of Bank One Trust Company, National Association, is designated, pursuant to the Indenture, as the office or agency of the Company where the Additional Securities may be presented for payment; and
     FURTHER RESOLVED, that each of the Company’s officers is authorized and directed, on behalf of the Company and in its name, to do or cause to be done everything such officer deems advisable to effect the sale and delivery of the Additional Securities of such series pursuant to the Underwriting Agreement and otherwise to carry out the Company’s obligations under the Underwriting Agreement, and to do or cause to be done everything and to execute and deliver all documents as such officer deems advisable in connection with the execution and delivery of the Underwriting Agreement and the execution, authentication and delivery of such Additional Securities (including, without limiting the generality of the foregoing, delivery to the Trustee of the Additional Securities for authentication and of requests or orders for the authentication and delivery of the Additional Securities).

 

RESOLUTIONS OF THE PRICING COMMITTEE
OF THE BOARD OF DIRECTORS OF
MASCO CORPORATION
JUNE 24, 2002
     WHEREAS, Masco Corporation, a Delaware corporation (the “Company”) the Company has filed Registration Statements (Nos. 333-58034 and 333-73802) on Form S-3 with the Securities and Exchange Commission, which are in effect;
     WHEREAS, the Company desires to create a series of securities under the indenture dated as of February 12, 2001 (the “Indenture”), with Bank One Trust Company, National Association, (the “Trustee”), providing for the issuance from time to time of unsecured debentures, notes or other evidences of indebtedness of this Company (“Securities”) in one or more series under such Indenture; and
     WHEREAS, capitalized terms used in these resolutions and not otherwise defined are used with the same meaning ascribed to such terms in the Indenture;
     THEREFORE, BE IT RESOLVED, that there is established a series of Securities under the Indenture, the terms of which shall be as follows:
     1. The Securities of such series shall be designated as the “5-7/8% Notes Due 2012.”
     2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to Five Hundred Million Dollars ($500,000,000), except for Securities of such series authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07 of the Indenture.
     3. The date on which the principal of the Securities of such series shall be payable is July 15, 2012.
     4. The Securities of such series shall bear interest from June 27, 2002 at the rate of 5-7/8% per annum, payable semi-annually on January 15 and July 15 of each year commencing on January 15, 2003 until the principal thereof is paid or made available for payment. The January 1 or July 1 (whether or not a business day), as the case may be, next preceding each such interest payment date shall be the “record date” for the determination of holders to whom interest is payable.

 

     5. The Securities shall be issued initially in the form of global securities registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), and will be held by the Trustee as custodian for DTC. The Securities shall be subject to the procedures of DTC and will not be issued in definitive registered form.
     6. The principal of and interest on the Securities of such series shall be payable at the office or agency of this Company maintained for such purpose in Chicago, Illinois or at any other office or agency designated by the Company for such purpose pursuant to the Indenture.
     7. The Securities of such series shall be subject to redemption in whole or in part prior to maturity, at the Company’s option, at a redemption price established in accordance with current market practice, substantially as follows: the redemption price shall be equal to the greater of (i) 100% of the principal amount of the Securities plus accrued interest to the redemption date, or (ii) the sum of the present values of the remaining principal amount and scheduled payments of interest on the Securities of such series to be redeemed (other than accrued interest to the redemption date), discounted to the redemption date on a semi-annual basis at the appropriate treasury rate plus 25 basis points plus accrued interest to the redemption date.
     8. The Securities of such series shall be issuable in denominations of One Thousand Dollars ($1,000) and any integral multiples thereof.
     9. The Securities shall be issuable at a price such that this Company shall receive Four Hundred Ninety Million Seven Hundred Sixty-Five Thousand Dollars ($490,765,000) after an underwriting discount of Three Million Two Hundred Fifty Thousand Dollars ($3,250,000).
     10. The Securities shall be subject to Defeasance and discharge pursuant to Section 4.02 of the Indenture and to Covenant Defeasance pursuant to Section 10.06 of the Indenture with respect to any term, provision or condition set forth in any negative or restrictive covenant of the Company applicable to the Securities.
     FURTHER RESOLVED, that the Securities of such series are declared to be issued under the Indenture and subject to the provisions hereof;
     FURTHER RESOLVED, that the Chairman of the Board, the President or any Vice President of the Company is authorized to execute, on the Company’s behalf and in its name, and the Secretary or any Assistant Secretary of the

 

Company is authorized to attest to such execution and under the Company’s seal (which may be in the form of a facsimile of the Company’s seal), $500,000,000 aggregate principal amount of the Securities of such series (and in addition Securities to replace lost, stolen, mutilated or destroyed Securities and Securities required for exchange, substitution or transfer, all as provided in the Indenture) and to deliver such Securities to the Trustee for authentication, and the Trustee is authorized and directed thereupon to authenticate and deliver the same to or upon the written order of this Company as provided in the Indenture;
     FURTHER RESOLVED, that the signatures of the Company officers so authorized to execute the Securities of such series may be the manual or facsimile signatures of the present or any future authorized officers and may be imprinted or otherwise reproduced thereon, and the Company for such purpose adopts each facsimile signature as binding upon it notwithstanding the fact that at the time the respective Securities shall be authenticated and delivered or disposed of, the individual so signing shall have ceased to hold such office;
     FURTHER RESOLVED, that Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Banc One Capital Markets, Inc., Barclays Capital Inc. and Commerzbank Capital Markets Corp. are appointed underwriters for the issuance and sale of the Securities of such series, and the Chairman of the Board, the President or any Vice President of the Company is authorized, in the Company’s name and on its behalf, to execute and deliver an Underwriting Agreement, substantially in the form heretofore approved by the Company’s Board of Directors, with such underwriters, with such changes and insertions therein as are appropriate to conform such Underwriting Agreement to the terms set forth herein or otherwise as the officer executing such Underwriting Agreement shall approve and as are not inconsistent with these resolutions, such approval to be conclusively evidenced by such officer’s execution and delivery of the Underwriting Agreement;
     FURTHER RESOLVED, that Bank One Trust Company, National Association, the Trustee under the Indenture, is appointed trustee for Securities of such series, and as Agent of this Company for the purpose of effecting the registration, transfer and exchange of the Securities of such series as provided in the Indenture, and the corporate trust office of Bank One Trust Company, National Association, in Chicago, Illinois is designated pursuant to the Indenture as the office or agency of the Company where such Securities may be presented for registration, transfer and exchange and where notices and demands to or upon this Company in respect of the Securities and the Indenture may be served;
     FURTHER RESOLVED, that Bank One Trust Company, National Association, is appointed Paying Agent of this Company for the payment of interest on and principal of the Securities of such series, and the corporate trust office of Bank One Trust Company, National Association, is designated, pursuant

 

to the Indenture, as the office or agency of the Company where Securities may be presented for payment; and
     FURTHER RESOLVED, that each of the Company’s officers is authorized and directed, on behalf of the Company and in its name, to do or cause to be done everything such officer deems advisable to effect the sale and delivery of the Securities of such series pursuant to the Underwriting Agreement and otherwise to carry out the Company’s obligations under the Underwriting Agreement, and to do or cause to be done everything and to execute and deliver all documents as such officer deems advisable in connection with the execution and delivery of the Underwriting Agreement and the execution, authentication and delivery of such Securities (including, without limiting the generality of the foregoing, delivery to the Trustee of the Securities for authentication and of requests or orders for the authentication and delivery of Securities).

 

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK (THE “DEPOSITARY” ), TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
MASCO CORPORATION
5 7 / 8 % Notes Due 2012
$500,000,000
     CUSP No. 574599AX4
     Masco Corporation, a corporation duly organized and existing under the laws of Delaware (herein called the “Company,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Five Hundred Million Dollars on July 15, 2012, and to pay interest thereon from June 27, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 15 and July 15 in each year, commencing January 15, 2003, at the rate of 5 7 / 8 % per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not

 

less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on the Securities shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
     Payment of the principal of (and premium, if any) and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
     Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
     Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated: June 27, 2002
 	 	 	 	 	
 	MASCO CORPORATION
 	 	
 	By  	/s/ John R. Leekley  	 	
 	 	Name:  	John R. Leekley 	 	
 	 	Title:  	Senior Vice President and General Counsel 	 	

Attest:	 	/s/ Eugene A. Gargaro	 	 	
 	 	 	 	 	
 	 	Name:	 	Eugene A. Gargaro, Jr.	 	 	
 	 	Title:	 	Secretary	 	 	

 

FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION
     This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Date of Authentication: June 27, 2002

Bank One Trust Company, National Association,
as Trustee
 	 	
 	By  	 	 	
 	 	Authorized Officer  	 	

 

 	 	 	 	 	
REVERSE OF SECURITY
     This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities”), issued and to be issued in one or more series under an Indenture, dated as of February 12, 2001 (herein called the “Indenture”), between the Company and Bank One Trust Company, National Association, as Trustee (herein called the “ Trustee,” which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, initially limited in aggregate principal amount to $500,000,000.
     The Notes will be redeemable at the option of the Company, in whole at any time or in part from time to time (each, a “Redemption Date”) at a redemption price equal to the greater of (i) 100% of their principal amount plus accrued interest to the Redemption Date and (ii) the sum, as determined by the Independent Investment Banker, of the present values of the principal amount and the remaining scheduled payments of interest on the Notes to be redeemed (exclusive of interest accrued to such Redemption Date), discounted from the scheduled payment dates to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points plus accrued but unpaid interest thereon to the Redemption Date. Notwithstanding the foregoing, installments of interest on Notes that are due and payable on an interest payment date falling on or prior to the relevant Redemption Date will be payable to the holders of such Notes registered as such at the close of business on the relevant record date according to their terms and the provisions of the Indenture.
      “Comparable Treasury Issue” means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes to be redeemed.
      “Comparable Treasury Price” means, with respect to any Redemption Date, the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or if the Trustee obtains fewer than three such Reference

 

Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.
      “Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
      “Reference Treasury Dealer” means (a) each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney, Inc. and their respective successors, unless either of them ceases to be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”), in which case the Company shall substitute another Primary Treasury Dealer; and (b) any other Primary Treasury Dealer selected by the Company.
      “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date for the Notes, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time, on the third Business Day preceding such Redemption Date.
      “Treasury Rate” means, with respect to any Redemption Date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated on the third Business Day preceding such Redemption Date using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury price for such Redemption Date.
     This Security will be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture.
     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in

 

exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
     As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
     No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security herein provided, and at the times, place and rate, and in the coin or currency, herein prescribed.
     As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
     The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.

 

     No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
     Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
     All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

 

Exhibit 4.b.i(ii)
RESOLUTIONS OF THE PRICING COMMITTEE
OF THE BOARD OF DIRECTORS OF
MASCO CORPORATION
AUGUST 15, 2002
     WHEREAS, Masco Corporation, a Delaware corporation (the “Company”) the Company has filed A Registration Statement (No. 333-73802) on Form S-3 with the Securities and Exchange Commission, which is in effect;
     WHEREAS, the Company desires to create two series of securities under the indenture dated as of February 12, 2001 (the “Indenture”), with Bank One Trust Company, National Association, (the “Trustee”), providing for the issuance from time to time of unsecured debentures, notes or other evidences of indebtedness of this Company (“Securities”) in one or more series under such Indenture; and
     WHEREAS, capitalized terms used in these resolutions and not otherwise defined are used with the same meaning ascribed to such terms in the Indenture;
     THEREFORE, BE IT RESOLVED, that there is established two series of Securities under the Indenture, the terms of which shall be as follows:
      5-Year Notes
     1. The Securities of one series shall be designated as the “4-5/8% Notes Due 2007.”
     2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to Three Hundred Million Dollars ($300,000,000), except for Securities of such series authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07 of the Indenture.
     3. The date on which the principal of the Securities of such series shall be payable is August 15, 2007.
     4. The Securities of such series shall bear interest from August 20, 2002 at the rate of 4-5/8% per annum, payable semi-annually on February 15 and August 15 of each year commencing on February 15, 2003 until the principal thereof is paid or made available for payment. The February 1 or August 1 (whether or not a business day), as the case may be, next preceding each such interest payment date shall be the “record date” for the determination of holders to whom interest is payable.

 

     5. The Securities of such series shall be issued initially in the form of global securities registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), and will be held by the Trustee as custodian for DTC. The Securities shall be subject to the procedures of DTC and will not be issued in definitive registered form.
     6. The principal of and interest on the Securities of such series shall be payable at the office or agency of this Company maintained for such purpose in Chicago, Illinois or at any other office or agency designated by the Company for such purpose pursuant to the Indenture.
     7. The Securities of such series shall be subject to redemption in whole or in part prior to maturity, at the Company’s option, at a redemption price established in accordance with current market practice, substantially as follows: the redemption price shall be equal to the greater of (i) 100% of the principal amount of the Securities plus accrued interest to the redemption date, or (ii) the sum of the present values of the remaining principal amount and scheduled payments of interest on the Securities of such series to be redeemed (other than accrued interest to the redemption date), discounted to the redemption date on a semi-annual basis at the appropriate treasury rate plus 20 basis points plus accrued interest to the redemption date.
     8. The Securities of such series shall be issuable in denominations of One Thousand Dollars ($1,000) and any integral multiples thereof.
     9. The Securities shall be issuable at a price such that this Company shall receive Two Hundred Ninety Six Million Seven Hundred Twenty Four Thousand Dollars ($296,724,000) after an underwriting discount of One Million Eight Hundred Thousand Dollars ($1,800,000).
     10. The Securities shall be subject to Defeasance and discharge pursuant to Section 4.02 of the Indenture and to Covenant Defeasance pursuant to Section 10.06 of the Indenture with respect to any term, provision or condition set forth in any negative or restrictive covenant of the Company applicable to the Securities.
      30-Year Notes
     1. The Securities of one series shall be designated as the “6-1/2% Notes Due 2032.”
     2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to Three Hundred Million Dollars ($300,000,000), except for Securities of such series authenticated and delivered upon registration of, transfer of, or in exchange for, or

 

in lieu of, other Securities of such series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07 of the Indenture.
     3. The date on which the principal of the Securities of such series shall be payable is August 15, 2032.
     4. The Securities of such series shall bear interest from August 20, 2002 at the rate of 6-1/2% per annum, payable semi-annually on February 15 and August 15 of each year commencing on February 15, 2003 until the principal thereof is paid or made available for payment. The February 1 or August 1 (whether or not a business day), as the case may be, next preceding each such interest payment date shall be the “record date” for the determination of holders to whom interest is payable.
     5. The Securities of such series shall be issued initially in the form of global securities registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), and will be held by the Trustee as custodian for DTC. The Securities shall be subject to the procedures of DTC and will not be issued in definitive registered form.
     6. The principal of and interest on the Securities of such series shall be payable at the office or agency of this Company maintained for such purpose in Chicago, Illinois or at any other office or agency designated by the Company for such purpose pursuant to the Indenture.
     7. The Securities of such series shall be subject to redemption in whole or in part prior to maturity, at the Company’s option, at a redemption price established in accordance with current market practice, substantially as follows: the redemption price shall be equal to the greater of (i) 100% of the principal amount of the Securities plus accrued interest to the redemption date, or (ii) the sum of the present values of the remaining principal amount and scheduled payments of interest on the Securities of such series to be redeemed (other than accrued interest to the redemption date), discounted to the redemption date on a semi-annual basis at the appropriate treasury rate plus 30 basis points plus accrued interest to the redemption date.
     8. The Securities of such series shall be issuable in denominations of One Thousand Dollars ($1,000) and any integral multiples thereof.
     9. The Securities shall be issuable at a price such that this Company shall receive Two Hundred Ninety Four Million Six Hundred Three Thousand Dollars ($294,603,000) after an underwriting discount of Two Million Six Hundred Twenty Five Thousand Dollars ($2,625,000).

 

     10. The Securities shall be subject to Defeasance and discharge pursuant to Section 4.02 of the Indenture and to Covenant Defeasance pursuant to Section 10.06 of the Indenture with respect to any term, provision or condition set forth in any negative or restrictive covenant of the Company applicable to the Securities.
     FURTHER RESOLVED, that the Securities of each such series are declared to be issued under the Indenture and subject to the provisions hereof;
     FURTHER RESOLVED, that the Chairman of the Board, the President or any Vice President of the Company is authorized to execute, on the Company’s behalf and in its name, and the Secretary or any Assistant Secretary of the Company is authorized to attest to such execution and under the Company’s seal (which may be in the form of a facsimile of the Company’s seal), $300,000,000 aggregate principal amount of the 4-5/8% Notes Due 2007 (the “5-Year Notes”) and $300,000,000 aggregate principal amount of the 6-1/2% Notes Due 2032 (the “30-Year Notes”) (and in addition in each case Securities to replace lost, stolen, mutilated or destroyed Securities and Securities required for exchange, substitution or transfer, all as provided in the Indenture) and to deliver such Securities to the Trustee for authentication, and the Trustee is authorized and directed thereupon to authenticate and deliver the same to or upon the written order of this Company as provided in the Indenture;
     FURTHER RESOLVED, that the signatures of the Company officers so authorized to execute the Securities of such series may be the manual or facsimile signatures of the present or any future authorized officers and may be imprinted or otherwise reproduced thereon, and the Company for such purpose adopts each facsimile signature as binding upon it notwithstanding the fact that at the time the respective Securities shall be authenticated and delivered or disposed of, the individual so signing shall have ceased to hold such office;
     FURTHER RESOLVED, that Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Banc One Capital Markets, Inc., Barclays Capital Inc. and Commerzbank Capital Markets Corp. are appointed underwriters for the issuance and sale of the Securities of each such series, and the Chairman of the Board, the President or any Vice President of the Company is authorized, in the Company’s name and on its behalf, to execute and deliver an Underwriting Agreement, substantially in the form heretofore approved by the Company’s Board of Directors, with such underwriters, with such changes and insertions therein as are appropriate to conform such Underwriting Agreement to the terms set forth herein or otherwise as the officer executing such Underwriting Agreement shall approve and as are not inconsistent with these resolutions, such approval to be conclusively evidenced by such officer’s execution and delivery of the Underwriting Agreement;

 

     FURTHER RESOLVED, that Bank One Trust Company, National Association, the Trustee under the Indenture, is appointed trustee for Securities of each such series, and as Agent of this Company for the purpose of effecting the registration, transfer and exchange of the Securities of such series as provided in the Indenture, and the corporate trust office of Bank One Trust Company, National Association, in Chicago, Illinois is designated pursuant to the Indenture as the office or agency of the Company where such Securities may be presented for registration, transfer and exchange and where notices and demands to or upon this Company in respect of the Securities and the Indenture may be served;
     FURTHER RESOLVED, that Bank One Trust Company, National Association, is appointed Paying Agent of this Company for the payment of interest on and principal of the Securities of each such series, and the corporate trust office of Bank One Trust Company, National Association, is designated, pursuant to the Indenture, as the office or agency of the Company where Securities may be presented for payment; and
     FURTHER RESOLVED, that each of the Company’s officers is authorized and directed, on behalf of the Company and in its name, to do or cause to be done everything such officer deems advisable to effect the sale and delivery of the Securities of each such series pursuant to the Underwriting Agreement and otherwise to carry out the Company’s obligations under the Underwriting Agreement, and to do or cause to be done everything and to execute and deliver all documents as such officer deems advisable in connection with the execution and delivery of the Underwriting Agreement and the execution, authentication and delivery of such Securities (including, without limiting the generality of the foregoing, delivery to the Trustee of the Securities for authentication and of requests or orders for the authentication and delivery of Securities).

 

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK (THE “DEPOSITARY”), TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
MASCO CORPORATION
6 1 / 2 % Notes Due 2032
$300,000,000
CUSIP No. 574599AY2
     Masco Corporation, a corporation duly organized and existing under the laws of Delaware (herein called the “Company,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Three Hundred Million Dollars on August 15, 2032, and to pay interest thereon from August 20, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 15 and August 15 in each year, commencing February 15, 2003, at the rate of 6 1 / 2 % per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in. whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the February 1 or August 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of

 

Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on the Securities shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
     Payment of the principal of (and premium, if any) and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
     Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
     Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated: August 20, 2002
 	 	 	 	 	
 	MASCO CORPORATION
 	 	
 	By  	/s/ Timothy Wadhams  	 	
 	 	Timothy Wadhams 	 	
 	 	Vice President and
Chief Financial Officer 	 	

 	 	 	
Attest:  	/s/ Eugene A. Gargaro, Jr.  	 	 	
 	Eugene A. Gargaro, Jr. 	 	 	
 	Secretary 	 	 	

 

 	 	 	 	 	
FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION
     This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Date of Authentication: August 20, 2002
 	 	 	 	 	
 	Bank One Trust Company, National Association,
as Trustee
 	 	
 	By  	/s/ Illegible  	 	
 	 	Authorized Officer  	 	

   

 

REVERSE OF SECURITY
     This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities” ), issued and to be issued in one or more series under an Indenture, dated as of February 12, 2001 (herein called the “Indenture”), between the Company and Bank One Trust Company, National Association, as Trustee (herein called the “Trustee,” which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, initially limited in aggregate principal amount to $300,000,000.
     The Notes will be redeemable at the option of the Company, in whole at any time or in part from time to time (each, a “Redemption Date”) at a redemption price equal to the greater of (i) 100% of their principal amount plus accrued interest to the Redemption Date and (ii) the sum, as determined by the Independent Investment Banker, of the present values of the principal amount and the remaining scheduled payments of interest on the Notes to be redeemed (exclusive of interest accrued to such Redemption Date), discounted from the scheduled payment dates to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points plus accrued but unpaid interest thereon to the Redemption Date. Notwithstanding the foregoing, installments of interest on Notes that are due and payable on an interest payment date falling on or prior to the relevant Redemption Date will be payable to the holders of such Notes registered as such at the close of business on the relevant record date according to their terms and the provisions of the Indenture.
      “Comparable Treasury Issue” means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes to be redeemed.
      “Comparable Treasury Price” means, with respect to any Redemption Date, the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or if the Trustee obtains fewer than three such Reference

 

Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.
      “Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
      “Reference Treasury Dealer” means (a) each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney, Inc. and their respective successors, unless either of them ceases to be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer” ), in which case the Company shall substitute another Primary Treasury Dealer; and (b) any other Primary Treasury Dealer selected by the Company.
      “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date for the Notes, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time, on the third Business Day preceding such Redemption Date.
      “Treasury Rate” means, with respect to any Redemption Date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated on the third Business Day preceding such Redemption Date using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury price for such Redemption Date.
     This Security will be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture.
     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in

 

exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
     As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
     No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security herein provided, and at the times, place and rate, and in the coin or currency, herein prescribed.
     As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
     The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.

 

     No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
     Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
     All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

 

Exhibit 10.b.ii
MASCO CORPORATION
NON-EMPLOYEE DIRECTORS EQUITY PROGRAM
UNDER THE 2005 LONG TERM STOCK INCENTIVE PLAN
     For purposes of this Program, an “Eligible Director” is any Director of Masco Corporation (the “Company”) who is not an employee of the Company and who receives a fee for services as a Director.
Section 1. Restricted Stock Award
     (a) Each Eligible Director who is first elected or appointed to the Board after December 4, 2007 shall receive, as of the date of such election or appointment, an award of Restricted Stock equal to one-half of the annual retainer paid to Eligible Directors in the year immediately prior to the award multiplied by five; provided, that the amount of Restricted Stock awarded to any Eligible Director who begins serving as a Director other than at the beginning of a calendar year shall be prorated to reflect the partial service of the initial year of the Director’s term, such proration to be effected in the initial vesting. Awards of Restricted Stock hereunder shall vest in twenty percent annual installments (disregarding fractional shares) on January 1 of each of the five consecutive years following the year in which the award is made, and the price of the Shares used in determining the number of Shares of Restricted Stock which shall be issued to such Eligible Director shall be the fair market value of the Shares as determined by the Board of Directors on the date on which such Eligible Director is elected or appointed.
     (b) Upon the full vesting of any initial award of Restricted Stock hereunder, each Eligible Director shall receive an annual award of Restricted Stock valued at one-half of the annual retainer. The number of Shares subject to such award shall be determined generally in accordance with the provisions of Section 1(a); provided, however, that the Board shall have sole discretion to adjust the amount of retainer then to be paid in the form of Shares and the terms of any such award of Shares. Except as the Board may otherwise determine, any increase or decrease in an Eligible Director’s annual retainer during the period when such Director has an outstanding award of Restricted Stock shall be implemented by increasing or decreasing the cash portion of such Director’s retainer.
     (c) Each Eligible Director shall be entitled to vote and receive dividends on the unvested portion of his or her Restricted Stock, but will not be able to obtain a stock certificate or sell, encumber or otherwise transfer such Restricted Stock except in accordance with the terms of the 2005 Long Term Stock Incentive Plan, as amended from time to time (the “2005 Plan”). If an Eligible Director’s term of service as a Director is terminated for any reason other than death or permanent and total disability or retirement on or after normal retirement age as specified in the Company’s Corporate Governance Guidelines, all shares of Restricted Stock theretofore awarded to the Eligible Director which are still subject to restrictions shall upon such termination be forfeited and transferred back to the Company; provided, however, that a pro rata portion of the Restricted Stock which would have vested on January 1 of the year following the year of the Eligible Director’s termination shall vest on the date of termination, based upon the portion of the year during which the Eligible Director served as a Director of the Company.
     (d) Notwithstanding the foregoing or clause (f) below, if an Eligible Director continues to hold an award of Restricted Stock following termination of service as a Director (including retirement), the Shares of Restricted Stock which remain subject to restrictions shall nonetheless be forfeited and transferred back to the Company if the Board at any time thereafter determines that the former Director has engaged in any activity detrimental to the interests of the Company.
     (e) If an Eligible Director’s term is terminated by reason of death or permanent and total disability or if following retirement as a Director a former Director continues to have rights under an Award of Restricted Stock and thereafter dies, the restrictions contained in the Award shall lapse with respect to such Restricted Stock.
     (f) If an Eligible Director’s term is terminated by reason of retirement on or after normal retirement age as specified in the Company’s Corporate Governance Guidelines, the restrictions contained in the Award of Restricted Stock shall continue to lapse in the same manner as though the term had not terminated.
     (g) The provisions of Section 6(d)(v) of the 2005 Plan (acceleration) shall not apply to awards of Restricted Stock to Eligible Directors.
 1 

 

Section 2. Stock Option Grant
     (a) On the date of each of the Company’s annual stockholders meetings, each person who is or becomes an Eligible Director on that date and whose service on the Board will continue after such date shall be granted a Stock Option to purchase 8,000 Shares.
     (b) Stock Options granted under this program shall be non-qualified stock options and shall have the following terms and conditions.
     1.  Term of Option . The term of the Stock Option shall be ten years from the date of grant, subject to earlier termination in the event of termination of service as an Eligible Director. If an Eligible Director’s term of service as a Director is terminated for any reason other than death, the Director may thereafter exercise the Stock Option as provided below, except that the Board may terminate the unexercised portion of the Stock Option concurrently with or at any time following termination if it shall determine that the former Director has engaged in any activity detrimental to the interests of the Company. If an Eligible Director’s term is terminated for any reason other than death or permanent and total disability or retirement on or after normal retirement age as specified in the Company’s Corporate Governance Guidelines, at a time when such Director is entitled to exercise an outstanding Stock Option, then such Stock Option may be exercised as to all or any of the Shares which the Eligible Director was entitled to purchase at the date of termination until the earlier of (i) the expiration of the original term, or (ii) one year after death. That portion of the Stock Option not exercisable at the time of such termination shall be forfeited and transferred back to the Company on the date of such termination. If an Eligible Director’s term is terminated by reason of permanent and total disability, any portion of a Stock Option that is not then exercisable shall become fully exercisable and shall remain exercisable until the earlier of the expiration of the original option term or one year after death. If an Eligible Director retires from service as a Director on or after normal retirement age as specified in the Company’s Corporate Governance Guidelines, such Stock Option shall continue to become exercisable and shall remain exercisable in accordance with its terms and the provisions of the 2005 Plan. If an Eligible Director dies, all unexercisable installments of the Stock Option shall thereupon become exercisable and at any time or times within one year after death such Stock Option may be exercised as to all or any unexercised portion of the Stock Option. Except as so exercised, such Stock Option shall expire at the end of such period. Except as provided above, a Stock Option may be exercised only if and to the extent such Stock Option was exercisable at the date of termination of service as an Eligible Director, and a Stock Option may not be exercised at a time when the Stock Option would not have been exercisable had the service as an Eligible Director continued.
     2.  Exercisability . Subject to clause 1 above, each Stock Option shall vest and become exercisable with respect to twenty percent of the underlying Shares on each of the first five anniversaries of the date of grant, provided that the optionee is an Eligible Director on such date.
Section 3. Non-Compete Provision
     Each award of Restricted Stock and Stock Option granted hereunder shall contain a provision whereby the award holder shall agree, in consideration for the award and regardless of whether restrictions on shares of Restricted Stock have lapsed or whether the Stock Option becomes exercisable or is exercised, as the case may be, as follows:
     (a) While the holder is a Director of the Company and for a period of one year following the termination of such holder’s term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a “Prohibited Capacity” (as hereinafter defined) with any other entity engaged in, any “Business Activities” (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. “Business Activities” shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time the award is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. “Prohibited Capacity”
 2 

 

shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of the holder’s duties or responsibilities with such other entity, or (2) an investment by the award holder in such other entity represents more than 1% of such other entity’s capital stock, partnership or other ownership interests.
     (b) Should the award holder either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting an award each award holder shall agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company’s right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from an award of Restricted Stock and/or the exercise of a Stock Option, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such income is realized from restrictions lapsing on shares or exercises occurring, as the case may be, on or after the termination of the award holder’s term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to the award holder by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by the award holder hereunder.
Section 4. Termination, Modification or Suspension
     The Board of Directors may terminate, modify or suspend this Program at any time as it may deem advisable.
 3 

EXHIBIT 10.b.ii(i)
[Form for Non-Employee Directors]
Restricted Stock Award Agreement
[Date]
<Name>
<Address1>
<Address2>
<Address3>
<Address4>
Dear <Salutation>:
     On behalf of the Company, I am pleased to inform you that on [date] the Board of Directors granted you an Award of Restricted Stock, pursuant to the Non-Employee Directors Equity Program (the “Program”) under the Company’s 2005 Long Term Stock Incentive Plan (the “Plan”), of shares of the Company’s $1.00 par value Common Stock. This letter and the attached Appendix (the “Agreement”) state the terms of the Award and contain other provisions which on your acceptance commit the Company and you, so I urge you to read it them carefully. You should also read the Program, the Plan, and the Prospectus dated [date], which are available from the Company. Enclosed are copies of these documents as well as our latest annual report to stockholders and proxy statement to the extent our records indicate you may not have previously received them.
Terms of Award:
     Certificates for the shares of stock evidencing the Restricted Stock will not be issued but the shares will be registered in your name in book entry form promptly after your acceptance of this Award. You will be entitled to vote and receive any cash dividends on the Restricted Stock, but you will not be able to obtain a stock certificate or sell, encumber or otherwise transfer the shares except in accordance with the Plan.
     The number of shares of Restricted Stock you have been awarded is [number of shares].
     Provided since the date of the Award you have continuously served as an Eligible Director, as hereinafter defined, the restrictions on 20% of the shares will automatically lapse on January 1, ___ and on each January 1 thereafter until all shares are free of restrictions, in each case based on the initial number of shares. An Eligible Director is any Director of the Company who is not an employee of the Company and who receives a fee for services as a Director. If your term as an Eligible Director should be terminated by reason of your death or permanent and total disability, or if following retirement from your term as an Eligible Director you thereafter die, the restrictions on all Restricted Stock will lapse and your rights to the shares will become vested on the date of such termination. If your term as an Eligible Director terminates by reason of retirement on or after normal retirement age as specified in the Company’s Corporate Governance Guidelines, the restrictions contained in the Award shall continue to lapse in the same manner as though your term had not terminated. If your term as an Eligible Director is terminated for any reason other than death or permanent and total disability or retirement on or after normal retirement age as specified in the Company’s Corporate Governance Guidelines, while restrictions remain in effect, the Restricted Stock that has not vested shall be automatically forfeited and transferred back to the Company; provided, however, that a pro rata portion of the Restricted Stock which would have vested on January 1 of the year following the year of such termination shall vest on the date of termination, based upon the portion of the year during which you served as an Eligible Director of the Company.
     Notwithstanding the foregoing and as provided in the Plan, if at any time you engage in an activity following your termination of service which in the sole judgment of the Board of Directors is detrimental to the interests of the Company, a subsidiary or an affiliated company, all shares of Restricted Stock which remain subject

 

to restrictions shall be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, “Business Activities” (as defined in the Appendix) for purposes of this Award and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture provisions.
     As restrictions lapse, a certificate for the number of shares of Restricted Stock as to which restrictions have lapsed will be forwarded to you or the person or persons entitled to the shares.
Other Terms and Acceptance:
     We agree that all of the terms and conditions of the Award are reflected in this Agreement and in the Program and Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of restricted stock or stock options except as may be evidenced by agreements duly executed by you and the Company.
     By accepting this Award you: (a) represent that you are familiar with the provisions of the Program and Plan and agree to their incorporation in this Agreement; (b) agree to provide promptly such information with respect to the Restricted Stock as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this Award are embodied herein and in the Program and Plan.
     Section 3 of the Plan provides that the Organization and Compensation Committee shall have the authority to make all determinations that may arise in connection with the Plan. It further provides that the Organization and Compensation Committee interpretation of the terms and provisions of the Plan shall be final and conclusive.
     Please complete your mailing address and social security number as indicated below, sign, date and return the copy of this Award Agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this Award may become effective. Since the Restricted Stock cannot be registered in your name until we receive the signed copies of this Agreement, and since dividend, voting and other rights will only become effective at that time, your prompt attention and acceptance will be greatly appreciated.
 	 	 	 	 	 	 	
 	 	Very truly yours,	 	 	
 	 	 	 	 	 	 	
 	 	MASCO CORPORATION	 	 	

 	 	[Name]	 	 	
 	 	[Title]	 	 	
 	 	 	 	 	 	 	
I accept and agree to the foregoing.	 	 	 	 	 	 	

 	 	(Signature of Recipient)	 	 	

 	 	 	 	 	

 	 	(Mailing Address)	 	 	

 	 	(Social Security Number)	 	 	
 	 	 	 	 	 	 	
 	 	Dated:	 	 	 	 	
 	 	 	 	 	 	 	
 2 

 

Appendix to Award Agreement
     Masco Corporation (the “Company”) and you agree that all of the terms and conditions of the award of Restricted Shares (the “Grant”) contained in the foregoing letter agreement into which this Appendix is incorporated (the “Agreement”) are reflected in the Agreement and in the 2005 Long Term Stock Incentive Plan (the “Plan”), and that there are no other commitments or understandings currently outstanding with respect to any awards except as may be evidenced by agreements duly executed by you and the Company.
     By signing the Agreement you acknowledge acceptance of the Grant and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Grant, as may be requested by the Company.
     In addition you agree, in consideration for the Grant, and regardless of whether restrictions on shares subject to the Grant have lapsed, while you are a Director of the Company and for a period of one year following any termination of your term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a “Prohibited Capacity” (as hereinafter defined) with any other entity engaged in, any “Business Activities” (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. “Business Activities” shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time while the Grant is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. “Prohibited Capacity” shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, or (2) an investment by you in such other entity represents more than 1% of such other entity’s capital stock, partnership or other ownership interests.
     Should you either breach or challenge in judicial, arbitration or other proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting this Grant you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company’s right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from this Grant, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such income is realized from restrictions lapsing on shares on or after the termination of your term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
     By accepting this Grant you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (b) acknowledge that all of your rights to the Grant are embodied in the Agreement and in the Plan.
 3 

 

     Section 3 of the Plan provides, in part, that the Committee appointed by the Company’s Board of Directors to administer the Plan shall have the authority to interpret the Plan and Grant agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Company’s Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other restricted stock awards or option or other agreements relating to Company Common Stock or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, and you shall be deemed to be an employee within the scope of the Dispute Resolution Policy and you and the Company shall be bound as if you were an employee for all claims within the scope of the Dispute Resolution Policy, except as otherwise agreed in writing by you and the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company’s and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company with respect to any of the Company’s option, restricted stock or other stock-based incentive plans to the extent the provisions of such other agreement requires arbitration between you and the Company, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.
     The Agreement shall be governed by and interpreted in accordance with Michigan law.
 4 

Exhibit 10.b.ii(ii)
[Form for Non-Employee Directors]
Stock Option Grant Agreement
[Date]
<Name>
<Address1>
<Address2>
<Address3>
<Address4>
Dear <Salutation>:
     On behalf of the Company, I am pleased to inform you that on [date], the Board of Directors granted you a non-qualified stock option pursuant to the Non-Employee Directors Equity Program (the “Program”) under the Company’s 2005 Long Term Stock Incentive Plan (the “Plan”), subject to the conditions set forth below and in the Appendix attached hereto. This letter and the attached Appendix (the “Agreement”) state the terms of the option and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the Program, the Plan and Prospectus dated [date] covering the shares which are the subject of this option. Enclosed are copies of these documents as well as our latest annual report to stockholders and proxy statement to the extent our records indicate you may not have previously received them. Copies are also available upon request to the Company. We suggest that you review each of these documents. The federal income tax attributes of non-qualified stock options are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an “incentive stock option” under the Internal Revenue Code.
     This option, if accepted by you, grants you the right to purchase [no. of shares] shares of Company Common Stock, $1.00 par value, at a price of [$                      ] per share, which the Board has determined is the fair market value of a share of the Company Common Stock on the date of grant.
When the Option is Exercisable and Termination
     This option is exercisable cumulatively in installments of 20% commencing as of [date], 20% as of [date], 20% as of [date], 20% as of [date] and 20% as of [date]; provided that, subject to the last sentence of this paragraph, on each date of exercise you are an Eligible Director, as hereinafter defined. An Eligible Director is any Director of the Company who is not an employee of the Company and who receives a fee for services as a Director. All installments of the option as above described must be exercised no later than [expiration date]; all unexercised installments or portions thereof shall lapse and the right to purchase shares pursuant to this option shall be of no further effect after such date. If during the option exercise periods your term as an Eligible Director is terminated for any reason, this option shall terminate in accordance with the following paragraph, the Program and Section 6 of the Plan.

 

     Notwithstanding the foregoing or anything in the Plan:
     (i) If your service as a Director is terminated by reason of permanent and total disability, any portion of the option that is not then exercisable shall become fully exercisable and shall remain exercisable in accordance with its terms and the provisions of the Program and Plan until the earlier of the expiration of the original option term or one year after death.
     (ii) If you retire on or after normal retirement age as specified in the Company’s Corporate Governance Guidelines, the option shall continue to become exercisable and shall remain exercisable in accordance with its terms and the provisions of the Program and Plan.
     (iii) If your service as a Director terminates for any reason other than as a result of death, permanent and total disability or retirement due to age, any portion of the option that is then exercisable will remain exercisable until the earlier of the expiration of the original option term or one year after death.
     (iv) If your service as a Director terminates as a result of death, all unexercisable installments of the option shall thereupon become exercisable and at any time or times within one year after death such options may be exercised as to all or any unexercised portion of the option.
     As provided in the Plan, if at any time you engage in an activity following your termination of service which in the sole judgment of the Board of Directors is detrimental to the interests of the Company, a subsidiary or an affiliated company, all unexercised installments or portions of the option will be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, “Business Activities” (as defined in the Appendix) for purposes of this option and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture provisions.
Acceptance
     We agree that all of the terms and conditions of this option are reflected in this Agreement and the Program and Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of stock options or restricted stock except as may be evidenced by agreements duly executed by you and the Company.
     By accepting this option you: (a) represent that you are familiar with the provisions of the Program and Plan and agree to their incorporation in this Agreement; (b) agree to provide promptly such information with respect to shares acquired pursuant to this option as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this option are embodied herein and in the Program and Plan.
     Section 3 of the Plan provides that the Organization and Compensation Committee shall have the authority to make all determinations that may arise in connection with the Plan. It further provides that the Organization and Compensation Committee’s interpretation of the terms and provisions of the Plan shall be final and conclusive.
 2 

 

     Please complete your mailing address and Social Security number as indicated below and sign, date and return the copy of this Agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this option grant may become effective.
 	 	 	 	 	 	 	
 	 	Very truly yours,	 	 	
 	 	 	 	 	 	 	
 	 	MASCO CORPORATION	 	 	

 	 	[Name]	 	 	
 	 	[Title]	 	 	
 	 	 	 	 	 	 	
I accept and agree to all the foregoing terms and conditions.	 	 	 	 	 	 	

 	 	(Signature of Recipient)	 	 	

 	 	 	 	 	

 	 	(Mailing Address)	 	 	

 	 	(Social Security Number)	 	 	
 	 	 	 	 	 	 	
 	 	Dated:	 	 	 	 	
 	 	 	 	 	 	 	
 3 

 

 	 	 	 	 	
Appendix to Option Agreement
     Masco Corporation (the “Company”) and you agree that all of the terms and conditions of the grant of the option (the “Option”) contained in the foregoing letter agreement into which this Appendix is incorporated (the “Agreement”) are reflected in the Agreement and in the 2005 Long Term Stock Incentive Plan (the “Plan”), and that there are no other commitments or understandings currently outstanding with respect to any other awards except as may be evidenced by agreements duly executed by you and the Company.
     By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company.
     In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are a Director of the Company and for a period of one year following the termination of your term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a “Prohibited Capacity” (as hereinafter defined) with any other entity engaged in, any “Business Activities” (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. “Business Activities” shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time the Option is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. “Prohibited Capacity” shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, or (2) an investment by you in such other entity represents more than 1% of such other entity’s capital stock, partnership or other ownership interests.
     Should you either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company’s right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such exercises occurred on or after the termination of your term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
     By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (b) acknowledge that all of your rights to the Option are embodied in the Agreement and in the Plan.
 4 

 

     Section 3 of the Plan provides, in part, that the Committee appointed by the Company’s Board of Directors to administer the Plan shall have the authority to interpret the Plan and award agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Company’s Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company Common Stock or restricted stock awards or other awards or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, and you shall be deemed to be an employee within the scope of the Dispute Resolution Policy and you and the Company shall be bound as if you were an employee for all claims within the scope of the Dispute Resolution Policy, except as otherwise agreed in writing by you and the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company’s and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company with respect to any of the Company’s option or restricted stock incentive plans or other awards to the extent the provisions of such other agreement requires arbitration between you and the Company, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.
     The Agreement shall be governed by and interpreted in accordance with Michigan law.
 5 

Exhibit 10.c
The forms of the Masco Corporation Supplemental Executive Retirement and Disability Plan for named executive officers are filed herewith. The specific terms of individual arrangements for other executive officers vary, but none are more favorable to an executive than those filed herewith.

 

Form for: Richard A. Manoogian
John R. Leekley
October 2, 2000
Dear :
          Our company’s Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company’s pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company’s Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the “Plan”. You are currently a participant in the Plan upon the terms of a letter agreement signed by you and dated                  , . This Agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company’s obligations to you, and yours to the Company. These benefits as described below are contractual obligations of the Company.
     For the purposes of this Agreement, words and terms are defined as follows:
          a. “Average Compensation” shall mean the aggregate of your highest three years’ total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three, provided , however , (x) if you have on the date of determination less than three full years of employment the foregoing calculation shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed, and (y) if the determination of Average Compensation includes any year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Average Compensation would have been absent such salary reduction and absent such generally applicable program.
          b. A “Change in Control” shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or

 

					
 	 	Page 2	 	October 2, 2000	
becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
          c. “Code” means the Internal Revenue Code of 1986, as amended.
          d. “Company” shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
          e. The “Deferred Compensation Trust” shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
          f. “Disability” and “Disabled” shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
          g. The “Gross-Up Amount” (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the “Excise Tax”), and (ii) shall mean an additional payment (the “Excise Tax Adjustment Payment”) in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the “Gross-Up Amount”, including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
          h. “PBGC” shall mean the Pension Benefit Guaranty Corporation.
          i. “Present Value” of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is four months prior to the month in which a Change in Control occurs (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to

 

					
 	 	Page 3	 	October 2, 2000	
be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
          j. “Profit Sharing Conversion Factor” shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
          k. “Retirement” shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
          l. “SERP Percentage” of your Average Compensation is 60%.
          m. “Surviving Spouse” shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a “Change in Control” for the purposes of paragraph 10 if none of clauses (i) through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, “Surviving Spouse” shall be any spouse entitled to any benefits hereunder.
          n. If you become Disabled, “Total Compensation” shall mean your annual base salary rate at the time of your Disability plus the regular year-end cash bonus paid to you for the year immediately prior thereto, provided , however , if the determination of Total Compensation is for a year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Total Compensation would have been absent such salary reduction and absent such generally applicable program.
          o. “Vested Percentage” shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years you have been designated a participant in the Plan; provided , however , (w) prior to completing five Years of Service the Vested Percentage is 0,(x) on or prior to your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 5% by the number of birthdays that have occurred

 

					
 	 	Page 4	 	October 2, 2000	
following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
          p. “Year” shall mean twelve full consecutive months, and “year” shall mean a calendar year.
          q. “Years of Service” shall mean the number of Years during which you were employed by the Company (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
     1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, and (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
     2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
     3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided (x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and (z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
     4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by (1) multiplying your SERP Percentage at the date your employment terminated by your Average

 

					
 	 	Page 5	 	October 2, 2000	
Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the “excess amount”) the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (assuming for purposes of this clause no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided , further , if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the discounted Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
     5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (assuming no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however , only to commence on the date such benefit is first payable), and (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company’s qualified defined benefit contribution plans (excluding your

 

					
 	 	Page 6	 	October 2, 2000	
contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
     6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled.
     7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled.
     8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as “the SERP Percentage of your Average Compensation”, as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
     9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company’s Retirement Benefits Restoration Plan. For this purpose benefits received under the Company’s non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
     10.  Change in Control . (i) Immediately upon the occurrence of any Change in Control:
          (1) If you are then employed by the Company, your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
          (2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then

 

					
 	 	Page 7	 	October 2, 2000	
deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
          (A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
          (B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
          (C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
          (D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
          (ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
          (iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate

 

					
 	 	Page 8	 	October 2, 2000	
specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided , however , that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse’s certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
          (iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse’s name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an “Underpayment”), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
          (v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
     11. We also agree upon the following:
          a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company’s Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company’s officers and executives (in either case, the “Committee”), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the

 

					
 	 	Page 9	 	October 2, 2000	
dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
          b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person’s benefit under any circumstances any of the Company’s Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
          c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
          In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
          d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
          e. At the Company’s request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse’s cooperation in providing such information is a condition to the receipt of survivor’s benefits under this Agreement.

 

					
 	 	Page 10	 	October 2, 2000	
          f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse’s debts, contracts, torts or other engagements of any kind.
          g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
          h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse’s written application, or by the applicant’s personal representative in the event of any legal disability.
          i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company’s general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company’s general creditors, and are not set aside for your or your Surviving Spouse’s benefit.
          j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse’s trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
          k. This Agreement shall be governed by the laws of the State of Michigan.
     12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as “dispute”) involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
     The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
     The arbitrator’s sole authority shall be to apply the clauses of this Agreement.

 

					
 	 	Page 11	 	October 2, 2000	
     We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
     We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
     We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
 	 	 	 	 	
 	Sincerely,

MASCO CORPORATION
 	 	
 	By  	 	 	
 	 	Richard A. Manoogian 	 	
 	 	Chief Executive Officer 	 	

 	 	 		
 	  	 	 		
 	 	DATE:  	 	 		

 

 	 	 	 	 	
					
 	 	Form of Amendment for: Richard A. Manoogian	
 	 	 	 	Alan Barry	
March 31, 2004
[Participant]
Dear [Participant],
          Masco’s Organization and Compensation Committee over the past several years has approved a number of major improvements to the benefits for our executives covered by Masco’s program for supplemental retirement and other benefits (the “SERP Plan”). At its October meeting this Committee authorized a significant additional enhancement under your agreement pursuant to the SERP Plan (the “SERP Agreement”) by increasing the percentage of your bonus eligible for inclusion in the SERP calculation from 50% of your base salary to 60% of your maximum bonus opportunity. An additional change would be made in the calculation of disability payments by changing the definition of “Total Compensation” from 150% of your then current salary to the sum of your then current salary and 60% of your then current bonus opportunity.) The provisions in your SERP Agreement, allowing certain carry-forwards or carry-backs of bonus payments in excess of what was 50% of your base salary would also be modified.
          This enhancement was, in part, approved to partially offset the effect of the current freeze on your salary. Accordingly, the existing provision in your SERP Agreement, which requires a calculation of benefits on the assumption that all compensation freezes are disregarded, would be eliminated.
          In order for these changes to be implemented in your SERP Agreement, the definitions of “Average Compensation” and “Total Compensation” in your SERP Agreement would be amended to read as follows:
Average Compensation
          “Average Compensation shall mean the aggregate of your highest three years total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of your maximum bonus opportunity for such year), divided by three, provided, however, (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of your maximum bonus opportunity for such year, (y) if you have on the date of determination less than three full years of employment, the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.”

 

[Participant]
March 31, 2004
Page Two
Total Compensation
          If you become Disabled, “Total Compensation” shall mean the sum of your annual base salary rate and 60% of your then effective bonus opportunity at the time of your Disability.”
          Should you have any questions regarding this proposed amendment, please feel free to discuss them with Dan Foley, John Leekley or me. If not, I would appreciate your execution and return of a copy of this letter to Gene Gargaro, at which time the above described amendment will become effective.
          This letter supersedes the letter agreement of December 5, 2003 between you and the Company.
Sincerely yours,
I agree to the above amendment
of my SERP Agreement changing
definition of “Average Compensation”
and “Total Compensation” as set
forth above.

 

Form for: Alan Barry
October 2, 2000
Dear :
          Our company’s Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company’s pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company’s Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the “Plan”. You are currently a participant in the Plan upon the terms of a letter agreement signed by you and dated               , . This Agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company’s obligations to you, and yours to the Company. These benefits as described below are contractual obligations of the Company.
     For the purposes of this Agreement, words and terms are defined as follows:
     a. “Average Compensation” shall mean the aggregate of your highest three years’ total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three, provided , however , (x) if you have on the date of determination less than three full years of employment the foregoing calculation shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed, and (y) if the determination of Average Compensation includes any year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Average Compensation would have been absent such salary reduction and absent such generally applicable program.
     b. A “Change in Control” shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the

 

					
 	 	 	 	 	
 	 	Page 2	 	October 2, 2000	
combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
     c. “Code” means the Internal Revenue Code of 1986, as amended.
     d. “Company” shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
     e. The “Deferred Compensation Trust” shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
     f. “Disability” and “Disabled” shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
     g. The “Gross-Up Amount” (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the “Excise Tax”), and (ii) shall mean an additional payment (the “Excise Tax Adjustment Payment”) in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the “Gross-Up Amount”, including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
     h. “PBGC” shall mean the Pension Benefit Guaranty Corporation.
     i. “Present Value” of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is four months prior to the month in which a Change in Control occurs (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to

 

					
 	 	 	 	 	
 	 	Page 3	 	October 2, 2000	
be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
     j. “Profit Sharing Conversion Factor” shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
     k. “Retirement” shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
     l. “SERP Percentage” of your Average Compensation is 60% if at the date of determination you have completed 15 or more Years of Service, and decreases by increments of four percentage points for each Year or portion thereof less than 15 that you have accumulated at the date of determination. The minimum SERP Percentage is 20% after five Years of Service; prior to completing five Years of Service the SERP Percentage is 0.
     m. “Surviving Spouse” shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a “Change in Control” for the purposes of paragraph 10 if none of clauses (i) through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, “Surviving Spouse” shall be any spouse entitled to any benefits hereunder.
     n. If you become Disabled, “Total Compensation” shall mean your annual base salary rate at the time of your Disability plus the regular year-end cash bonus paid to you for the year immediately prior thereto, provided , however , if the determination of Total Compensation is for a year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Total Compensation would have been absent such salary reduction and absent such generally applicable program.
     o. “Vested Percentage” shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years you have been designated a participant in the Plan; provided , however , (w) prior to completing

 

					
 	 	 	 	 	
 	 	Page 4	 	October 2, 2000	
five Years of Service the Vested Percentage is 0,(x) on or prior to your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 5% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
     p. “Year” shall mean twelve full consecutive months, and “year” shall mean a calendar year.
     q. “Years of Service” shall mean the number of Years during which you were employed by the Company (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
     1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you by reason of employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
     2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
     3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided (x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and (z) the benefits under this paragraph 3

 

					
 	 	 	 	 	
 	 	Page 5	 	October 2, 2000	
shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
     4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by (1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the “excess amount”) the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (with your SERP Percentage determined as though you were given credit for additional Years of Service until age 65 but no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided , further , if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the discounted Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the discounted Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.

 

					
 	 	 	 	 	
 	 	Page 6	 	October 2, 2000	
     5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (with your SERP Percentage determined as though you were given credit for additional Years of Service but no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however , only to commence on the date such benefit is first payable), (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company’s qualified defined benefit contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you or your Surviving Spouse by reason of your employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
     6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled and with your SERP Percentage given credit for Years of Service while you were Disabled.
     7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled and with your SERP Percentage given credit for Years of Service from the date you became Disabled to the date you would have attained age 65.
     8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as “the SERP Percentage of your Average Compensation”, as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number

 

					
 	 	 	 	 	
 	 	Page 7	 	October 2, 2000	
of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
     9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company’s Retirement Benefits Restoration Plan. For this purpose benefits received under the Company’s non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
     10.  Change in Control . (i) Immediately upon the occurrence of any Change in Control:
     (1) If you are then employed by the Company, (i) your SERP Percentage, if not already 60%, shall be deemed for all purposes of this Agreement to be the lesser of 60% or the percentage resulting by adding to your SERP Percentage immediately prior thereto the product obtained by multiplying 4% by the number of Years which would then have to elapse prior to your attainment of age 65, and (ii) your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
     (2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
     (A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
     (B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
     (C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
     (D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.

 

					
 	 	 	 	 	
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(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
          (ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
          (iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided , however , that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse’s certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
          (iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse’s name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by

 

					
 	 	 	 	 	
 	 	Page 9	 	October 2, 2000	
Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an “Underpayment”), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
          (v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
     11. We also agree upon the following:
     a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company’s Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company’s officers and executives (in either case, the “Committee”), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
     b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person’s benefit under any circumstances any of the Company’s Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
     c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no

 

					
 	 	 	 	 	
 	 	Page 10	 	October 2, 2000	
Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
     In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
     d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
     e. At the Company’s request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse’s cooperation in providing such information is a condition to the receipt of survivor’s benefits under this Agreement.
     f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse’s debts, contracts, torts or other engagements of any kind.
     g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
     h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse’s written application, or by the applicant’s personal representative in the event of any legal disability.
     i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company’s general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company’s general creditors, and are not set aside for your or your Surviving Spouse’s benefit.

 

					
 	 	 	 	 	
 	 	Page 11	 	October 2, 2000	
     j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse’s trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
     k. This Agreement shall be governed by the laws of the State of Michigan.
     12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as “dispute”) involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
     The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
     The arbitrator’s sole authority shall be to apply the clauses of this Agreement.
     We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
     We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.

 

					
 	 	 	 	 	
 	 	Page 12	 	October 2, 2000	
     We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
 	 	 	 	 	 	 	 	
 	 	 	 	Sincerely,

MASCO CORPORATION
 	 	
 	 	 	 	By  	 	 	
 	 	 	 	 	Richard A. Manoogian 	 	
 	 	 	 	 	Chief Executive Officer 	 	
 	 	 	 	 	
DATE: 	 	 	 	 	 	 	

 

 	 	 	 	 	
 	 	 	 	 	
 	 	Form of Amendment for:	 	Eugene A. Gargaro, Jr.
John R. Leekley	
 	 	 	 	 	
 	 	December 5, 2003	 	 	
[Participant’s Address]
[Dear Participant]
          Masco’s Organization and Compensation Committee over the past several years has approved a number of major improvements to the benefits for our executives covered by Masco’s program for supplemental retirement and other benefits (the “SERP Plan”). At its October meeting this Committee authorized a significant additional enhancement under your agreement pursuant to the SERP Plan (the “SERP Agreement”) by increasing the percentage of your bonus eligible for inclusion in the SERP calculation from 50% to 60% of your base salary. (A corresponding change would be made in the calculation of disability payments by changing the definition of “Total Compensation” to 160% from 150% of your then current salary.) The provisions in your SERP Agreement, allowing certain carry-forwards or carry-backs of bonus payments in excess of what was 50% and is now 60%, would be retained.
          This enhancement was, in part, approved to partially offset the effect of the current freeze on your salary. Accordingly, the existing provision in your SERP Agreement, which requires a calculation of benefits on the assumption that all compensation freezes are disregarded, would be eliminated.
          In order for these changes to be implemented in your SERP Agreement, the definitions of “Average Compensation” and “Total Compensation” in your SERP Agreement would be amended to read as follows:
Average Compensation
          “Average Compensation shall mean the aggregate of your highest three years total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of the base salary paid during such year), divided by three, provided, however, (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of the base salary paid during that year, (y) if you have on the date of determination less than three full years of employment, the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.”

 

[Participant’s Name]
December 5, 2003
Page Two
Total Compensation
‘If you become Disabled, “Total Compensation” shall mean 160% of your annual base salary rate at the time of your Disability.”
Should you have any questions regarding this proposed amendment, please feel free to discuss them with Dan Foley, John Leekley or me. If not, I would appreciate your execution and return of a copy of this letter to Gene Gargaro, at which time the above described amendment will become effective.
 	 	 	 	 	
 	Sincerely yours,

 	Richard A. Manoogian 	 	
 	Chairman 	 	
 	
I agree to the above amendment
of my SERP Agreement changing
definition of “Average Compensation”
and “Total Compensation” as set
forth above.

   

 

Form for: Eugene A. Gargaro, Jr.
October 2, 2000
Dear :
          Our company’s Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company’s pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company’s Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the “Plan”. You are currently a participant in the Plan upon the terms of a letter agreement signed by you and dated      , . This Agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company’s obligations to you, and yours to the Company. These benefits as described below are contractual obligations of the Company.
     For the purposes of this Agreement, words and terms are defined as follows:
     a. “Average Compensation” shall mean the aggregate of your highest three years’ total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three, provided , however , (x) if you have on the date of determination less than three full years of employment the foregoing calculation shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed, and (y) if the determination of Average Compensation includes any year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Average Compensation would have been absent such salary reduction and absent such generally applicable program.
     b. A “Change in Control” shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than

 

					
 	 	Page 2	 	October 2, 2000	
pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
          c. “Code” means the Internal Revenue Code of 1986, as amended.
          d. “Company” shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
          e. The “Deferred Compensation Trust” shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
          f. “Disability” and “Disabled” shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
          g. The “Gross-Up Amount” (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the “Excise Tax”), and (ii) shall mean an additional payment (the “Excise Tax Adjustment Payment”) in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the “Gross-Up Amount”, including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
          h. “PBGC” shall mean the Pension Benefit Guaranty Corporation.
          i. “Present Value” of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is four months prior to the month in which a Change in Control occurs (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).

 

					
 	 	Page 3	 	October 2, 2000	
          j. “Profit Sharing Conversion Factor” shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
          k. “Retirement” shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
          l. “SERP Percentage” of your Average Compensation is 60%.
          m. “Surviving Spouse” shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a “Change in Control” for the purposes of paragraph 10 if none of clauses (i) through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, “Surviving Spouse” shall be any spouse entitled to any benefits hereunder.
          n. If you become Disabled, “Total Compensation” shall mean your annual base salary rate at the time of your Disability plus the regular year-end cash bonus paid to you for the year immediately prior thereto, provided , however , if the determination of Total Compensation is for a year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Total Compensation would have been absent such salary reduction and absent such generally applicable program.
          o. “Vested Percentage” shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years you have been designated a participant in the Plan; provided , however , (w) prior to completing five Years of Service the Vested Percentage is 0,(x) on or prior to your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 5% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.

 

					
 	 	Page 4	 	October 2, 2000	
          p. “Year” shall mean twelve full consecutive months, and “year” shall mean a calendar year.
          q. “Years of Service” shall mean the number of Years during which you were employed by the Company (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
     1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) any retirement benefits paid or payable to you by reason of employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
     2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
     3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided (x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and (z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
     4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime,

 

					
 	 	Page 5	 	October 2, 2000	
subject to paragraph 8 below, the Vested Percentage of the result obtained by (1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the “excess amount”) the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (assuming for purposes of this clause no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided , further , if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the discounted Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
     5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (assuming no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however , only to commence on the date such benefit is first payable), (ii) a sum equal to the annual payments which would be received by

 

					
 	 	Page 6	 	October 2, 2000	
your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company’s qualified defined benefit contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, and (iii) any retirement benefits paid or payable to you or your Surviving Spouse by reason of your employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
     6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled.
     7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled.
     8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as “the SERP Percentage of your Average Compensation”, as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
     9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company’s Retirement Benefits Restoration Plan. For this purpose benefits received under the Company’s non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.

 

					
 	 	Page 7	 	October 2, 2000	
10. Change in Control . (i) Immediately upon the occurrence of any Change in Control:
     (1) If you are then employed by the Company, your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
     (2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
     (A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
     (B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
     (C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
     (D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.

 

					
 	 	Page 8	 	October 2, 2000	
          (ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
          (iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided , however , that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse’s certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
          (iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse’s name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an “Underpayment”), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.

 

					
 	 	Page 9	 	October 2, 2000	
          (v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
     11. We also agree upon the following:
          a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company’s Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company’s officers and executives (in either case, the “Committee”), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
          b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person’s benefit under any circumstances any of the Company’s Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
          c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
          In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
          d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the

 

					
 	 	Page 10	 	October 2, 2000	
unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
          e. At the Company’s request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse’s cooperation in providing such information is a condition to the receipt of survivor’s benefits under this Agreement.
          f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse’s debts, contracts, torts or other engagements of any kind.
          g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
          h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse’s written application, or by the applicant’s personal representative in the event of any legal disability.
          i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company’s general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company’s general creditors, and are not set aside for your or your Surviving Spouse’s benefit.
          j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse’s trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
          k. This Agreement shall be governed by the laws of the State of Michigan.
     12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes,

 

					
 	 	Page 11	 	October 2, 2000	
claims or controversies which could be the subject of litigation (hereafter referred to as “dispute”) involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
     The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
     The arbitrator’s sole authority shall be to apply the clauses of this Agreement.
     We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
     We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
     We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
 	 	 	 	 	
 	Sincerely,

MASCO CORPORATION
 	 	
 	By  	 	 	
 	 	Richard A. Manoogian 	 	
 	 	Chief Executive Officer		

DATE:                                         

 

February 6, 2008
Mr. Timothy Wadhams
[Address]
Dear Tim:
          In light of the recent increase in your annual cash bonus opportunity from 100% of your base salary, the Organization and Compensation Committee of our Board of Directors has approved a change in your Supplemental Executive Retirement Plan to increase the amount of your annual bonus which is includible in “Average Compensation”, as that term is used in your SERP Agreement. In order to implement this change, the definition of “Average Compensation” in your SERP Agreement would be changed to read as follows:
Average Compensation
          “Average Compensation” shall mean the aggregate of your highest three years total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of your maximum bonus opportunity for such year), divided by three, provided , however , (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of your maximum bonus opportunity for such year, (y) if you have on the date of determination less than three full years of employment, the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.
          In order to make this change effective, please sign the enclosed copy of this letter agreement and return it to Gene Gargaro.
 	 	 	 	 	
 	Sincerely yours,
 	 	
 	/s/ Richard A. Manoogian
 	 	
 	Richard A. Manoogian 	 	
 	Executive Chairman 	 	
 	
I agree to the above-described amendment
to my Supplemental Executive Retirement
Plan with the Company
 	 	 	 	 	
/s/ Timothy Wadhams 	 	 	

 

[Form]
March 15, 2005
Mr. Timothy Wadhams
Dear Mr. Wadhams:
          Our Company’s Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company’s pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the Company’s Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the “Plan”. You are currently a participant in a similar plan maintained by Metaldyne Corporation (formerly known as MascoTech, Inc.) (“Metaldyne”) upon the terms of a letter agreement signed by you and dated November 21, 2000 as modified by paragraph 6 of an employment, release and consulting agreement (“the November 22 Agreement”) dated November 22, 2000 (such plan as so modified referred to herein as the “Existing Agreement”). Concurrently with your execution of this Agreement you have waived and released Metaldyne Corporation from all rights to which you were previously entitled under the Existing Agreement. The agreements contained in this letter, once accepted by you, establish your participation in the Plan as of the date hereof and describe in full your benefits pursuant to the Plan and all of the Company’s obligations to you, and yours to the Company with respect to the Plan. These benefits as described below are contractual obligations of the Company.
For the purposes of this Agreement, words and terms are defined as follows:
     a. “Average Compensation” shall mean the aggregate of your highest three year’s total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of the base salary in effect at the end of such year), divided by three, provided , however , (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of the base salary in effect at the end of that year, and (y) if you have on the date of determination less than three full years of employment the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.
     b. A “Change in Control” shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors

 

					
Mr. Timothy Wadhams	 	Page 2	 	March 15, 2005	
whose election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
     c. “Code” means the Internal Revenue Code of 1986, as amended.
     d. “Company” shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
     e. The “Deferred Compensation Trust” shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
     f. “Disability” and “Disabled” shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
     g. The “Gross-Up Amount” (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the “Excise Tax”), and (ii) shall mean an additional payment (the “Excise Tax Adjustment Payment”) in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the “Gross-Up Amount”, including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
     h. “PBGC” shall mean the Pension Benefit Guaranty Corporation.
     i. “Present Value” of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month

 

					
Mr. Timothy Wadhams	 	Page 3	 	March 15, 2005	
which is (i) four months prior to the month in which a Change in Control occurs or (ii) the month in which your death occurs if the Present Value is being calculated under the proviso in the last sentence of paragraph 4 (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
     j. “Profit Sharing Conversion Factor” shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
     k. “Retirement” shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
     l. “SERP Percentage” of your Average Compensation is 60%.
     m. “Surviving Spouse” shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a “Change in Control” for the purposes of paragraph 10 if none of clauses (i) through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, “Surviving Spouse” shall be any spouse entitled to any benefits hereunder.
     n. If you become Disabled, “Total Compensation” shall mean 160% of your annual base salary rate at the time of your Disability.
     o. “Vested Percentage” shall mean 100%.
     p. “Year” shall mean twelve full consecutive months, and “year” shall mean a calendar year.
     q. “Years of Service” shall mean the number of Years during which you were employed by the Company (including Years of Service for the time you were employed by Metaldyne and its predecessors but excluding Years of Service with any other corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).

 

					
Mr. Timothy Wadhams	 	Page 4	 	March 15, 2005	
	 	 	 	 	
     1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) any retirement benefits paid or payable to you by reason of employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers); provided , however , in all cases the amount offset pursuant to these subsections (i), (ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
     2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
     3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death. In addition to the foregoing, the Company guarantees the performance by Metaldyne of its obligations under clause (ii) of paragraph 4(b) of the November 22 Agreement.
     4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by (1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company and Metaldyne funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s and Metaldyne’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse

 

					
Mr. Timothy Wadhams	 	Page 5	 	March 15, 2005	
survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company’s and Metaldyne’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s and Metaldyne’s Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the “excess amount”) the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (assuming for purposes of this clause no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers (other than Metaldyne), but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers); provided , however , in all cases the amount offset pursuant to these subsections (i), (ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided , further , if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
     5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however , only to commence on the date such benefit is first payable), (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, and (iii) any retirement benefits paid or payable to you or your Surviving Spouse by reason of your employment by all other employers (the amount of such deduction, in the case of benefits paid or

 

					
Mr. Timothy Wadhams	 	Page 6	 	March 15, 2005	
payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers); provided , however , in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
     6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled.
     7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled.
     8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as “the SERP Percentage of your Average Compensation”, as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
     9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company’s Retirement Benefits Restoration Plan. For this purpose benefits received under the Company’s non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 3, the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
     10.  Change in Control . (i) Immediately upon the occurrence of any Change in Control:
     (1) If you are then employed by the Company, your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
     (2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then

 

					
Mr. Timothy Wadhams	 	Page 7	 	March 15, 2005	
deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
     (A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
     (B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
     (C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
     (D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
     (3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (after giving effect to the last sentence of paragraph 3 and the provisions of clause (ii) of paragraph 4(b) of the November 22 Agreement)(A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
     (4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
          (ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.

 

					
Mr. Timothy Wadhams	 	Page 8	 	March 15, 2005	
          (iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided , however , that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse’s certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
          (iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse’s name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an “Underpayment”), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
          (v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
     11. We also agree upon the following:
     a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company’s Board of Directors, or any other committee however titled which shall be

 

					
Mr. Timothy Wadhams	 	Page 9	 	March 15, 2005	
vested with authority with respect to the compensation of the Company’s officers and executives (in either case, the “Committee”), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
     b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person’s benefit under any circumstances any of the Company’s Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
     c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
     In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
     d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
     e. At the Company’s request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse’s

 

					
Mr. Timothy Wadhams	 	Page 10	 	March 15, 2005	
cooperation in providing such information is a condition to the receipt of survivor’s benefits under this Agreement.
     f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse’s debts, contracts, torts or other engagements of any kind.
     g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
     h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse’s written application, or by the applicant’s personal representative in the event of any legal disability.
     i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company’s general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company’s general creditors, and are not set aside for your or your Surviving Spouse’s benefit.
     j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse’s trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
     k. This Agreement shall be governed by the laws of the State of Michigan.
     12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as “dispute”) involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
     The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.

 

					
Mr. Timothy Wadhams	 	Page 11	 	March 15, 2005	
     The arbitrator’s sole authority shall be to apply the clauses of this Agreement.
     We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
     We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
     We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
 	 	 	 	 	
 	Sincerely,

MASCO CORPORATION
 	 	
 	By  	 	 	
 	 	Richard A. Manoogian 	 	
 	 	Chief Executive Officer 	 	

DATE:                                                                     

 

February 6, 2008
Mr. Donald J. DeMarie, Jr.
[Address]
Dear Donny:
          In light of the recent increase in your annual cash bonus opportunity from 100% of your base salary, the Organization and Compensation Committee of our Board of Directors has approved a change in your Supplemental Executive Retirement Plan to increase the amount of your annual bonus which is includible in “Average Compensation”, as that term is used in your SERP Agreement. In order to implement this change, the definition of “Average Compensation” in your SERP Agreement would be changed to read as follows:
Average Compensation
          “Average Compensation” shall mean the aggregate of your highest three years total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of your maximum bonus opportunity for such year), divided by three, provided , however , (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of your maximum bonus opportunity for such year, (y) if you have on the date of determination less than three full years of employment, the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.
          In addition, the Organization and Compensation Committee has also determined that it is no longer appropriate to prevent any vesting of benefits from occurring until your fiftieth birthday. In order to implement this change, the definition of “Vested Percentage” in your SERP Agreement would be changed to read as follows:
Vested Percentage
          “Vested Percentage” shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years, while an employee of the Company, you have been designated a participant in the Plan; provided , however , (w) prior to completing five Years of Service the Vested Percentage is 0, (x) on your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 10% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.

 

          In order to make these changes effective, please sign the enclosed copy of this letter agreement and return it to Gene Gargaro.
 	 	 	 	 	
 	 	Sincerely yours,	 	 	
 	 	 	 	 	
 	 	/s/ Timothy Wadhams	 	 	
 	 	 	 	 	
 	 	Timothy Wadhams
President and Chief Executive Officer	 	 	
 	 	 	 	 	
I agree to the above-described amendments	 	 	 	 	
to my Supplemental Executive Retirement	 	 	 	 	
Plan with the Company	 	 	 	 	
 	 	 	 	 	
/s/ Donald J. DeMarie, Jr.
 
Donald J. DeMarie, Jr.	 	 	 	 	

 

[Form]
July 1, 2006
Mr. Donald J. DeMarie, Jr.
[Address]
Dear Donny:
          Our Company’s Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company’s pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the Company’s Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the “Plan”. I am pleased to inform you that I have designated you as a participant in the Plan, and this Agreement describes in full your benefits pursuant to the Plan and all of the Company’s obligations to you, and yours to the Company with respect to the Plan. These benefits as described below are contractual obligations of the Company.
          For the purposes of this Agreement, words and terms are defined as follows:
          a. “Average Compensation” shall mean the aggregate of your highest three years’ total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of the base salary in effect at the end of such year), divided by three, provided , however , (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of the base salary in effect at the end of that year, and (y) if you have on the date of determination less than three full years of employment the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.
          b. A “Change in Control” shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.

 

          c. “Code” means the Internal Revenue Code of 1986, as amended.
          d. “Company” shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
          e. The “Deferred Compensation Trust” shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
          f. “Disability” and “Disabled” shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
          g. The “Gross-Up Amount” (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the “Excise Tax”), and (ii) shall mean an additional payment (the “Excise Tax Adjustment Payment”) in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the “Gross-Up Amount”, including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
          h. “PBGC” shall mean the Pension Benefit Guaranty Corporation.
          i. “Present Value” of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is (i) four months prior to the month in which a Change in Control occurs or (ii) the month in which your death occurs if the Present Value is to be calculated under the proviso in the last sentence of paragraph 4(or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).

 

          j. “Profit Sharing Conversion Factor” shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
          k. “Retirement” shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
          l. “SERP Percentage” of your Average Compensation is 60% if at the date of determination you have completed 15 or more Years of Service, and decreases by increments of four percentage points for each Year or portion thereof less than 15 that you have accumulated at the date of determination. The minimum SERP Percentage is 20% after five Years of Service; prior to completing five Years of Service the SERP Percentage is 0.
          m. “Surviving Spouse” shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a “Change in Control” for the purposes of paragraph 10 if none of clauses (i) through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, “Surviving Spouse” shall be any spouse entitled to any benefits hereunder.
          n. If you become Disabled, “Total Compensation” shall mean 160% of your annual base salary rate at the time of your Disability.
          o. “Vested Percentage” shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years, while an employee of the Company, you have been designated a participant in the Plan; provided , however , (w) prior to your fiftieth birthday the Vested Percentage is 0,(x) on your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 10% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
          p. “Year” shall mean twelve full consecutive months, and “year” shall mean a calendar year.

 

          q. “Years of Service” shall mean the number of Years during which you were employed by the Company (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
     1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you by reason of employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
     2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
     3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided (x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and (z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
     4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by (1)

 

multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the “excess amount”) the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (with your SERP Percentage determined as though you were given credit for additional Years of Service until age 65 but no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided , however , in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating maritalor other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided , further , if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
     5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (with your SERP Percentage determined as though you were given credit for additional Years of Service but no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however , only to commence on the date

 

such benefit is first payable), (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you or your Surviving Spouse by reason of your employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
     6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled and with your SERP Percentage given credit for Years of Service while you were Disabled.
     7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled and with your SERP Percentage given credit for Years of Service from the date you became Disabled to the date you would have attained age 65.
     8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as “the SERP Percentage of your Average Compensation”, as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
     9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company’s Retirement Benefits Restoration Plan. For this purpose benefits received under the Company’s non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in Paragraph 3, the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to

 

this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
     10.  Change in Control . (i) Immediately upon the occurrence of any Change in Control:
          (1) If you are then employed by the Company, (i) your SERP Percentage, if not already 60%, shall be deemed for all purposes of this Agreement to be the lesser of 60% or the percentage resulting by adding to your SERP Percentage immediately prior thereto the product obtained by multiplying 4% by the number of Years which would then have to elapse prior to your attainment of age 65, and (ii) your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
          (2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
               (A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
               (B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;

 

               (C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
               (D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
          (ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
          (iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided , however , that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse’s certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any

 

successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
          (iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse’s name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an “Underpayment”), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
          (v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
11. We also agree upon the following:
          a. Prior to the occurrence of a Change in Control, the Organization and Compensation Committee of the Company’s Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company’s officers and executives (in either case, the “Committee”), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
          b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person’s benefit under any circumstances any of the Company’s Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or

 

marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
          c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
          In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
          d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
          e. At the Company’s request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse’s cooperation in providing such information is a condition to the receipt of survivor’s benefits under this Agreement.
          f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse’s debts, contracts, torts or other engagements of any kind.
          g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.

 

          h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse’s written application, or by the applicant’s personal representative in the event of any legal disability.
          i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company’s general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company’s general creditors, and are not set aside for your or your Surviving Spouse’s benefit.
          j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse’s trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
          k. This Agreement shall be governed by the laws of the State of Michigan.
     12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as “dispute”) involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
     The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
     The arbitrator’s sole authority shall be to apply the clauses of this Agreement.
     We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.

 

     We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
          13. This Agreement shall be administered so as to be compliant with Section 409K of the Code including the six-month waiting period for payments to begin following a separation of employment, if applicable. If such waiting period is applicable, the first payment following the waiting period shall include any payments deferred under this provision.
     We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
 	 	 	 	 	
 	Sincerely,

MASCO CORPORATION
 	 	
 	By  	 	 	
 	 	Richard A. Manoogian 	 	
 	 	Chief Executive Officer 	 	

Donald J. DeMarie, Jr.
DATE:

 

December 4, 2007
Mr. John G. Sznewajs
[Address]
Dear John:
          Our Company’s Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company’s pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the Company’s Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the “Plan”. I am pleased to inform you that I have designated you as a participant in the Plan, and this Agreement describes in full your benefits pursuant to the Plan and all of the Company’s obligations to you, and yours to the Company with respect to the Plan. These benefits as described below are contractual obligations of the Company.
     For the purposes of this Agreement, words and terms are defined as follows:
          a. “Average Compensation” shall mean the aggregate of your highest three years’ total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of the base salary in effect at the end of such year), divided by three, provided , however , (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of the base salary in effect at the end of that year, and (y) if you have on the date of determination less than three full years of employment the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.
          b. A “Change in Control” shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.

 

          c. “Code” means the Internal Revenue Code of 1986, as amended.
          d. “Company” shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
          e. The “Deferred Compensation Trust” shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
          f. “Disability” and “Disabled” shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
          g. The “Gross-Up Amount” (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the “Excise Tax”), and (ii) shall mean an additional payment (the “Excise Tax Adjustment Payment”) in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the “Gross-Up Amount”, including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
          h. “PBGC” shall mean the Pension Benefit Guaranty Corporation.
          i. “Present Value” of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is (i) four months prior to the month in which a Change in Control occurs or (ii) the month in which your death occurs if the Present Value is to be calculated under the proviso in the last sentence of paragraph 4(or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).

 

          j. “Profit Sharing Conversion Factor” shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
          k. “Retirement” shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
          l. “SERP Percentage” of your Average Compensation is 60% if at the date of determination you have completed 15 or more Years of Service, and decreases by increments of four percentage points for each Year or portion thereof less than 15 that you have accumulated at the date of determination. The minimum SERP Percentage is 20% after five Years of Service; prior to completing five Years of Service the SERP Percentage is 0.
          m. “Surviving Spouse” shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a “Change in Control” for the purposes of paragraph 10 if none of clauses (i) through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, “Surviving Spouse” shall be any spouse entitled to any benefits hereunder.
          n. If you become Disabled, “Total Compensation” shall mean 160% of your annual base salary rate at the time of your Disability.
          o. “Vested Percentage” shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years, while an employee of the Company, you have been designated a participant in the Plan; provided , however , (w) prior to completing five Years of Service the Vested Percentage is 0,(x) on your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 10% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
          p. “Year” shall mean twelve full consecutive months, and “year” shall mean a calendar year.

 

          q. “Years of Service” shall mean the number of Years during which you were employed by the Company (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
     1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you by reason of employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
     2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
     3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided (x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and (z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
     4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by (1) multiplying your SERP Percentage at the date your employment terminated by your Average

 

Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the “excess amount”) the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (with your SERP Percentage determined as though you were given credit for additional Years of Service until age 65 but no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided , however , in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided , further , if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
     5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (with your SERP Percentage determined as though you were given credit for additional Years of Service but no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however , only to commence on the date such benefit is first payable), (ii) a sum equal to the annual payments which would be received by

 

your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you or your Surviving Spouse by reason of your employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided , however , in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
     6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled and with your SERP Percentage given credit for Years of Service while you were Disabled.
     7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled and with your SERP Percentage given credit for Years of Service from the date you became Disabled to the date you would have attained age 65.
     8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as “the SERP Percentage of your Average Compensation”, as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
     9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company’s Retirement Benefits Restoration Plan. For this purpose benefits received under the Company’s non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in Paragraph 3, the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken

 

Retirement from the Company.
     10.  Change in Control . (i) Immediately upon the occurrence of any Change in Control:
          (1) If you are then employed by the Company, (i) your SERP Percentage, if not already 60%, shall be deemed for all purposes of this Agreement to be the lesser of 60% or the percentage resulting by adding to your SERP Percentage immediately prior thereto the product obtained by multiplying 4% by the number of Years which would then have to elapse prior to your attainment of age 65, and (ii) your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
          (2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
          (A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
          (B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
          (C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
          (D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.

 

(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
          (ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
          (iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided , however , that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse’s certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
          (iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse’s name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an “Underpayment”), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.

 

          (v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
     11. We also agree upon the following:
          a. Prior to the occurrence of a Change in Control, the Organization and Compensation Committee of the Company’s Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company’s officers and executives (in either case, the “Committee”), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
          b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person’s benefit under any circumstances any of the Company’s Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
          c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
          In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
          d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the

 

unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
          e. At the Company’s request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse’s cooperation in providing such information is a condition to the receipt of survivor’s benefits under this Agreement.
          f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse’s debts, contracts, torts or other engagements of any kind.
          g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
          h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse’s written application, or by the applicant’s personal representative in the event of any legal disability.
          i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company’s general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company’s general creditors, and are not set aside for your or your Surviving Spouse’s benefit.
          j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse’s trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
          k. This Agreement shall be governed by the laws of the State of Michigan.
     12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes,

 

claims or controversies which could be the subject of litigation (hereafter referred to as “dispute”) involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
     The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
     The arbitrator’s sole authority shall be to apply the clauses of this Agreement.
     We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
     We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
          13. This Agreement shall be administered so as to be compliant with Section 409K of the Code including the six-month waiting period for payments to begin following a separation of employment, if applicable. If such waiting period is applicable, the first payment following the waiting period shall include any payments deferred under this provision.
     We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
 	 	 	 	 	
 	Sincerely,

MASCO CORPORATION
 	 	
 	By  	/s/ Timothy Wadhams  	 	
 	 	President and Chief Executive Officer 	 	

 	 	 	 	 	
/s/ John G. Sznewajs  	 	 	
John G. Sznewajs 	 	 	
 	 	 	
DATE: December 21, 2007 	 	 	

 

					
 	 	 	 	October 2, 2000	
Form for: Daniel Foley
October 2, 2000
Dear :
          Our company’s Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company’s pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company’s Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the “Plan”. You are currently a participant in the Plan upon the terms of a letter agreement signed by you and dated      , . This Agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company’s obligations to you, and yours to the Company. These benefits as described below are contractual obligations of the Company.
     For the purposes of this Agreement, words and terms are defined as follows:
          a. “Average Compensation” shall mean the aggregate of your highest three years’ total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three, provided , however , (x) if you have on the date of determination less than three full years of employment the foregoing calculation shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed, and (y) if the determination of Average Compensation includes any year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Average Compensation would have been absent such salary reduction and absent such generally applicable program.
          b. A “Change in Control” shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.

 

					
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          c. “Code” means the Internal Revenue Code of 1986, as amended.
          d. “Company” shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
          e. The “Deferred Compensation Trust” shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
          f. “Disability” and “Disabled” shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
          g. The “Gross-Up Amount” (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the “Excise Tax”), and (ii) shall mean an additional payment (the “Excise Tax Adjustment Payment”) in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the “Gross-Up Amount”, including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
          h. “PBGC” shall mean the Pension Benefit Guaranty Corporation.
          i. “Present Value” of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is four months prior to the month in which a Change in Control occurs (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
          j. “Profit Sharing Conversion Factor” shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the

 

					
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female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
          k. “Retirement” shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
          l. “SERP Percentage” of your Average Compensation is 60%.
          m. “Surviving Spouse” shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a “Change in Control” for the purposes of paragraph 10 if none of clauses (i) through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, “Surviving Spouse” shall be any spouse entitled to any benefits hereunder.
          n. If you become Disabled, “Total Compensation” shall mean your annual base salary rate at the time of your Disability plus the regular year-end cash bonus paid to you for the year immediately prior thereto, provided , however , if the determination of Total Compensation is for a year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Total Compensation would have been absent such salary reduction and absent such generally applicable program.
          o. “Vested Percentage” shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years you have been designated a participant in the Plan; provided , however , (w) prior to completing five Years of Service the Vested Percentage is 0,(x) on or prior to your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 5% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
          p. “Year” shall mean twelve full consecutive months, and “year” shall mean a calendar year.

 

					
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          q. “Years of Service” shall mean the number of Years during which you were employed by the Company or MascoTech, Inc. (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
     1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, and (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
     2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
     3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided (x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and (z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
     4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by (1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum

 

					
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equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company’s qualified defined contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the “excess amount”) the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (assuming for purposes of this clause no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided , further , if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the discounted Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
     5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (assuming no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however , only to commence on the date such benefit is first payable), and (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company’s qualified defined benefit contribution plans (excluding your contributions and earnings thereon in the Company’s 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company’s Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, provided , however , in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any

 

					
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payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
     6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled.
     7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled and with credit for Years of Service from the date you became Disabled.
     8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as “the SERP Percentage of your Average Compensation”, as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
     9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company’s Retirement Benefits Restoration Plan. For this purpose benefits received under the Company’s non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
     10.  Change in Control . (i) Immediately upon the occurrence of any Change in Control:
          (1) If you are then employed by the Company, your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
          (2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:

 

					
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          (A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
          (B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
          (C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
          (D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
          (ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
          (iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by

 

					
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clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided , however , that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse’s certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
          (iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse’s name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an “Underpayment”), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
          (v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
     11. We also agree upon the following:
          a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company’s Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company’s officers and executives (in either case, the “Committee”), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers,

 

					
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the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
          b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person’s benefit under any circumstances any of the Company’s Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
          c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
          In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
          d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
          e. At the Company’s request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse’s cooperation in providing such information is a condition to the receipt of survivor’s benefits under this Agreement.
          f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the

 

					
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power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse’s debts, contracts, torts or other engagements of any kind.
          g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
          h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse’s written application, or by the applicant’s personal representative in the event of any legal disability.
          i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company’s general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company’s general creditors, and are not set aside for your or your Surviving Spouse’s benefit.
          j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse’s trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
          k. This Agreement shall be governed by the laws of the State of Michigan.
     12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as “dispute”) involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
     The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
     The arbitrator’s sole authority shall be to apply the clauses of this Agreement.
     We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since

 

					
 	 	Page 11	 	October 2, 2000	
arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
     We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
     We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
 	 	 	 	 	
 	Sincerely,

MASCO CORPORATION
 	 	
 	By  	 	 	
 	 	Richard A. Manoogian 	 	
 	 	Chief Executive Officer 	 	

DATE:                                                                         

 

Exhibit 10.g
COMPENSATION OF NON-EMPLOYEE DIRECTORS
     Non-employee Directors receive an annual retainer of $80,000, of which one-half is paid in cash. In order to more closely align the compensation of non-employee Directors with long-term enhancement of stockholder value, the other half of the retainer is paid by means of restricted stock granted under our 2005 Long Term Stock Incentive Plan (the “2005 Plan”) in accordance with our Non-Employee Directors Equity Program (the “Directors Equity Program”), which has the same material terms as their 1997 Non-Employee Directors Stock Plan that expired in 2007.
     Grants of restricted stock vest in 20% equal annual installments over a five-year period. A new non-employee Director is given an initial grant of restricted stock valued at one-half of the Director’s total retainer for the initial five years of anticipated service on the Board (subject to adjustment for partial years). After full vesting of the initial grant, each non-employee Director thereafter receives an annual grant of restricted stock valued at one-half of the annual retainer. These annual grants vest over the succeeding five years.
     The Directors Equity Program 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 Masco common stock at the fair market value on the date of grant. In addition, each new non-employee Director receives a one-time stock option grant of 32,000 shares under our 2005 Plan. All of these options become exercisable in equal annual installments on the first five anniversaries of the grant date. Each option has a ten-year term for exercise, except that options may generally be exercised for only a limited period of time upon death or, for options granted before October 27, 2005, following termination of service as a non-employee Director for any reason other than permanent and total disability or retirement on or after Masco’s normal retirement age for Directors.
     The Directors Stock Plan restricts Directors from engaging in certain competitive activities while serving as a Director and for one year following termination of service as a Director. Upon breach of this noncompete agreement, we may require the Director to pay us certain amounts realized from awards of restricted stock and option exercises to the extent realized on or after termination or within two years prior to termination.
     The Board has established stock ownership guidelines for non-employee Directors that require Directors to retain at least 50% of the shares of restricted stock they received until the date of their termination from service as a Director. The vesting arrangements and stock retention requirement are intended to assure that non-employee Directors maintain a financial interest in Masco over an extended period of time.
     We provide a few additional benefits to Directors. Non-employee Directors are eligible to participate in our matching gifts program (which is generally available to our employees) pursuant to which we will match gifts made to eligible educational and cultural institutions up to an aggregate of $10,000 per year for each participant. In addition, if space is available, a Director’s spouse is permitted to accompany the Director who travels to attend Board or committee meetings on Company aircraft. We have permitted, on an infrequent basis, non-employee Directors’ personal use of Company aircraft. Directors are also eligible to participate in our employee purchase program, which is generally available to our employees and enables them to purchase our products for their personal use at discounted prices. We consult with former Directors from time to time and have followed a practice of paying $50,000 per year to former Directors who make themselves available for consulting for two years after ending their service on the Board.

 

Exhibit 10.j
June 15, 2007
Mr. Donald DeMarie
[Address]
Dear Donny:
Richard, Alan and I, as well as other members of the executive staff and members of the Masco Board, are delighted that you have decided to relocate to Michigan and the Masco Corporate Office.
Position
Your new position title is Executive Vice President. As we have discussed, you and I together with the rest of the management team have a tremendous opportunity to continue building on the foundation that Richard, Alan and others have put in place to drive value for our shareholders. We have leadership positions in the markets we serve reflecting our products, brands and the exceptional people who make up Masco; I am excited and I know you are too!
Cash Compensation
Effective July 1, 2007, your base salary will be increased to an annualized rate of $625,000. This will continue to be reviewed, generally on an annual basis, with your next review scheduled for July 1, 2008, or at such time as you assume additional responsibilities, as we have discussed. Your executive cash bonus program will provide you the opportunity to earn a cash bonus of up to 160% of base compensation, based on the yearly goals established for Masco executives by the Organization & Compensation Committee of the Masco Board. The executive stock award program also provides an annual stock award opportunity of up to 160% of base salary.
In recognition of your promotion and to facilitate your relocation, Masco will also pay you an additional, one time, $550,000 cash bonus, such payment to be made when you have signed a purchase agreement on a new home here in the greater Detroit area.
Long Term Incentive Compensation
The Organization and Compensation Committee of the Masco Board approved a special stock award and stock option in recognition of your promotion.
1) The Committee has approved a stock award of 75,000 shares of Masco Corporation common stock. This award has an annual 10%, ten-year vesting schedule. All unvested shares will pay a dividend if declared by the company.
2) The Committee has approved a stock option of 150,000 shares. The exercise price of this stock option is $30.16 per share. Masco’s stock options vest at the rate of 20% per year and are exercisable for ten years from the date of the grant.

 

Page 2 — DeMarie
Purchase of Current Residence
Masco will purchase your current residence for a minimum of $1,450,000. This amount will be adjusted to reflect the higher of the appraisal currently in process or the selling price we ultimately receive upon sale. As discussed, given the current market dynamics we agree that this approach will provide an equitable outcome for you and the Company.
We want to help you make this move without losing focus on your businesses or causing undue stress on your family. You would be responsible for the payment of any taxes or deferred taxes involved in this purchase and the tax implications should be discussed with your personal tax advisor. Masco will be responsible for closing costs on both our purchase and subsequent sale including commissions on the subsequent sale. Any real estate taxes and assessments owed up to the time of Masco’s purchase of the house, would remain your responsibility. You and your family agree to cooperate in Masco’s subsequent showing and sale of the residence through its authorized representative.
Relocation to Michigan Residence
Masco will reimburse you for duplicate living expenses while transitioning from your Florida residence to the new Michigan residence.
Masco will arrange to move your household goods from the old residence to the new residence. The cost of the moving expenses will be paid directly by Masco. Moving expenses include the charges for packing, loading, transporting, unloading, unpacking, and insurance on the transported goods.
Masco will reimburse you for the closing costs and attorney’s fees related to the purchase of your Michigan residence. Closing costs include processing fees, title search, state and local transfer taxes, survey fees, credit reports, abstract fees, recording fees, notary fees, owner’s or lender’s title insurance, termite inspection, mechanical/structural inspection, tests for radon, gas and asbestos.
Contingent Right to Return to Florida
We recognize that you are agreeing to this relocation without contractual assurances of future advancement within Masco. lf, during the three-year period commencing on the date of this letter, you decide that you wish to return to Florida, Masco agrees that it will guarantee that your sale of the Michigan residence you are currently purchasing, assuming your continued ownership of same, will be no less than the purchase price. You, of course, would remain free to sell the house personally if that would prove to be more financially beneficial to you.

 

Page 3 — DeMarie
This right to have Masco relocate you back to Florida is conditioned on your remaining with Masco for, at least, an additional one-year period from the date of the return to Florida. In the event you voluntarily resign or are discharged for cause from Masco, either during the three-year period or during the one-year period following any return to Florida, you agree to reimburse Masco for any payment on your behalf under this provision or forego any payment that this provision might otherwise require.
Additional Provisions
The anticipated starting date here in Taylor is August 1, 2007. Chuck Greenwood will coordinate the details of your relocation to Michigan.
I look forward to your relocation and the opportunity to work with you even more closely than in the past.
Sincerely,
/s/ Tim Wadhams
Tim Wadhams

CC:	 	Richard Manoogian
Chuck Greenwood	

 

Exhibit 12
MASCO CORPORATION
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	(Dollars in Millions)	 	
 	 	Year Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	 	2002	 	
Earnings Before Income Taxes, Preferred Stock Dividends and Fixed Charges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net	 	$	770	 	 	$	914	 	 	$	1,425	 	 	$	1,604	 	 	$	1,302	 	 	$	911	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deduct equity in undistributed (earnings) of fifty-percent-or- less-owned companies	 	 	(2	)	 	 	(1	)	 	 	(1	)	 	 	(1	)	 	 	—	 	 	 	(10	)	
 		
Add interest on indebtedness, net	 	 	258	 	 	 	241	 	 	 	246	 	 	 	214	 	 	 	252	 	 	 	226	 	
 		
Add amortization of debt expense	 	 	5	 	 	 	4	 	 	 	6	 	 	 	6	 	 	 	13	 	 	 	13	 	
 		
Add estimated interest factor for rentals	 	 	55	 	 	 	52	 	 	 	40	 	 	 	33	 	 	 	31	 	 	 	23	 	

Earnings before income taxes, minority interest, cumulative effect of accounting change, net, fixed charges and preferred stock dividends	 	$	1,086	 	 	$	1,210	 	 	$	1,716	 	 	$	1,856	 	 	$	1,598	 	 	$	1,163	 	

Fixed Charges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on indebtedness	 	$	259	 	 	$	241	 	 	$	244	 	 	$	214	 	 	$	252	 	 	$	224	 	
 		
Amortization of debt expense	 	 	5	 	 	 	4	 	 	 	6	 	 	 	6	 	 	 	13	 	 	 	13	 	
 		
Estimated interest factor for rentals	 	 	55	 	 	 	52	 	 	 	40	 	 	 	33	 	 	 	31	 	 	 	23	 	

Total fixed charges	 	$	319	 	 	$	297	 	 	$	290	 	 	$	253	 	 	$	296	 	 	$	260	 	

Preferred stock dividends(a)	 	$	—	 	 	$	—	 	 	$	—	 	 	$	8	 	 	$	16	 	 	$	14	 	

Combined fixed charges and preferred stock dividends	 	$	319	 	 	$	297	 	 	$	290	 	 	$	261	 	 	$	312	 	 	$	274	 	

Ratio of earnings to fixed charges	 	 	3.4	 	 	 	4.1	 	 	 	5.9	 	 	 	7.3	 	 	 	5.4	 	 	 	4.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred stock dividends	 	 	3.4	 	 	 	4.1	 	 	 	5.9	 	 	 	7.1	 	 	 	5.1	 	 	 	4.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred stock dividends excluding certain items	 	 	4.2	 	 	 	5.5	 	 	 	6.2	 	 	 	7.3	 	 	 	5.0	 	 	 	4.8	 	

			
(a)	 	Represents amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company.	
 		
(b)	 	Excludes the 2007 non-cash, pre-tax impairment charges for goodwill and other intangible assets of $227 million and the non-cash, pre-tax impairment charge for financial investments of $22 million; 2006 non-cash, pre-tax impairment charges for goodwill and financial investments of $317 million and $101 million, respectively, and the pre-tax income related to the Behr litigation settlement of $1 million; the 2005 pre-tax income related to the Behr litigation settlement of $6 million, the non-cash, pre-tax impairment charges for goodwill and financial investments of $43 million and $45 million, respectively; the 2004 pre-tax income related to the Behr litigation settlement of $30 million, the non-cash, pre-tax impairment charges for goodwill of $50 million and the pre-tax impairment charge of $21 million related to a marketable security; the 2003 pre-tax income related to the Behr litigation settlement of $72 million and the non-cash, pre-tax goodwill impairment charges of $48 million; and the 2002 pre-tax net charge of $147 million related to the Behr litigation settlement.	

 

Exhibit 21
MASCO CORPORATION
(a Delaware corporation)
Subsidiaries as of January 15, 2008*
 	 	 	 	 	
 	 	 	Jurisdiction of	
Name	 	 	Incorporation or Organization	
 	 	 	 	 	
Airex, LLC	 	 	 	Michigan	
Alsons Corporation	 	 	 	Michigan	
American Shower & Bath Corporation	 	 	 	Michigan	
Aqua Glass Corporation	 	 	 	Tennessee	
Tombigbee Transport Corporation	 	 	 	Tennessee	
Aran World, Inc.	 	 	 	Delaware	
Arrow Fastener Co., Inc.	 	 	 	New Jersey	
Thematic Advertising Productions, LLC	 	 	 	New Jersey	
Behr Asia S.á.r.l.	 	 	 	Luxembourg	
Behr Holdings Corporation	 	 	 	Delaware	
Behr Process Corporation	 	 	 	California	
Behr Paint Corp.	 	 	 	California	
BEHR PAINTS IT!, INC.	 	 	 	California	
Behr Process Canada Ltd.	 	 	 	Alberta, Canada	
BPC Realty LLC	 	 	 	Delaware	
Masterchem Industries LLC	 	 	 	Missouri	
ColorAxis, Inc.	 	 	 	California	
Behr Process Paints (India) Private Limited	 	 	 	India	
BPC Transport Co.	 	 	 	Delaware	
Brass-Craft Manufacturing Company	 	 	 	Michigan	
Masco Canada Limited	 	 	 	Canada	
Tempered Products, Inc.	 	 	 	Taiwan	
Brasstech, Inc.	 	 	 	California	
Brasstech de Mexico, S.A. DE C.V. (99%)	 	 	 	Mexico	
BuildLogix, Inc.	 	 	 	Delaware	
Cobra Products, Inc.	 	 	 	Delaware	
d-Scan, Inc.	 	 	 	Delaware	
EnergySense, Inc.	 	 	 	Delaware	
Epic Fine Arts Company	 	 	 	Delaware	
Beacon Hill Fine Art Corporation	 	 	 	New York	

*	 	Directly owned subsidiaries appear at the left hand margin, first tier, second tier, etc., subsidiaries are indicated by single, double, etc., indentation, respectively, and are listed under the names of their respective parent entities. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these entities may also use trade names or other assumed names in the conduct of their business.	
 -1- 

 

 	 	 	 	 	
 	 	 	Jurisdiction of	
Name	 	 	Incorporation or Organization	
 	 	 	 	 	
Canyon Road Corporation	 	 	 	New Mexico	
Hansgrohe AG (41.35%)      Masco GmbH owns 27% of Hansgrohe AG
(see subsidiaries listed under Hansgrohe AG under Masco GmbH)	 	 	 	Germany	
Jarry Realty, Inc.	 	 	 	Florida	
Landex, Inc.	 	 	 	Michigan	
Brasstech de Mexico, S.A. DE C.V. (1%)	 	 	 	Mexico	
DM Land, LLC	 	 	 	Michigan	
Tapicerias Pacifico, SA de CV (1%)	 	 	 	Mexico	
Landex of Wisconsin, Inc.	 	 	 	Wisconsin	
Liberty Hardware Mfg. Corp.	 	 	 	Florida	
Liberty Hardware Logistics (Shenzen) Co. Ltd.	 	 	 	China	
Masco Administrative Services, Inc.	 	 	 	Delaware	
Masco Asia Pacific Pte Ltd	 	 	 	Singapore	
Masco Builder Cabinet Group	 	 	 	Delaware	
Masco Building Products Corp.	 	 	 	Delaware	
Weiser Thailand	 	 	 	Thailand	
Masco Capital Corporation	 	 	 	Delaware	
Masco Conference Training Center: Metamora, Inc.	 	 	 	Michigan	
Masco Corporation of Indiana	 	 	 	Indiana	
Delta Faucet (China) Co. Ltd.	 	 	 	China	
Delta Faucet (Korea)	 	 	 	Korea	
Delta Faucet Company of Tennessee	 	 	 	Delaware	
Delta Faucet of Oklahoma, Inc.	 	 	 	Delaware	
Masco de Puerto Rico, Inc.	 	 	 	Puerto Rico	
Masco Europe, Inc.	 	 	 	Delaware	
Masco Europe SCS (48.5%)	 	 	 	Luxembourg	
Masco Europe S.á.r.l.	 	 	 	Luxembourg	
Damixa ApS	 	 	 	Denmark	
Damixa Armaturen GmbH	 	 	 	Germany	
Damixa B.V.	 	 	 	Netherlands	
Damixa S.A.	 	 	 	Belgium	
Damixa SARL	 	 	 	France	
Glass Idromassaggio Srl (8.2%)	 	 	 	Italy	
Huppe Insaat Malzemeleri Sanayi ve Ticaret AS	 	 	 	Turkey	
Masco Belgium BVBA	 	 	 	Belgium	

*	 	Directly owned subsidiaries appear at the left hand margin, first tier, second tier, etc., subsidiaries are indicated by single, double, etc., indentation, respectively, and are listed under the names of their respective parent entities. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these entities may also use trade names or other assumed names in the conduct of their business.	
 -2- 

 

 	 	 	 	 	
 	 	 	Jurisdiction of	
Name	 	 	Incorporation or Organization	
 	 	 	 	 	
Thermic Italia S.r.l.	 	 	 	Italy	
Masco Corporation Limited	 	 	 	United Kingdom	
Bristan Group Limited	 	 	 	United Kingdom	
Cambrian Windows Limited	 	 	 	United Kingdom	
Duraflex Limited	 	 	 	United Kingdom	
Liberty Hardware Mfg U.K. Limited	 	 	 	United Kingdom	
Masco UK Window Group Limited	 	 	 	United Kingdom	
Moore Group Limited	 	 	 	United Kingdom	
Moores Furniture Group Limited	 	 	 	United Kingdom	
Premier Manufacturing (PVCu) Limited	 	 	 	United Kingdom	
Premier Trade Windows (Wales & West) Ltd.	 	 	 	United Kingdom	
Masco Denmark ApS	 	 	 	Denmark	
Tvilum-Scanbirk ApS	 	 	 	Denmark	
Tvilum-Scanbirk GmbH	 	 	 	Germany	
Masco Europe Financial SCS	 	 	 	Luxembourg	
Masco Europe Financial SARL	 	 	 	Luxembourg	
Masco International Services BVBA	 	 	 	Belgium	
Masco Germany Holding GmbH	 	 	 	Germany	
Masco GmbH	 	 	 	Germany	
Alfred Reinecke GmbH & Co. KG	 	 	 	Germany	
Glass Idromassaggio S.r.l. (91.8%)	 	 	 	Italy	
Hansgrohe AG (27%)	 	 	 	Germany	
Hansgrohe D	 	 	 	Germany	
Hansgrohe International, Gmbh	 	 	 	Germany	
C.P.T. Holding B.V.	 	 	 	Netherlands	
Hans Grohe AG	 	 	 	Switzerland	
Hans Grohe B.V.	 	 	 	Netherlands	
Hans Grohe CS, s.r.o.	 	 	 	Czech Republic	
Hans Grohe Hdl.ges.m.b.H.	 	 	 	Austria	
Hans Grohe Kft	 	 	 	Hungary	
Hans Grohe Limited	 	 	 	United Kingdom	

*	 	Directly owned subsidiaries appear at the left hand margin, first tier, second tier, etc., subsidiaries are indicated by single, double, etc., indentation, respectively, and are listed under the names of their respective parent entities. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these entities may also use trade names or other assumed names in the conduct of their business.	
 -3- 

 

 	 	 	 	 	
 	 	 	Jurisdiction of	
Name	 	 	Incorporation or Organization	
 	 	 	 	 	
Hans Grohe Pte. Ltd.	 	 	 	Singapore	
Hans Grohe S.A.	 	 	 	Belgium	
Hans Grohe Sp. Z.o.o.	 	 	 	Poland	
Hans Grohe Wasselonne, S.A.	 	 	 	France	
Hansgrohe A.B.	 	 	 	Sweden	
Hansgrohe A/S	 	 	 	Denmark	
Hansgrohe Japan	 	 	 	Japan	
Hansgrohe Ltd.	 	 	 	China	
Hansgrohe Middle East & Africa	 	 	 	Cyprus	
Hansgrohe S.A.	 	 	 	Argentina (95%)	
Hansgrohe S.A.	 	 	 	Spain	
Hansgrohe S.A.R.L.	 	 	 	France	
Hansgrohe S.R.L.	 	 	 	Italy	
Hansgrohe, Inc.	 	 	 	Georgia	
Hansgrohe S.A. (5%)	 	 	 	Argentina	
Pontos GmbH	 	 	 	Germany	
Horst Breuer GmbH & Co. KG	 	 	 	Germany	
Hueppe Belgium N.V./S.A.	 	 	 	Belgium	
Hueppe B.V.	 	 	 	Netherlands	
Hueppe GesmbH	 	 	 	Austria	
Hueppe GmbH & Co.	 	 	 	Germany	
Hueppe Kft.	 	 	 	Hungary	
Hueppe Sarl	 	 	 	France	
Hueppe Sp. z.o.o.	 	 	 	Poland	
Hueppe SRO	 	 	 	Czech Republic	
Hueppe GmbH	 	 	 	Switzerland	
Masco Ireland Ltd.	 	 	 	Ireland	
Reser SL	 	 	 	Spain	
The Heating Company BVBA (fka Vasco N.V.)	 	 	 	Belgium	
The Heating Company — Netherlands BV (fka Masco B.V.)	 	 	 	Netherlands	
Brugman International, B.V.	 	 	 	Netherlands	

*	 	Directly owned subsidiaries appear at the left hand margin, first tier, second tier, etc., subsidiaries are indicated by single, double, etc., indentation, respectively, and are listed under the names of their respective parent entities. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these entities may also use trade names or other assumed names in the conduct of their business.	
 -4- 

 

 	 	 	 	 	
 	 	 	Jurisdiction of	
Name	 	 	Incorporation or Organization	
 	 	 	 	 	
Brugman Fabryka Grzejnikow	 	 	 	Poland	
Brugman Polska Sp. z.o.o.	 	 	 	Poland	
Brugman Radiatorenfabriek B.V.	 	 	 	Netherlands	
The Heating Company Denmark (fka Northor AS)	 	 	 	Denmark	
The Heating Company France (fka Vasco BCSA) 76%	 	 	 	France	
The Heating Company Germany GmbH (fka Brugman GmbH)	 	 	 	Germany	
LTV Transport BVBA	 	 	 	Belgium	
Superia Radiatoren, BVBA	 	 	 	Belgium	
The Heating Company Poland Sp Zoo	 	 	 	Poland	
The Heating Company France (fka Vasco BCSA) 24%	 	 	 	France	
Vasco BC Sarl	 	 	 	France	
Vasco BVBA (formerly Vasco Imperial Europe)	 	 	 	Belgium	
Vasco GmbH	 	 	 	Germany	
Watkins Europe BVBA	 	 	 	Belgium	
Peerless Sales Corporation	 	 	 	Delaware	
Masco Europe SCS (51.5%)	 	 	 	Luxembourg	
Masco Home Products S.a r.l.	 	 	 	Luxembourg	
Masco Home Services, Inc.	 	 	 	Delaware	
Masco Product Design, Inc.	 	 	 	Delaware	
Masco Retail Cabinet Group, LLC	 	 	 	Ohio	
Masco Retail Sales Support, Inc.	 	 	 	Delaware	
Liberty Hardware Retail & Design Services LLC	 	 	 	Delaware	
Masco HD Support Services, LLC	 	 	 	Delaware	
Masco WM Support Services, LLC	 	 	 	Delaware	
Retail Cabinet Group Sales Support, LLC	 	 	 	Delaware	
Masco Services Group Corp.	 	 	 	Delaware	
Masco Contractor Services of California, Inc.	 	 	 	California	
Masco Contractor Services, LLC	 	 	 	Delaware	
American National Services, Inc.	 	 	 	California	
Coast Insulation Contractors, Inc.	 	 	 	California	
InsulPro Projects, Inc.	 	 	 	Washington	

*	 	Directly owned subsidiaries appear at the left hand margin, first tier, second tier, etc., subsidiaries are indicated by single, double, etc., indentation, respectively, and are listed under the names of their respective parent entities. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these entities may also use trade names or other assumed names in the conduct of their business.	
 -5- 

 

 	 	 	 	 	
 	 	 	Jurisdiction of	
Name	 	 	Incorporation or Organization	
 	 	 	 	 	
Sacramento Insulation Contractors	 	 	 	California	
Superior Contracting Corporation	 	 	 	Delaware	
Builder Services Group, Inc.	 	 	 	Florida	
Cabinet Supply, Inc.	 	 	 	Delaware	
InsulPro Industries Inc.	 	 	 	Canada	
Western Insulation Holdings, LLC	 	 	 	California	
Western Insulation, L.P. (1%)	 	 	 	California	
Western Insulation, L.P. (99%)	 	 	 	California	
Williams Consolidated Delaware LLC	 	 	 	Delaware	
Williams Consolidated I, Ltd. (99%)	 	 	 	Texas	
Williams Consolidated I, Ltd. (1%)	 	 	 	Texas	
Masco Framing Corp.	 	 	 	Delaware	
Door Sales, LLC	 	 	 	Arizona	
Erickson Acquisition 3, LLC (99%)	 	 	 	Delaware	
Erickson Building Components, a California Limited Partnership	 	 	 	California	
Erickson Carpentry Contracting, a California Limited Partnership	 	 	 	California	
Erickson Roseville, LLC	 	 	 	California	
Erickson Building Components, LLC	 	 	 	Arizona	
Erickson Carpentry Contracting, LLC	 	 	 	Nevada	
Erickson Construction, LLC	 	 	 	Arizona	
Erickson Chandler, LLC	 	 	 	Arizona	
Service Partners, LLC	 	 	 	Virginia	
Blow in Blanket, LLC	 	 	 	Virginia	
Cell-Pak, LLC	 	 	 	Alabama	
Denver Southwest, LLC	 	 	 	North Carolina	
Denver Southwest, LP (1%)	 	 	 	Virginia	
Denver Southwest, LP (99%)	 	 	 	Virginia	
East Coast Insulation Sales, LLC	 	 	 	Virginia	
Houston Enterprises, LLC	 	 	 	Virginia	
Industrial Products Co., LLC	 	 	 	Virginia	
Insul-Mart, LLC	 	 	 	Virginia	
Insulation Sales of Michigan, LLC	 	 	 	Virginia	
Johnson Products, LLC	 	 	 	Virginia	
Lilienthal Insulation Company, LLC	 	 	 	Virginia	

*	 	Directly owned subsidiaries appear at the left hand margin, first tier, second tier, etc., subsidiaries are indicated by single, double, etc., indentation, respectively, and are listed under the names of their respective parent entities. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these entities may also use trade names or other assumed names in the conduct of their business.	
 -6- 

 

 	 	 	 	 	
 	 	 	Jurisdiction of	
Name	 	 	Incorporation or Organization	
 	 	 	 	 	
Moore Products, LLC	 	 	 	Virginia	
Renfrow Insulation, LLC	 	 	 	Virginia	
Renfrow Supply, LLC	 	 	 	Virginia	
Service Partners Gutter Supply, LLC	 	 	 	Virginia	
Service Partners Northwest, LLC	 	 	 	Virginia	
Thermoguard Insulation Company, LLC	 	 	 	Virginia	
Service Partners Supply, LLC	 	 	 	California	
Service Partners of Florida, LLC	 	 	 	Virginia	
Service Partners of Georgia, LLC	 	 	 	Virginia	
Service Partners of the Carolinas, LLC	 	 	 	Virginia	
Vest Insulation, LLC	 	 	 	Virginia	
Masco Services, Inc.	 	 	 	Delaware	
Masco Support Services, Inc.	 	 	 	Delaware	
Mascomex S.A. de C.V.	 	 	 	Mexico	
Masterchem Brands, Inc.	 	 	 	Missouri	
Milgard Manufacturing Incorporated	 	 	 	Washington	
Mirolin Industries Corp.	 	 	 	Ontario	
Morgantown Plastics Company	 	 	 	Delaware	
NCFII Holdings Inc.	 	 	 	Delaware	
North Carolina STM, Inc.	 	 	 	Delaware	
Universal Furniture Limited	 	 	 	Delaware	
RDJ Limited	 	 	 	Bahamas	
Arrow Fastener (U.K.) Limited	 	 	 	United Kingdom	
Jardel Distributors, Inc.	 	 	 	Canada	
Vapor Tech (China) Co. Ltd.	 	 	 	British Virgin Islds	
Vapor Tech (China) WOFE	 	 	 	China	
Vapor Technologies, Inc.	 	 	 	Delaware	
Watkins Manufacturing Corporation	 	 	 	California	
Hot Spring Spas New Zealand (50%)	 	 	 	New Zealand	
Tapicerias Pacifico, SA de CV (99%)	 	 	 	Mexico	

*	 	Directly owned subsidiaries appear at the left hand margin, first tier, second tier, etc., subsidiaries are indicated by single, double, etc., indentation, respectively, and are listed under the names of their respective parent entities. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these entities may also use trade names or other assumed names in the conduct of their business.	
 -7- 

Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3, (No. 333-140970), Form S-4 (Nos. 333-58036 and 333-100639), and Form S-8 (Nos. 33-42229, 333-64573, 333-30867, 333-74815, 333-37338, 333-75362, 333-110102 and 333-126888) of Masco Corporation of our report dated February 22, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP 	 	 	
PricewaterhouseCoopers LLP 	 	 	
Detroit, Michigan 	 	 	
February 22, 2008 	 	 	

 

Exhibit 31.a
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934
I, Timothy Wadhams, certify that:
1. I have reviewed this annual report on Form 10-K of Masco Corporation (the Registrant);

2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	 	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	a)	 	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)	 	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	c)	 	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and	

 	d)	 	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	a)	 	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)	 	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: February 22, 2008 	By:  	/s/   Timothy Wadhams 	 	
 	 	Timothy Wadhams 	 	
 	 	Chief Executive Officer 	 	

 

 	 	 	 	 	
Exhibit 31.b
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934
I, John G. Sznewajs, certify that:
1. I have reviewed this annual report on Form 10-K of Masco Corporation (the Registrant);

2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	 	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	a)	 	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)	 	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	c)	 	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and	

 	d)	 	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	a)	 	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)	 	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: February 22, 2008 	By:  	/s/   John G. Sznewajs 	 	
 	 	John G. Sznewajs 	 	
 	 	Vice President, Treasurer and
     Chief Financial Officer 	 	

 

 	 	 	 	 	
Exhibit 32
MASCO CORPORATION
Certification Required by Rule 13a-14(b) or 15d-14(b)
of the Securities Exchange Act of 1934 and
Section 1350 of Chapter 63 of Title 18 of the
United States Code
     The certification set forth below is being submitted in connection with the Masco Corporation Annual Report on Form 10-K for the period ended December 31, 2007 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
     Timothy Wadhams, the Chief Executive Officer, and John G. Sznewajs, the Vice President, Treasurer and Chief Financial Officer, of Masco Corporation, each certifies that, to the best of his knowledge:

 	1.	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2.	 	The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of Masco Corporation.	
 	 	 	 	 	 	 	 	 	
Date:	 	February 22, 2008	 	/s/   Timothy Wadhams 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Timothy Wadhams	 	 	
 	 	 	 	Title:	 	Chief Executive Officer	 	 	
 	 	 	 	 	 	 	 	 	
Date:	 	February 22, 2008	 	/s/   John G. Sznewajs 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	John G. Sznewajs	 	 	
 	 	 	 	Title:	 	Vice President, Treasurer and	 	 	
 	 	 	 	 	 	     Chief Financial Officer