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, 2006	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 Due 2031        
Zero Coupon Convertible Senior
Notes Series B Due 2031	 	New York Stock Exchange, Inc.

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.   þ
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).
 
Large accelerated filer  þ                     Accelerated filer o           Non-accelerated filer  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 30, 2006 (based on the closing sale price of $29.64 of the Registrant’s Common Stock, as reported by the New York Stock Exchange on such date) was approximately $11,656,135,000.
 
Number of shares outstanding of the Registrant’s Common Stock at January 31, 2007:
 
391,600,000 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 2007 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

 

Masco Corporation
2006 Annual Report on Form 10-K

TABLE OF CONTENTS

Item	 	 	 	Page	
 		
PART I	
1.	 	Business	 		2		
1A.	 	Risk Factors	 		6		
1B.	 	Unresolved Staff Comments	 		8		
2.	 	Properties	 		8		
3.	 	Legal Proceedings	 		9		
4.	 	Submission of Matters to a Vote of Security Holders	 		9		
 	 	Supplementary Item. Executive Officers of the Registrant	 		9		
 	
PART II	
5.	 	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	 		10		
6.	 	Selected Financial Data	 		11		
7.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 		12		
7A.	 	Quantitative and Qualitative Disclosures About Market Risk	 		31		
8.	 	Financial Statements and Supplementary Data	 		32		
9.	 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	 		76		
9A.	 	Controls and Procedures	 		76		
9B.	 	Other Information	 		76		
 	
PART III	
10.	 	Directors, Executive Officers and Corporate Governance	 		76		
11.	 	Executive Compensation	 		76		
12.	 	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	 		76		
13.	 	Certain Relationships and Related Transactions, and Director Independence	 		77		
14.	 	Principal Accountant Fees and Services	 		77		
 	
PART IV	
15.	 	Exhibits and Financial Statement Schedule	 		78		
 	 	Signatures	 		82		
 	
FINANCIAL STATEMENT SCHEDULE	
 	 	Schedule II. Valuation and Qualifying Accounts	 		83		
  Indenture dated as of December 1, 1982	
  Indenture dated as of February 12, 2001	
  Resolutions of the Pricing Committee of the Board of Directors	
  First Supplemental Indenture	
  Supplemental Indenture	
  1991 Long Term Stock Incentive Plan	
  2005 Long Term Stock Incentive Plan	
  Forms of Supplemental Executive Retirement and Disability Plan	
  Amended and Restated Shareholders' Agreement	
  Shareholders Agreement	
  Amendment No.1 to Shareholders Agreement	
  Computation of Ratio Earnings to Combined Fixed Charges and Preferred Stock Dividends	
  List of Subsidiaries	
  Consent of Independent Registered Public Accounting Firm	
  Certification of Chief Executive Officer Required by Rule 13a-14(a)/15d-14(a)	
  Certification of Chief Financial Officer Required by Rule 13a-14(a)/15d-14(a)	
  Section 1350 Certifications	

1

Table of Contents
 
PART I

Item 1.	Business.	
 
Masco Corporation manufactures, distributes and installs home improvement and building products, with emphasis on brand name products and services holding leadership positions in their markets. The Company is among the largest manufacturers in North America of brand-name consumer products designed for the home improvement and new home construction markets. The Company’s operations consist of five business segments that are based on similarities in products and services. The following table sets forth, for the three years ended December 31, 2006, the contribution of the Company’s segments to net sales and operating profit. Additional financial information concerning the Company’s operations by segment, as well as general corporate expense, as of and for the three years ended December 31, 2006, 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)	 	
 	 	2006	 	 	2005	 	 	2004	 	
 		
Cabinets and Related Products	 	$	3,286	 	 	$	3,324	 	 	$	3,065	 	
Plumbing Products	 	 	3,296	 	 	 	3,176	 	 	 	3,057	 	
Installation and Other Services	 	 	3,158	 	 	 	3,063	 	 	 	2,771	 	
Decorative Architectural Products	 	 	1,777	 	 	 	1,681	 	 	 	1,610	 	
Other Specialty Products	 	 	1,261	 	 	 	1,325	 	 	 	1,280	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	12,778	 	 	$	12,569	 	 	$	11,783	 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Operating Profit (1)(2)(3)(4)	 	
 	 	2006	 	 	2005	 	 	2004	 	
 		
Cabinets and Related Products	 	$	122	 	 	$	515	 	 	$	519	 	
Plumbing Products	 	 	280	 	 	 	367	 	 	 	370	 	
Installation and Other Services	 	 	344	 	 	 	382	 	 	 	358	 	
Decorative Architectural Products	 	 	357	 	 	 	252	 	 	 	269	 	
Other Specialty Products	 	 	225	 	 	 	229	 	 	 	225	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	1,328	 	 	$	1,745	 	 	$	1,741	 	

 

			
 	(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, $6 million and $30 million in 2006, 2005 and 2004, respectively, pertaining to the Decorative Architectural Products segment.	
 		
 	(4) 	Operating profit includes goodwill impairment charges as follows: For 2006 – Cabinets and Related Products – $316 million; Plumbing Products – $1 million; and Decorative Architectural Products – $14 million. For 2005 – Plumbing Products – $7 million; Decorative Architectural Products – $26 million; and Other Specialty Products – $36 million. For 2004 – Plumbing Products – $25 million; Decorative Architectural Products – $62 million; and Other Specialty Products – $25 million.	
 
Except as the context otherwise indicates, the terms “Masco” and the “Company” refer to Masco Corporation and its consolidated subsidiaries.

2

Table of Contents

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 ® and TVILUM-SCANBIRK tm primarily to dealers and home centers, and under the names BLUESTONE tm , MERILLAT ® , MOORES tm and QUALITY CABINETS ® primarily to distributors and directly to builders for both the home improvement and new home construction markets.
 
The cabinet manufacturing industry in the United States and Europe is highly competitive, with several large and hundreds of smaller competitors. The Company believes that it is the largest manufacturer of kitchen and bath cabinetry in North America based on 2006 sales volume. Significant North American competitors include American Woodmark, Aristokraft, Diamond, Homecrest, Omega and Schrock.
 
The Company is significantly increasing the manufacturing capacity of North American assembled cabinet operations.
 
Plumbing Products
 
In North America, the Company manufactures and sells a wide variety of faucet and showering devices under several brand names. The most widely known of these are the DELTA ® , PEERLESS ® , BRIZO ® , BRASSTECH ® and NEWPORT BRASS ® single and double handle faucets used in kitchen and lavatory sinks and in bath and shower applications. The Company’s faucets are sold by manufacturers’ representatives and Company sales personnel to major retail accounts and to distributors who sell the faucets to plumbers, building contractors, remodelers, smaller retailers and others. Showerheads, handheld showers and valves are sold under the brand names ALSONS ® , DELTA, PEERLESS and PLUMB SHOP ® . The Company manufactures kitchen and bath faucets, showering devices and various other plumbing products for European markets under the brand names AXOR tm , BRISTAN tm , DAMIXA ® , GUMMERS tm , HANSGROHE ® and NEWTEAM tm , which are sold through multiple distribution channels. In addition, AXOR and HANSGROHE products are sold in North America and the Far East through retailers and wholesalers.
 
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, including Friedrich Grohe, among the European manufacturers of faucets and accessories, primarily in Germany and Italy. The Company also faces significant competition from private label products (including house brands sold by certain of the Company’s customers). Many of the faucet and showering device products with which the Company’s products compete are manufactured in Asia. As part of the Company’s strategy for its products, the Company’s North American businesses have been reducing the volume of products manufactured domestically and increasing the manufacturing and sourcing of products from Asia.
 
Other plumbing products manufactured and sold by the Company include AQUA GLASS ® and MIROLIN ® acrylic and gelcoat bath and shower units, which are sold primarily to wholesale plumbing distributors and major retail accounts for the home improvement and new home construction markets. Bath and shower enclosure units, shower trays and laundry tubs are manufactured and sold under the brand name AMERICAN SHOWER & BATH tm . These products are sold to home centers, hardware stores and mass merchandisers for the “do-it-yourself” market. The Company’s spas are manufactured and sold under HOT SPRING ® , CALDERA ® and other trademarks directly to independent dealers. Other plumbing products for the international market include HÜPPE ® and BREUER tm shower enclosures sold by the Company through wholesale channels and home centers primarily in Germany and western Europe. HERITAGE tm ceramic and acrylic bath fixtures and faucets are principally sold in the

3

Table of Contents

United Kingdom directly to selected retailers. GLASS tm and PHARO tm acrylic bathtubs and steam shower enclosures are 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 centers, 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.
 
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 in North America. Historically, the Company has concentrated on the installation and distribution of insulation, which comprised approximately 15 percent of the Company’s consolidated net sales for each of the years ended December 31, 2006, 2005 and 2004. Our offering of installed building products includes insulation, cabinetry, fireplaces, gutters and garage doors. Collaboration with other Company businesses has increased installed sales of Company products, such as cabinets, bath accessories, windows and paint. Distributed products include insulation, insulation accessories, cabinetry, roofing, gutters and drywall. Net sales of non-insulation products (both installed and distributed) in 2006 represented approximately 41 percent of the segment’s net sales. Installed products are sold primarily to custom home builders and production home builders by over 280 installation branch locations throughout most of the United States and in Canada. Distributed products are sold primarily to contractors and dealers by over 60 distribution centers throughout the United States.
 
The Company’s competitors in this segment include several regional contractors and lumber yards, as well as numerous local contractors.
 
Decorative Architectural Products
 
The Company manufactures architectural coatings including paints, specialty paint products, stains, varnishes and waterproofing products. The products are sold under the brand names BEHR ® and KILZ ® and various other brand names, as well as private labels in the United States and Canada primarily to the “do-it-yourself” market through home centers and other retailers. Net sales of architectural coatings comprised approximately 11 percent of the Company’s consolidated net sales for each of the years ended December 31, 2006, 2005 and 2004, respectively. Competitors in the architectural coatings market include large international brands such as Benjamin Moore, Glidden, Pittsburgh Paint, Sherwin-Williams and Valspar, as well as many regional and national competitors.
 
The Company maintains customer kiosks in all of the approximately 2,000 The Home Depot stores throughout the United States and Canada. These COLOR SOLUTIONS tm centers include the COLOR SMART BY BEHR ® computerized color-matching system that enables consumers to design and coordinate their paint selection. The BEHR brand is sold through The Home Depot.
 
The Decorative Architectural Products segment also includes LIBERTY ® cabinet, decorative door and builders’ 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. AVOCET tm builders’ hardware products, including locks and door and window hardware, are manufactured and sold to home centers and other retailers, builders and original equipment door and window manufacturers primarily in the United Kingdom.
 
Decorative bath hardware and shower accessories are sold under the brand names FRANKLIN BRASS ® and DECOR BATHWARE ® to distributors, home centers and other retailers. Competitors include Moen and Globe Union.

4

Table of Contents

Other Specialty Products
 
The Company manufactures and sells windows and patio doors under the MILGARD ® brand name directly to the new home construction and home improvement markets, principally in the western United States. The Company fabricates and sells vinyl windows and sunrooms under various regional brand names for the United Kingdom building trades. The Company extrudes and sells vinyl frame components and tempers glass for windows, patio doors and sunrooms for the European building trades. Competitors in the North American window and door market include Andersen, Pella, Jeld-Wen and Simonton, as well as numerous regional competitors.
 
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 wholesalers, home centers and other retailers. 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 from operations in Belgium, The Netherlands and Poland.
 
Discontinued Operations
 
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. In 2004, the Company determined that several European businesses were not core to the Company’s long-term growth strategy and, accordingly, embarked on a plan of disposition that was completed in early 2005. In addition, the Company sold two businesses in 2005 and one business in 2006. The businesses sold during 2004, 2005 and 2006 were included in discontinued operations and had combined 2004 net sales of approximately $640 million. Additional information is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Report.
 
Additional Information

 	• 	Over 80 percent of the Company’s net sales are generated by operations in North America (primarily in the United States). International operations comprise the balance and are located principally in Belgium, China, Denmark, Germany, The Netherlands and the United Kingdom. See Note P to the Company’s consolidated financial statements included in Item 8 of this Report for additional information.	
 		
 	• 	Financial information concerning the Company’s export sales and the net sales and operating profit attributable to the Company’s North American and International operations are included in Item 8 of this Report in Note P to the Company’s consolidated financial statements. Net sales and the value of long-lived assets attributable to the Company’s operations in the United States and Europe are also reflected in Note P.	
 		
 	• 	The Company generally experiences stronger sales during the second and third calendar quarters, corresponding with the peak season for new home construction and remodeling.	
 		
 	• 	The Company does not consider backlog orders to be material.	
 		
 	• 	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 earnings or competitive position.	
 		
 	• 	See Item 1A, “Risk Factors,” for a discussion of the importance of major customers, competitive conditions and certain other business risks and uncertainties that may affect our operations.	

5

Table of Contents

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.
 
Patents and Trademarks
 
The Company holds United States and foreign patents covering its various design features and valve constructions used in certain of its faucets and holds numerous other patents and patent applications, licenses, trademarks and trade names. As a manufacturer of brand-name consumer products, the Company views its trademarks and other proprietary rights as important, but does not believe that there is any reasonable likelihood of a loss of such rights that would have a material adverse effect on the Company’s present business as a whole.
 
Employees
 
At December 31, 2006, the Company employed approximately 57,000 people. Satisfactory relations have generally prevailed between the Company and its employees.

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.
 
A significant portion of our business relies on residential construction activity.
 
Our results of operations are affected by levels of home improvement and residential construction activity, including repair, remodeling and new home construction, principally in North America and Europe. Significant factors that impact demand for home improvement and residential construction include interest rates, energy costs, consumer confidence, general and regional economic conditions, weather conditions and natural disasters. The ability of contractors and builders to supply construction projects and the timing of such projects, and thereby their purchases of our products and services, can be affected significantly by the availability of building materials and skilled labor. Demographic factors, such as changes in population growth and household formation, affect levels of home improvement and residential construction over the longer term. We have increased our emphasis on new product development in recent years and we have reduced our prior focus on growth through acquisitions and are concentrating instead on organic growth. Consequently, our financial performance will, in part, reflect our success in implementing our growth strategies in our existing markets and in introducing new products or entering new geographic markets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this Report for discussion of the impact of residential construction activities on the Company’s operating results.
 
We rely on key customers.
 
The size and importance of individual customers has increased because customers in our major distribution channels have consolidated. Larger customers can effect significant changes in their volume

6

Table of Contents

of purchases and can otherwise significantly affect the terms and conditions on which we do business. These customers are increasing their purchases of products directly from manufacturers for sale as private label and house brand merchandise. As some of our customers expand their markets and targeted customers, conflicts occur and in some instances we may also become their competitor. Sales of our home improvement and building products to home center retailers are substantial. In 2006, sales to the Company’s largest customer, The Home Depot, were $2.5 billion (approximately 20 percent of net sales). Although builders, dealers and other retailers represent other channels of distribution for the Company’s products, the loss of a substantial portion of our sales to The Home Depot would have a material adverse impact on the Company.
 
We face significant competition in the U.S. and global markets.
 
The major markets for our products and services are highly competitive and in recent years global competition has increased significantly. Competition in home improvement and building product lines is based largely on performance, quality, brand reputation, style, delivery, customer service, exclusivity and price. Competition in the markets for our service businesses is based primarily on price, customer service, scope of capabilities, installation quality and financial strength. Although the relative importance of such factors varies between customers and among product categories, price is often a primary factor. Home center retailers, which have historically concentrated their sales efforts on retail consumers and small contractors, may in the future intensify their marketing efforts directly to professional homebuilders. Our ability to maintain our leadership positions in the markets we serve and to grow the businesses depends to a large extent upon our success in maintaining our relationships with major customers, managing our cost structure and introducing new products that appeal to changing consumer preferences.
 
Our operating results are affected by the cost and availability of labor and materials.
 
When we incur cost increases for raw materials, such as copper, brass and particle board, and for energy and other commodities, it may be difficult for us to completely offset the impact with price increases on a timely basis due to outstanding commitments to customers, competitive considerations and our customers’ resistance to accepting such price increases. Some of our operations, including the Installation and Other Services segment, encounter shortages or unusual price increases in raw materials, including insulation, from time to time. A substantial decrease in the availability of raw materials from suppliers or the loss of key supplier arrangements could adversely impact our results of operations.
 
Although the availability of qualified employees is important throughout the entire Company, this is particularly applicable to our Installation and Other Services segment, because of its labor-intensive installation 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 performance of our businesses.
 
International developments have an increasing impact on our business.
 
Over 17 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. U.S. laws affecting activities of U.S. companies abroad, including tax laws and laws regulating various business practices, also impact our international business. Our international operating results have been adversely influenced in the past when compared to our North American results, in part due to relative softness in the European markets and competitive pricing pressures on certain products.
 
Increasingly, we are sourcing products from outside North America, principally in Asia, and selling products in international markets. Differing international business practices, shipping and delivery requirements, and laws and regulations applicable to our business in these markets have raised the

7

Table of Contents

complexity of managing our supply chain logistics and the potential for interruptions in our production scheduling.
 
Our operating results can fluctuate based on changes in currency exchange rates, which presents difficulty in comparing operating performance from period to period.
 
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 marketable 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 and 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 commitments to 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.
 
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 we sell. Because we do not have direct control over the quality of such products, we are exposed to the risks relating to the quality of such products and to limitations on our recourse against such suppliers.
 
See Note T to the consolidated financial statements included in Item 8 of this Report for additional information about litigation involving our businesses.

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	 	 	 	32	 	 	 	 	 	
Plumbing Products	 	 	30	 	 	 	12	 	 	 	 	 	
Decorative Architectural Products	 	 	10	 	 	 	12	 	 	 	 	 	
Other Specialty Products	 	 	16	 	 	 	8	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Totals	 	 	75	 	 	 	64	 	 	 	 	 	

 
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.

8

Table of Contents

In addition, the Company’s Installation and Other Services segment operates over 280 local installation branch locations and over 60 local distribution centers in North America, the majority 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	 	 	4	 	 	 	25	 	
Plumbing Products	 	 	28	 	 	 	35	 	
Decorative Architectural Products	 	 	3	 	 	 	3	 	
Other Specialty Products	 	 	15	 	 	 	8	 	
 	 	 	 	 	 	 	 	 	
Totals	 	 	50	 	 	 	71	 	

 
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.
 
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. As noted, the Company is significantly increasing the manufacturing capacity of North American assembled cabinet operations, but otherwise, generally, 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	 	Chairman of the Board and Chief Executive Officer	 	 	70	 	 	 	1962	 	
Alan H. Barry	 	President and Chief Operating Officer	 	 	64	 	 	 	2003	 	
Daniel R. Foley	 	Vice President – Human Resources	 	 	65	 	 	 	1996	 	
Eugene A. Gargaro, Jr. 	 	Vice President and Secretary	 	 	64	 	 	 	1993	 	
John R. Leekley	 	Senior Vice President and General Counsel	 	 	63	 	 	 	1979	 	
John G. Sznewajs	 	Vice President – Corporate Development and Treasurer	 	 	39	 	 	 	2005	 	
Timothy Wadhams	 	Senior Vice President and Chief Financial Officer	 	 	58	 	 	 	2001	 	

Executive officers, who are elected by the Board of Directors, serve for a term of one year or less. Each elected executive officer has been employed in a managerial capacity with the Company for at least five years. Mr. Barry was elected to his present position in April 2003. He had previously served as a Group President of the Company since 1996. Mr. Sznewajs was elected to his current position in August 2005. He had previously served as Vice President – Business Development since 2003 and before that time served in various capacities in the Business Development Department from 1996 to 2003.

9

Table of Contents
 
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	 	
 		
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	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2005	 	 	 	 	 	 	 	 	 	 	 	 	
Fourth	 	$	31.20	 	 	$	27.15	 	 	$	.20	 	
Third	 	 	34.70	 	 	 	29.37	 	 	 	.20	 	
Second	 	 	34.94	 	 	 	29.57	 	 	 	.20	 	
First	 	 	38.43	 	 	 	32.90	 	 	 	.20	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	 	 	 	 	$	.80	 	

 
On February 15, 2007 there were approximately 6,200 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.
 
The following table provides information regarding the Company’s purchase of Company Common Stock for the three months ended December 31, 2006, 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	 	
 		
10/01/06 – 10/31/06	 	 	1	 	 	$	27.88	 	 	 	1	 	 	 	37	 	
11/01/06 – 11/30/06	 	 	–	 	 	 	–	 	 	 	–	 	 	 	37	 	
12/01/06 – 12/31/06	 	 	1	 	 	$	29.55	 	 	 	1	 	 	 	36	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total for the quarter	 	 	2	 	 	$	28.72	 	 	 	2	 	 	 	 	 	

 
In May 2006, 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 March 2005 authorization.
 
For information regarding securities authorized for issuance under the Company’s equity compensation plans, see Part III, Item 12 of this Report.

10

Table of Contents

Item 6.	Selected Financial Data.	

 	 	(Dollars In Millions, Except Per Common Share Data)	 	
 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	 	2002	 	
 		
Net sales (1)	 	$	12,778	 	 	$	12,569	 	 	$	11,783	 	 	$	10,318	 	 	$	8,596	 	
Operating profit (1),(2),(4),(5),(6),(7)	 	$	1,126	 	 	$	1,567	 	 	$	1,584	 	 	$	1,445	 	 	$	1,228	 	
Income from continuing operations (1),(2),(3),(4),(5),(6),(7),(8)	 	$	458	 	 	$	866	 	 	$	944	 	 	$	767	 	 	$	520	 	
Per share of common stock:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	1.16	 	 	$	2.05	 	 	$	2.12	 	 	$	1.60	 	 	$	1.07	 	
Diluted	 	$	1.15	 	 	$	2.01	 	 	$	2.07	 	 	$	1.56	 	 	$	1.01	 	
Dividends declared	 	$	0.88	 	 	$	0.80	 	 	$	0.68	 	 	$	0.60	 	 	$	0.55	 	
Dividends paid	 	$	0.86	 	 	$	0.78	 	 	$	0.66	 	 	$	0.58	 	 	$	0.54	1 / 2	
Income from continuing operations as a % of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	 	4%	 	 	 	7%	 	 	 	8%	 	 	 	7%	 	 	 	6%	 	
Shareholders’ equity (9)	 	 	9%	 	 	 	16%	 	 	 	17%	 	 	 	14%	 	 	 	13%	 	
At December 31:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	12,325	 	 	$	12,559	 	 	$	12,541	 	 	$	12,173	 	 	$	12,050	 	
Long-term debt	 	$	3,533	 	 	$	3,915	 	 	$	4,187	 	 	$	3,848	 	 	$	4,316	 	
Shareholders’ equity	 	$	4,471	 	 	$	4,848	 	 	$	5,423	 	 	$	5,456	 	 	$	5,294	 	

 
		
(1) 	Amounts exclude discontinued operations.	
 		
(2) 	The year 2006 includes non-cash impairment charges for goodwill aggregating $331 million after tax ($331 million pre-tax), income of $1 million after tax ($1 million pre-tax) regarding the Behr litigation settlement.	
 		
(3) 	The year 2006 includes a $3 million after tax ($5 million pre-tax) charge for the adoption of SFAS No. 123R recognized as a cumulative effect of a change in accounting.	
 		
(4) 	The year 2005 includes non-cash impairment charges for goodwill aggregating $69 million after tax ($69 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 $104 million after tax ($112 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 $47 million after tax ($53 million pre-tax) and income of $45 million after tax ($72 million pre-tax) regarding the Behr litigation settlement.	
 		
(7) 	The year 2002 includes a net charge of $92 million after tax ($147 million pre-tax) regarding the Behr litigation settlement.	
 		
(8) 	The year 2002 includes non-cash impairment charges for goodwill aggregating $92 million after tax ($117 million pre-tax) recognized as a cumulative effect of a change in accounting.	
 		
(9) 	Based on shareholders’ equity as of the beginning of the year.	

11

Table of Contents

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 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 home improvement and residential construction activity principally in North America and Europe (including repair and remodeling and new home construction), 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 2006), 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 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.

12

Table of Contents

		
     	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 ongoing 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 marketable securities and a number of private equity funds, which aggregated $72 million and $211 million, respectively, at December 31, 2006. Investments in marketable securities are carried at fair value, and unrealized gains and losses (that are deemed to be temporary) are recognized, net of tax effect, through shareholders’ equity, as a component of other comprehensive income. 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.
 
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 affect 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 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.
 
In November 2000, the Company reduced its common equity ownership in Metaldyne Corporation (“Metaldyne”) (formerly MascoTech, Inc.) through a recapitalization merger with an affiliate of Heartland Industrial Partners, L.P. (“Heartland”), a private equity fund in which the Company had a remaining investment of $17 million at December 31, 2006 (representing less than five percent of the fund). The Company in that transaction retained six percent of the common equity of Metaldyne. At December 31, 2006, the Company also held preferred stock of Metaldyne, which accrues dividends at the annual rate of 15 percent. Additionally, the Company owned an approximate 10 percent investment in TriMas Corporation (“TriMas”) common stock. Investments in Metaldyne and TriMas are accounted for on the cost basis.
 
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 the

13

Table of Contents

second quarter of 2006, the Company recognized a non-cash, pre-tax impairment charge aggregating $78 million for its investments in Metaldyne ($40 million), TriMas ($6 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 impairment charges of $13 million and $15 million in 2006 and 2005, respectively. In the fourth quarter of 2006, the Company received new information related to its TriMas investment and determined that the additional decline in the estimated value for this investment was other-than-temporary. Accordingly, in the fourth quarter of 2006, the Company recognized an additional non-cash, pre-tax impairment charge of $10 million related to its investment in TriMas.
 
On January 11, 2007, the acquisition of Metaldyne by Asahi Tec Corporation, a Japanese automotive supplier, was finalized. The combined fair value of Asahi Tec common and preferred stock received in exchange for the Company’s investment in Metaldyne (common and preferred stock) approximates $74 million and the Company’s carrying value of the Metaldyne investment was $57 million at December 31, 2006. As a result, a gain of approximately $17 million will be recognized in the first quarter of 2007. Any unrealized gains or losses subsequent to January 11, 2007, will be recognized, net of tax, through shareholders’ equity, as a component of other comprehensive income, in the Company’s consolidated balance sheet beginning in the first quarter of 2007.

     	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 2006, 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 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. This test for 2006 indicated that goodwill principally related to certain European business units was impaired.

14

Table of Contents

The Company recognized non-cash, pre-tax impairment charges for goodwill of $331 million ($331 million, after tax) in 2006. The pre-tax impairment charges recorded in 2006 were as follows: Cabinets and Related Products – $316 million; Plumbing Products – $1 million; and Decorative Architectural Products – $14 million. These charges, principally related to the Company’s European manufacturer of ready-to-assemble cabinets (Tvilum-Scanbirk), reflect the long-term outlook for that business unit, including declining demand for certain products, as well as decreased operating profit margins.
 
The impairment charge for goodwill related to Tvilum-Scanbirk resulted from two significant changes impacting the business unit throughout the year, but particularly in the fourth quarter of 2006. First, there was a fundamental shift in the European ready-to-assemble raw materials supply market; the change affected the cost structure for raw materials. Second, the Company determined that the business unit’s ability to increase selling prices and maintain revenue growth into the future has become more limited. In the fourth quarter of 2006, as part of the annual goodwill impairment testing, the Company determined that these changes and the impact on operating profit and operating profit margins were permanent in nature.
 
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, profit margins 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 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.

     	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 2006, the Company increased its discount rate for obligations to an average of 5.50 percent from 5.25 percent. The discount rate for obligations was based on the expected duration of each defined-benefit pension plan’s liabilities matched to the December 31, 2006 Citigroup Pension Discount Curve. Such rates for the Company’s defined-benefit pension plans ranged from 4.00 percent to 6.00 percent, with the most significant portion of the liabilities having a discount rate for obligations of 5.50 percent or higher. The assumed asset return was primarily 8.50 percent, reflecting the expected long-term return on plan assets.
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R,” (“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 postretirement 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. The adoption of SFAS No. 158 was effective for the year ended December 31, 2006, and the effect was included in the Company’s consolidated balance sheet.

15

Table of Contents

The Company’s underfunded amount for its qualified defined-benefit pension plans, the difference between the projected benefit obligation and plan assets, decreased to $186 million at December 31, 2006 from $231 million at December 31, 2005, primarily due to asset returns above projections; in accordance with SFAS No. 158, the 2006 unfunded amount has been recognized on the Company’s consolidated balance sheet at December 31, 2006. Qualified domestic pension plan assets in 2006 had a net return of approximately 11 percent equal to average returns of 11 percent for the largest 1,000 Plan Benchmark.
 
The Company’s projected benefit obligation for its unfunded non-qualified defined-benefit pension plans was $144 million at December 31, 2006 compared with $143 million at December 31, 2005; in accordance with SFAS No. 158, the 2006 unfunded amount has been recognized on the Company’s consolidated balance sheet at December 31, 2006.
 
The Company expects pension expense for its qualified defined-benefit pension plans to decrease by $9 million in 2007 compared with 2006. If the Company assumed that the future return on plan assets was one-half percent lower than the assumed asset return, the 2007 pension expense would only decrease by $6 million. The Company expects pension expense for its non-qualified defined-benefit pension plans to decrease by $1 million in 2007 compared with 2006.

     	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, 2006, outstanding stock-based incentives were in the form of restricted 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 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 does 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 at December 31, 2006.
 
For 2006, the Company recognized additional pre-tax expense of $15 million ($9 million or $.02 per common share, after tax), related to the adoption of SFAS No. 123R. In addition, 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, related to the adoption of SFAS No. 123R and the change from the intrinsic value method to the fair value method of accounting for stock appreciation rights.

     	Restricted 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 $195 million (9 million common shares) of total unrecognized compensation expense related to unvested stock awards at December 31, 2006, 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 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 2006.

16

Table of Contents

		
     	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, or immediately upon a grantee’s retirement.
 
The fair value of stock options was estimated at the grant date using a Black-Scholes option pricing model with the following assumptions for 2006: risk-free interest rate – 4.89%, dividend yield – 3.1%, volatility factor – 34.0% 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 2006 was $8.24 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 2006 would increase 47 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 2006 would decrease 59 percent.

     	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 after-tax foreign tax credit carryforward of $61 million at December 31, 2006. 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.

     	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.
 
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 (including income taxes) 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

17

Table of Contents

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, “Accounting for Contingencies,” 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.
 
In 2004, the Company determined that several European business units were not core to the Company’s long-term growth strategy and, accordingly, embarked on a plan of disposition (the “2004 Plan”). During 2004, in separate transactions, the Company completed the sale of its Jung Pumpen, The Alvic Group, Alma Kuchen, E. Missel and SKS Group business units in Europe. During 2005, in separate transactions, the Company completed the sale of its Gebhardt Consolidated, GMU Group and Aran Group business units in Europe, as well as its Zenith Products business unit in North America.
 
In 2006, the Company completed the sale of Computerized Security Systems (“CSS”). 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. CSS supplies electronic locksets primarily to hospitality markets in the United States and Europe and was included in the Other Specialty Products segment. As a result of the sale, the Company reclassified the net sales and results of operations related to CSS to discontinued operations. Total gross proceeds from the sale were $92 million; the Company recognized a pre-tax net gain (included in discontinued operations) on the disposition of CSS of $51 million.
 
The sales, results of operations and the gains from the 2006, 2005 and 2004 discontinued operations are included in income (loss) from discontinued operations, net, in the consolidated statements of income.
 
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 2006, 2005 and 2004, except as noted below, as discontinued operations. There were no businesses held for sale at December 31, 2006.
 
During 2006, the Company completed the sale of Gamco Products, General Accessory, Cambridge Brass and Faucet Queens, relatively small businesses, the results of which are included in continuing operations through the date 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.
 
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, 2006, the Company had a $2.0 billion 5-Year Revolving Credit Agreement with a group of banks syndicated in the

18

Table of Contents

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.
 
The 5-Year Revolving Credit Agreement, as amended, contains limitations on additional borrowings; at December 31, 2006, the Company had additional borrowing capacity, subject to availability, of up to $1.7 billion. The 5-Year Revolving Credit Agreement, as amended, also contains a requirement for maintaining a certain level of net worth; at December 31, 2006, the Company’s net worth exceeded such requirement by $1.1 billion.
 
At December 31, 2006, the amount of debt and equity securities issuable under the Company’s unallocated shelf registration statement with the Securities and Exchange Commission was $500 million.
 
The Company had cash and cash investments of $1,958 million at December 31, 2006 as a result of strong cash flows from operations, proceeds from the disposition of certain businesses and financial investments, and the issuance of fixed-rate debt.
 
The Company has maintained investments in marketable securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of tax capital losses, including significant capital losses resulting from the exit of certain businesses over the past several years. 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, publicly traded 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 2006, the Company increased its quarterly common stock dividend 10 percent to $.22 per common share. This marks the 48th 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 increased to 53 percent at December 31, 2006 from 49 percent at December 31, 2005. On October 3, 2006, the Company issued $1 billion of fixed-rate 6.125% notes due 2016 in anticipation of the 2007 debt maturities, including the put option related to the Zero Coupon Convertible Senior Notes. Repurchases and retirement of Company common stock also contributed to the increase in the total debt to total capitalization ratio. The Company’s working capital ratio was 1.5 to 1 and 1.8 to 1 at December 31, 2006 and 2005, respectively. The decline in the working capital ratio is primarily due to the reclassification to current liabilities of $823 million of Zero Coupon Convertible Senior Notes, as a result of the put option date of January 20, 2007, $300 million of floating-rate notes due March 2007 and $300 million of 4.625% notes due August 2007.
 
On January 20, 2007, holders of $1.8 billion (94 percent) principal amount at maturity of the Zero Coupon Convertible Senior Notes (“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 will be payable in June 2007. Subsequent to the repurchase, there were outstanding $108 million principal amount at maturity of such Notes with an accreted value of $51 million, which has been included in long-term debt at December 31, 2006, as the next put option date is July 20, 2011. The Company may, at any time on or after January 25, 2007, redeem all or part of the Notes at their accreted value.
 
The derivatives used by the Company during 2006 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,

19

Table of Contents

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 2006 on the interest rate swaps was 6.787%. At December 31, 2006, the interest rate swap agreements covered a notional amount of $850 million of the Company’s fixed-rate debt due July 15, 2012 at 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, 2006 and 2005. In 2006, the Company recognized an increase in interest expense of $8 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 and the Great Britain pound.
 
Cash Flows
 
Significant sources and (uses) of cash in the past three years are summarized as follows, in millions:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Net cash from operating activities	 	$	1,208	 	 	$	1,374	 	 	$	1,454	 	
Increase (decrease) in debt, net	 	 	151	 	 	 	407	 	 	 	(13	)	
Proceeds from disposition of:	 	 	 	 	 	 	 	 	 	 	 	 	
Businesses, net of cash disposed	 	 	160	 	 	 	278	 	 	 	172	 	
Property and equipment	 	 	16	 	 	 	37	 	 	 	37	 	
Proceeds from financial investments, net	 	 	71	 	 	 	193	 	 	 	330	 	
Issuance of Company common stock	 	 	28	 	 	 	33	 	 	 	58	 	
Tax benefit from exercise of stock options	 	 	18	 	 	 	–	 	 	 	–	 	
Acquisition of businesses, net of cash acquired	 	 	(28	)	 	 	(25	)	 	 	(16	)	
Capital expenditures	 	 	(388	)	 	 	(282	)	 	 	(310	)	
Cash dividends paid	 	 	(349	)	 	 	(339	)	 	 	(302	)	
Purchase of Company common stock	 	 	(854	)	 	 	(986	)	 	 	(943	)	
Effect of exchange rates	 	 	18	 	 	 	(5	)	 	 	29	 	
Proceeds from settlement of swaps	 	 	–	 	 	 	–	 	 	 	55	 	
Other, net	 	 	(57	)	 	 	(15	)	 	 	(52	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash (decrease) increase	 	$	(6	)	 	$	670	 	 	$	499	 	

 
The Company’s cash and cash investments decreased $6 million to $1,958 million at December 31, 2006, from $1,964 million at December 31, 2005.
 
Net cash provided by operations of $1.2 billion consisted primarily of net income adjusted for non-cash and certain other items, including depreciation and amortization expense of $244 million, net gain on disposition of businesses of $51 million, net gain on disposition of financial investments of $31 million, a $331 million charge for the impairment of goodwill, a $101 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 increase in working capital of $57 million.
 
The Company continues to emphasize balance sheet management, including working capital management and cash flow generation. Days sales in accounts receivable were 50 days at December 31, 2006 compared with 48 days at December 31, 2005, and days sales in inventories were 49 days at

20

Table of Contents

December 31, 2006 compared with 46 days at December 31, 2005. Accounts payable days improved to 39 days from 36 days at December 31, 2006 and 2005, respectively. Working capital (defined as accounts receivable and inventories less accounts payable) as a percent of sales was 16.1 percent and 15.9 percent at December 31, 2006 and 2005, respectively.
 
Net cash used for financing activities was $1.0 billion, and included cash outflows of $349 million for cash dividends paid, $827 million for the retirement of notes and $854 million for the acquisition and retirement of 29 million shares of Company common stock in open-market transactions. Cash provided by financing activities primarily included $988 million from the issuance of notes (net of issuance costs) and $28 million from the issuance of Company common stock, primarily from the exercise of stock options.
 
At December 31, 2006, the Company had remaining Board of Directors’ authorization to repurchase up to an additional 36 million shares of its common stock in open-market transactions or otherwise. In January 2007, the Company repurchased an additional one million shares of Company common stock and expects to continue its share repurchase program throughout 2007.
 
Net cash used for investing activities was $226 million, and included $388 million for capital expenditures and $28 million for acquisitions. Cash provided by investing activities included $160 million of net proceeds from the disposition of businesses and $71 million from the net sale of financial investments.
 
The Company continues to invest in automating its manufacturing operations and increasing its capacity and its productivity to more efficiently produce and to improve customer service. Capital expenditures for 2006 were $388 million, compared with $282 million for 2005 and $310 million for 2004; for 2007, capital expenditures, excluding any potential 2007 acquisitions, are expected to approximate $300 million. Depreciation and amortization expense for 2006 totaled $244 million, compared with $241 million for 2005 and $237 million for 2004; for 2007, depreciation and amortization expense, excluding any potential 2007 acquisitions, is expected to approximate $255 million. Amortization expense totaled $14 million, $28 million and $26 million in 2006, 2005 and 2004, 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 2006 were $12.8 billion, representing an increase of two percent over 2005. Excluding results from acquisitions and the effect of currency translation, net sales increased one percent compared

21

Table of Contents

with 2005. 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	 	
 	 	2006	 	 	2005	 	
 		
Net sales, as reported	 	$	12,778	 	 	$	12,569	 	
 – Acquisitions	 	 	(27	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Net sales, excluding acquisitions	 	 	12,751	 	 	 	12,569	 	
 – Currency translation	 	 	(23	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Net sales, excluding acquisitions and the effect of currency	 	$	12,728	 	 	$	12,569	 	

 
Net sales for 2006 were adversely affected by an accelerating decline in the new home construction market in the last six months of the year and a moderation in consumer spending for certain “big ticket” home improvement items, such as cabinets, partially offset by selling price increases.
 
The Company’s gross profit margins were 27.5 percent, 28.5 percent and 30.9 percent in 2006, 2005 and 2004, respectively. The decrease in the 2006 and 2005 gross profit margins reflects additional increased commodity, energy and freight costs, as well as a less favorable product mix, offset in part by increased selling prices for certain products. The 2004 gross profit margins reflected increased sales volume and increased selling prices, offset in part by initial increases in commodity costs, as well as sales in segments with somewhat lower gross margins.
 
Selling, general and administrative expenses as a percent of sales were 16.1 percent in 2006 compared with 15.5 percent in 2005 and 16.8 percent in 2004. Increased selling, general and administrative expenses in 2006 reflect increased stock-based compensation expense, in part reflecting the adoption of SFAS No. 123R, and increased information systems implementation costs and other expenses. Selling, general and administrative expenses in 2005 reflect lower compensation costs resulting from business unit consolidations and reduced Company financial performance related to incentive compensation, as well as reduced outside professional fees including fees associated with complying with Sarbanes-Oxley legislation. Selling, general and administrative expenses in 2004 include the benefit of lower promotion and advertising costs offset by higher costs and expenses associated with complying with Sarbanes-Oxley legislation and increased expenses associated with stock options.
 
Operating profit in 2006 and 2005 includes $47 million and $12 million, respectively, of costs and charges related to the Company’s profit improvement programs, principally in the Plumbing Products segment. Operating profit in 2006, 2005 and 2004 includes $331 million, $69 million and $112 million, respectively, of impairment charges for goodwill. Operating profit in 2006, 2005 and 2004 includes $1 million, $6 million and $30 million, respectively, of income regarding the Behr litigation settlement. Operating profit margins, as reported, were 8.8 percent, 12.5 percent and 13.4 percent in 2006, 2005 and 2004, respectively. Operating profit margins, excluding the items above, were 11.8 percent, 13.1 percent and 14.1 percent in 2006, 2005 and 2004, respectively. 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, as well as the continuing negative impact of higher commodity costs. These items were partially offset by certain selling price increases. Operating profit margins in 2005 were negatively impacted by increased commodity, energy, freight and other petroleum-based product costs, which had only been partially offset by selling price increases. Operating profit margins in 2004 were positively affected by increased sales volume, partially offset by increased commodity costs.

     	Other Income (Expense), Net	
 
During 2006, the Company recognized non-cash, pre-tax impairment charges aggregating $88 million for its investments related to Metaldyne ($40 million), TriMas ($16 million), the Heartland fund

22

Table of Contents

($29 million) and another fund ($3 million) which invested in automotive and transportation-related suppliers, including Metaldyne and TriMas. Additionally, during 2006, 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 impairment charges of $13 million.
 
Other, net, for 2006 included $4 million of realized gains, net, from the sale of marketable securities, $10 million of dividend income and $27 million of income from other investments, net. Other, net, for 2006 also included currency transaction gains of $14 million and other miscellaneous items.
 
During 2005, the Company recognized an impairment charge of $30 million primarily related to its investment in Furniture Brands International common stock. Also during 2005, based upon the Company’s review of its private equity funds, the Company considered the decline in the fair value of certain of its private equity fund investments to be other-than-temporary and, accordingly, recognized an impairment charge of $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 $68 million of income from other investments, net. Other, net, for 2005 also included currency transaction losses of $25 million and other miscellaneous items.
 
During 2004, the Company recognized an impairment charge of $21 million related to its investment in Furniture Brands International common stock.
 
Other, net, for 2004 included $50 million of realized gains, net, from the sale of marketable securities, $27 million of dividend income and $42 million of income from other investments, net. Other, net, for 2004 also included currency transaction gains of $26 million and other miscellaneous items.
 
Interest expense was $240 million, $247 million and $217 million in 2006, 2005 and 2004, respectively. 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. The increase in interest expense in 2005 is primarily due to the issuance of fixed-rate notes in June 2005, 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 2006 were $461 million and $1.15 per common share, respectively. Income from continuing operations for 2006 included non-cash, pre-tax impairment charges for goodwill of $331 million ($331 million or $.83 per common share, after tax). Income and diluted earnings per common share from continuing operations for 2005 were $866 million and $2.01 per common share, respectively. Income from continuing operations for 2005 included non-cash, pre-tax impairment charges for goodwill of $69 million ($69 million or $.16 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). Income and diluted earnings per common share from continuing operations for 2004 were $944 million and $2.07 per common share, respectively. Income from continuing operations for 2004 included non-cash, pre-tax impairment charges for goodwill of $112 million ($104 million or $.23 per common share, after tax) and income regarding the litigation settlement of $30 million pre-tax ($19 million or $.04 per common share, after tax).
 
The Company’s effective tax rate for income from continuing operations was 46 percent in 2006 and 37 percent in both 2005 and 2004. The increased effective tax rate in 2006 is primarily due to an increase in impairment charges for goodwill not being deductible for tax purposes. The Company estimates that its effective tax rate should approximate 35 to 36 percent for 2007.

23

Table of Contents

Outlook for the Company
 
The Company’s 2006 results were adversely 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, and the continuing negative impact of higher commodity costs, partially offset by profit improvement programs and selling price increases.
 
New home construction has declined dramatically in the last 12 months due to previous excessive speculative buying, rapidly rising home prices in recent years reducing the affordability and less attractive mortgage terms. Housing starts declined by 13 percent in 2006 compared with 2005 to approximately 1.8 million units. Late in 2006, housing starts declined even further to an annual run rate of approximately 1.5 million to 1.6 million units, which is more than 20 percent below the 2005 levels. Even with the recent decline in single-family housing starts, the inventory of unsold new homes has increased to unprecedented levels.
 
The Company is proactively managing its business for the current difficult economic times in our markets by pursuing a variety of initiatives to further reduce costs and improve operating profits. Initiatives already started include headcount reductions, sourcing programs, restructuring of certain businesses including consolidations, manufacturing rationalization and other profit improvement programs. While the Company’s earnings outlook for 2007 incudes costs related to these initiatives, as well as start-up costs related to plant capacity additions, system implementation costs, higher interest expense and as yet unrecovered commodity cost increases, the Company believes that implementing these initiatives should improve the Company’s earnings outlook for 2008 and beyond.
 
The Company remains committed to its long-term growth strategy, concentrating on organic sales growth, improving return on invested capital and generating significant returns to shareholders. We continue to drive our growth initiatives, including leveraging installation services, developing new channels of distribution, pursuing new markets in emerging economies and emphasizing new product development.

24

Table of Contents

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	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	vs.	 	 	vs.	 	
 	 	 	 	 	2006	 	 	2005	 	 	2004	 	 	2005	 	 	2004	 	
 		
Net Sales:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	 	 	 	 	$	3,286	 	 	$	3,324	 	 	$	3,065	 	 	 	(1	)%	 	 	8	%	
Plumbing Products	 	 	 	 	 	 	3,296	 	 	 	3,176	 	 	 	3,057	 	 	 	4	%	 	 	4	%	
Installation and Other Services	 	 	 	 	 	 	3,158	 	 	 	3,063	 	 	 	2,771	 	 	 	3	%	 	 	11	%	
Decorative Architectural Products	 	 	 	 	 	 	1,777	 	 	 	1,681	 	 	 	1,610	 	 	 	6	%	 	 	4	%	
Other Specialty Products	 	 	 	 	 	 	1,261	 	 	 	1,325	 	 	 	1,280	 	 	 	(5	)%	 	 	4	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	$	12,778	 	 	$	12,569	 	 	$	11,783	 	 	 	2	%	 	 	7	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	 	 	 	 	$	10,537	 	 	$	10,440	 	 	$	9,673	 	 	 	1	%	 	 	8	%	
International, principally Europe	 	 	 	 	 	 	2,241	 	 	 	2,129	 	 	 	2,110	 	 	 	5	%	 	 	1	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	$	12,778	 	 	$	12,569	 	 	$	11,783	 	 	 	2	%	 	 	7	%	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2006	 	 	2006 (B)	 	 	2005	 	 	2005 (B)	 	 	2004	 	 	2004 (B)	 	
 		
Operating Profit: (A)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	$	122	 	 	$	438	 	 	$	515	 	 	$	515	 	 	$	519	 	 	$	519	 	
Plumbing Products	 	 	280	 	 	 	281	 	 	 	367	 	 	 	374	 	 	 	370	 	 	 	395	 	
Installation and Other Services	 	 	344	 	 	 	344	 	 	 	382	 	 	 	382	 	 	 	358	 	 	 	358	 	
Decorative Architectural Products	 	 	357	 	 	 	371	 	 	 	252	 	 	 	278	 	 	 	269	 	 	 	331	 	
Other Specialty Products	 	 	225	 	 	 	225	 	 	 	229	 	 	 	265	 	 	 	225	 	 	 	250	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	1,328	 	 	$	1,659	 	 	$	1,745	 	 	$	1,814	 	 	$	1,741	 	 	$	1,853	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	$	1,417	 	 	$	1,428	 	 	$	1,567	 	 	$	1,567	 	 	$	1,608	 	 	$	1,608	 	
International, principally Europe	 	 	(89	)	 	 	231	 	 	 	178	 	 	 	247	 	 	 	133	 	 	 	245	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	1,328	 	 	 	1,659	 	 	 	1,745	 	 	 	1,814	 	 	 	1,741	 	 	 	1,853	 	
General corporate expense, net	 	 	(203	)	 	 	(203	)	 	 	(192	)	 	 	(192	)	 	 	(194	)	 	 	(194	)	
Gains on sale of corporate fixed assets, net	 	 	—	 	 	 	—	 	 	 	8	 	 	 	8	 	 	 	7	 	 	 	7	 	
Income regarding litigation settlement	 	 	1	 	 	 	1	 	 	 	6	 	 	 	6	 	 	 	30	 	 	 	30	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating profit	 	$	1,126	 	 	$	1,457	 	 	$	1,567	 	 	$	1,636	 	 	$	1,584	 	 	$	1,696	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2006	 	 	2006 (B)	 	 	2005	 	 	2005 (B)	 	 	2004	 	 	2004 (B)	 	
 		
Operating Profit Margin: (A)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	 	3.7	%	 	 	13.3	%	 	 	15.5	%	 	 	15.5	%	 	 	16.9	%	 	 	16.9	%	
Plumbing Products	 	 	8.5	%	 	 	8.5	%	 	 	11.6	%	 	 	11.8	%	 	 	12.1	%	 	 	12.9	%	
Installation and Other Services	 	 	10.9	%	 	 	10.9	%	 	 	12.5	%	 	 	12.5	%	 	 	12.9	%	 	 	12.9	%	
Decorative Architectural Products	 	 	20.1	%	 	 	20.9	%	 	 	15.0	%	 	 	16.5	%	 	 	16.7	%	 	 	20.6	%	
Other Specialty Products	 	 	17.8	%	 	 	17.8	%	 	 	17.3	%	 	 	20.0	%	 	 	17.6	%	 	 	19.5	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	 	13.4	%	 	 	13.6	%	 	 	15.0	%	 	 	15.0	%	 	 	16.6	%	 	 	16.6	%	
International, principally Europe	 	 	(4.0	)%	 	 	10.3	%	 	 	8.4	%	 	 	11.6	%	 	 	6.3	%	 	 	11.6	%	
Total	 	 	10.4	%	 	 	13.0	%	 	 	13.9	%	 	 	14.4	%	 	 	14.8	%	 	 	15.7	%	
Total operating profit margin, as reported	 	 	8.8	%	 	 	N/A	 	 	 	12.5	%	 	 	N/A	 	 	 	13.4	%	 	 	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. The 2006 impairment charges for goodwill were as follows: Cabinets and Related Products – $316 million; Plumbing Products – $1 million; and Decorative Architectural Products – $14 million. The 2005 impairment charges for goodwill were as follows: Plumbing Products – $7 million; Decorative Architectural Products – $26 million; and Other Specialty Products – $36 million. The 2004 impairment charges for goodwill were as follows: Plumbing Products – $25 million; Decorative Architectural Products – $62 million; and Other Specialty Products – $25 million. These charges principally related to certain of the Company’s European business units.	

25

Table of Contents

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 in 2006, 2005 and 2004.

     	Profit Improvement Programs	
 
As part of its profit improvement programs, the Company has been focused on the rationalization of its Plumbing Products segment. As a result, in 2005, the Company incurred approximately $12 million pre-tax of charges related to headcount reductions and the discontinuance of a product line. In addition, the Company announced a plant closure in the Plumbing Products segment in January 2006. During 2006, the Company incurred $39 million pre-tax of costs and charges (primarily accelerated depreciation and severance expense) related to this plant closure and other profit improvement programs in the Plumbing Products segment.
 
The Company originally estimated that costs and charges for profit improvement programs related to its Plumbing Products segment would approximate $70 million pre-tax compared with the actual charges of $39 million pre-tax. The reduced amount reflects the fourth quarter sale of a manufacturing facility in the Plumbing Products segment which was originally planned for closure.
 
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.

     	Cabinets and Related Products	
 
Net sales of Cabinets and Related Products decreased in 2006 primarily due to lower sales of ready-to-assemble cabinets in North American 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. A weaker U.S. dollar in 2006 also had a positive effect on the translation of local currencies of European operations included in this segment. The 2005 sales increases in this segment were primarily attributable to increased sales volume in the new construction market, as well as certain selling price increases.
 
The operating profit margins in this segment include the negative effect of $8 million of costs and charges related to the closure of a relatively small ready-to-assemble cabinet manufacturing facility in 2006. Excluding such charges, the operating profit margin was 13.6 percent in 2006. Operating profit margins in this segment were negatively affected by a decline in sales volume in the last half of 2006, as well as increased commodity, freight and plant start-up costs, offset in part by selling price increases. Operating profit margins in this segment were also negatively affected by lower European operating results, particularly due to lower sales volume of ready-to-assemble cabinets and increased commodity costs. 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. Operating profit margins in 2004 reflect the positive impact of higher unit sales volume, as well as certain profit improvement initiatives.

     	Plumbing Products	
 
Net sales of Plumbing Products increased in 2006 primarily due to increased sales volume of certain European operations, as well as increased sales volume through the Company’s North American wholesale distribution channel. These results were offset in part by declining sales volume to certain retail customers. A weaker U.S. dollar in 2006 also had a positive effect on the translation of local currencies of European operations included in this segment. Net sales of Plumbing Products increased in 2005 principally due to increased sales through the Company’s wholesale distribution channel and the increased sales of certain European operations included in this segment.

26

Table of Contents

The 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. Operating profit margins in this segment in 2006 were negatively affected by increased commodity costs, as well as a less favorable product mix and declining sales volume to certain retail customers. The operating profit margins in 2005 were adversely 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 operating profit margins in 2004 reflect an increase in European sales, as well as increased material costs and an increase in sales volume.
 
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 January 2006, the Company announced a North American plant closure in this segment; costs associated with this plant closure are included in the profit improvement costs above.

     	Installation and Other Services	
 
Net sales of Installation and Other Services 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 continued slowdown in the new home construction market significantly reduced sales in the second half of 2006 compared with 2005, particularly in the fourth quarter. Net sales in this segment increased in 2005 primarily due to increased selling prices, as well as increased sales volume of non-insulation products and continued strength in the new home construction market.
 
The 2006 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 continued growth in non-insulation products, new product development and technology initiatives. The slight decline in operating profit margins in 2005 was primarily attributable to continued 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. The decline in operating profit margins in 2004 reflect an increase in sales of non-insulation products.
 
While the Company experienced constrained availability of fiberglass insulation through the first half of 2006 due to planned availability programs implemented by its vendors, the continued slowdown in new residential construction has now resulted in fiberglass insulation becoming readily available to the Company. At the current time, the Company believes that it will be able to source adequate quantities of insulation materials to meet its needs during 2007.

     	Decorative Architectural Products	
 
Net sales of Decorative Architectural Products 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 for paints and stains.
 
The operating profit margins in this segment improved in 2006 due to increased selling prices of paints and stains, which partially offset commodity cost increases experienced in late 2004 and during 2005. The operating profit margins in this segment in 2005 were negatively impacted by increased material and freight costs, which were not completely offset by increased selling prices related to paints and stains. The operating profit margins in 2004 include the effect of increased sales volume of paints and stains and increased sales volume and improved operating performance of the Company’s decorative hardware businesses, offset in part by increased material and promotion costs.

27

Table of Contents

		
     	Other Specialty Products	
 
Net sales of Other Specialty Products decreased in 2006 principally due to lower sales volume of windows and doors, resulting from a slowdown in the new home construction market, particularly in the Western United States. A weaker U.S. dollar in 2006 had a positive effect on the translation of local currencies of European operations included in this segment. Net sales of Other Specialty Products increased in 2005 principally due to increased sales volume and certain selling price increases of doors and windows to the North American new home construction markets, which were partially offset by reduced sales of European operations included in this segment.
 
The 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 negatively 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. The operating profit margins in 2004 were primarily attributable to increased sales volume of windows.
 
Geographic Area Results Discussion

     	North America	
 
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 increased in 2005 primarily due to 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.
 
Operating profit margins include charges related to the Company’s profit improvement programs, principally in the Plumbing Products segment, of $45 million and $12 million in 2006 and 2005, respectively. Excluding such charges, operating profit margins from North American operations were 14.0 percent and 15.1 percent in 2006 and 2005, respectively. The operating profit margin decline in North American operations is primarily 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, as well as increased commodity costs, partially offset by selling price increases. Operating profit margins in 2005 were negatively 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. Operating profit margins in 2004 were positively affected by increases in sales volume of assembled cabinets, faucets, paints and stains, vinyl and fiberglass windows and patio doors and installed sales of insulation and non-insulation products. Operating profit margins in 2004 were negatively impacted by increased commodity costs, which offset lower sales promotion costs.

     	International, Principally Europe	
 
Net sales from International operations increased in 2006 primarily due to increased sales of plumbing products, which more than offset lower sales volume of ready-to-assemble cabinets. A weaker U.S. dollar had a positive effect on the translation of European results in 2006, increasing European net sales in 2006 by one percent. Net sales from International operations increased in 2005 primarily due to 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 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

28

Table of Contents

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. Operating profit margins in 2004 were positively affected by increases in sales volume of plumbing products, ready-to-assemble cabinets and windows.
 
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, 2006, commitments to contribute up to $60 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.

29

Table of Contents

Contractual Obligations
 
The following table provides payment obligations related to current contracts at December 31, 2006, in millions:

 	 	Payments Due by Period	 	
 	 	Less than	 	 	2-3	 	 	4-5	 	 	More than	 	 	 	 	
 	 	1 Year	 	 	Years	 	 	Years	 	 	5 Years	 	 	Total	 	
 		
Debt (A)	 	$	1,447	 	 	$	125	 	 	$	54	 	 	$	3,354	 	 	$	4,980	 	
Interest (B)	 	 	217	 	 	 	403	 	 	 	399	 	 	 	1,198	 	 	 	2,217	 	
Operating leases	 	 	108	 	 	 	122	 	 	 	64	 	 	 	64	 	 	 	358	 	
Currently payable income taxes	 	 	61	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	61	 	
Defined-benefit plans	 	 	29	 	 	 	23	 	 	 	27	 	 	 	75	 	 	 	154	 	
Private equity funds (C)	 	 	20	 	 	 	20	 	 	 	20	 	 	 	—	 	 	 	60	 	
Acquisition-related commitments	 	 	2	 	 	 	4	 	 	 	—	 	 	 	—	 	 	 	6	 	
Post-retirement obligations	 	 	1	 	 	 	1	 	 	 	1	 	 	 	4	 	 	 	7	 	
Purchase commitments (D)	 	 	273	 	 	 	25	 	 	 	2	 	 	 	—	 	 	 	300	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	2,158	 	 	$	723	 	 	$	567	 	 	$	4,695	 	 	$	8,143	 	

 
			
 	(A) 	The Company has included $825 million related to the Zero Coupon Convertible Senior Notes (“Notes”), which was the accreted value on January 20, 2007; such Notes were redeemed on the put date according to the terms of the Notes. The remaining accreted value of $51 million is included in 4-5 years, as the next put option date is July 20, 2011.	

 	(B) 	The Company assumed that all debt would be held to maturity, except for the Zero Coupon convertible Senior Notes.	

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

 	(D) 	Excludes contracts that do not require volume commitments and open or pending purchase orders.	
 
Recently Issued Accounting Pronouncements
 
In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108, “Quantifying Financial Statement Misstatements,” (“SAB 108”). Historically, the Company evaluated financial statement misstatements using an “iron-curtain” method, which primarily focused on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior-year errors on the statement of income. SAB 108 clarified that the evaluation of financial statement misstatements must be made based upon all relevant quantitative and qualitative factors; this is referred to as a “dual approach.” SAB 108 is effective for the year ended December 31, 2006. The adoption of SAB 108 did not have an effect on the Company’s consolidated financial statements.
 
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. The Company is currently evaluating the impact that the provisions of SFAS No. 157 will have on its consolidated financial statements.
 
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 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. FIN No. 48 also provides guidance on classification, interest and

30

Table of Contents

penalties, accounting in interim periods, disclosure and transition. The adoption of FIN No. 48 is effective January 1, 2007.
 
Historically, the Company has established reserves for tax contingencies in accordance with SFAS No. 5, “Accounting for Contingencies,” (“SFAS No. 5”). Under this standard, 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 lower threshold for recognizing reserves for income tax contingencies on uncertain tax positions than the thresholds under SFAS No. 5. Therefore, although the Company has not completed its evaluation of the impact of FIN No. 48 on its consolidated financial statements, it currently estimates that its reserves for income tax contingencies net of any federal tax benefit will increase by approximately $25 million to $45 million, as of the date of adoption. The cumulative effect of applying FIN No. 48 will be recorded as a reduction to beginning retained earnings in 2007. The Company believes that, in future years, there will be a greater potential for volatility in its effective tax rate because this lower threshold allows changes in the income tax environment to affect the tax reserve computation to a greater degree than SFAS No. 5.
 
In addition, the Company expects to reclassify the majority of its reserves for income tax contingencies from current to non-current liabilities in accordance with the provisions of FIN No. 48.

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, 2006 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 and the Great Britain pound.
 
At December 31, 2006, 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.

31

Table of Contents

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, 2006 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, 2006.
 
Management’s assessment of the effectiveness of Masco Corporation’s internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which expressed unqualified opinions on management’s assessment and the effectiveness of Masco Corporation’s internal control over financial reporting as of December 31, 2006. Additionally, PricewaterhouseCoopers LLP expressed an unqualified opinion on the Company’s 2006 consolidated financial statements. This report appears under Item 8. Financial Statements and Supplementary Data under the heading Report of Independent Registered Public Accounting Firm.

32

Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
of Masco Corporation:
 
We have completed integrated audits of Masco Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
 
Consolidated Financial Statements and Financial Statement Schedule
 
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, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 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. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
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 benefit plans effective December 31, 2006.
 
Internal Control Over Financial Reporting
 
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and

33

Table of Contents

performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
 
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 27, 2007

34

Table of Contents

MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
at December 31, 2006 and 2005

(In Millions, Except Share Data)	 	
 	 	2006	 	 	2005	 	
 		
ASSETS	
Current Assets:	 	 	 	 	 	 	 	 	
Cash and cash investments	 	$	1,958	 	 	$	1,964	 	
Receivables	 	 	1,613	 	 	 	1,716	 	
Inventories	 	 	1,263	 	 	 	1,127	 	
Prepaid expenses and other	 	 	281	 	 	 	316	 	
 	 	 	 	 	 	 	 	 	
Total current assets	 	 	5,115	 	 	 	5,123	 	
Property and equipment, net	 	 	2,363	 	 	 	2,173	 	
Goodwill	 	 	3,957	 	 	 	4,171	 	
Other intangible assets, net	 	 	306	 	 	 	307	 	
Other assets	 	 	584	 	 	 	785	 	
 	 	 	 	 	 	 	 	 	
Total Assets	 	$	12,325	 	 	$	12,559	 	

LIABILITIES and SHAREHOLDERS’ EQUITY	
Current Liabilities:	 	 	 	 	 	 	 	 	
Notes payable	 	$	1,446	 	 	$	832	 	
Accounts payable	 	 	815	 	 	 	837	 	
Accrued liabilities	 	 	1,128	 	 	 	1,225	 	
 	 	 	 	 	 	 	 	 	
Total current liabilities	 	 	3,389	 	 	 	2,894	 	
Long-term debt	 	 	3,533	 	 	 	3,915	 	
Deferred income taxes and other	 	 	932	 	 	 	902	 	
 	 	 	 	 	 	 	 	 	
Total Liabilities	 	 	7,854	 	 	 	7,711	 	
 	 	 	 	 	 	 	 	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Shareholders’ Equity:	 	 	 	 	 	 	 	 	
Common shares authorized: 1,400,000,000; issued and outstanding: 2006 – 383,890,000; 2005 – 419,040,000	 	 	384	 	 	 	419	 	
Retained earnings	 	 	3,575	 	 	 	4,286	 	
Accumulated other comprehensive income	 	 	512	 	 	 	328	 	
Less: Restricted stock awards	 	 	–	 	 	 	(185	)	
 	 	 	 	 	 	 	 	 	
Total Shareholders’ Equity	 	 	4,471	 	 	 	4,848	 	
 	 	 	 	 	 	 	 	 	
Total Liabilities and Shareholders’ Equity	 	$	12,325	 	 	$	12,559	 	

 
See notes to consolidated financial statements.

35

Table of Contents

MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
for the years ended December 31, 2006, 2005 and 2004

(In Millions, Except Per Common Share Data)	 	
 	 	2006	 	 	2005	 	 	2004	 	
 		
Net sales	 	$	12,778	 	 	$	12,569	 	 	$	11,783	 	
Cost of sales	 	 	9,259	 	 	 	8,985	 	 	 	8,143	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	3,519	 	 	 	3,584	 	 	 	3,640	 	
Selling, general and administrative expenses	 	 	2,063	 	 	 	1,954	 	 	 	1,974	 	
Income regarding litigation settlement	 	 	(1	)	 	 	(6	)	 	 	(30	)	
Impairment charges for goodwill	 	 	331	 	 	 	69	 	 	 	112	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating profit	 	 	1,126	 	 	 	1,567	 	 	 	1,584	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense), net:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	(240	)	 	 	(247	)	 	 	(217	)	
Impairment charges for financial investments	 	 	(101	)	 	 	(45	)	 	 	(21	)	
Other, net	 	 	115	 	 	 	127	 	 	 	188	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	(226	)	 	 	(165	)	 	 	(50	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net	 	 	900	 	 	 	1,402	 	 	 	1,534	 	
Income taxes	 	 	412	 	 	 	514	 	 	 	571	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before minority interest and cumulative effect of accounting change, net	 	 	488	 	 	 	888	 	 	 	963	 	
Minority interest	 	 	27	 	 	 	22	 	 	 	19	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	 	461	 	 	 	866	 	 	 	944	 	
Income (loss) from discontinued operations, net	 	 	30	 	 	 	74	 	 	 	(51	)	
Cumulative effect of accounting change, net	 	 	(3	)	 	 	–	 	 	 	–	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	488	 	 	$	940	 	 	$	893	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	$	1.17	 	 	$	2.05	 	 	$	2.12	 	
Income (loss) from discontinued operations, net	 	 	.08	 	 	 	.18	 	 	 	(.11	)	
Cumulative effect of accounting change, net	 	 	(.01	)	 	 	–	 	 	 	–	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.24	 	 	$	2.23	 	 	$	2.01	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	$	1.15	 	 	$	2.01	 	 	$	2.07	 	
Income (loss) from discontinued operations, net	 	 	.08	 	 	 	.17	 	 	 	(.11	)	
Cumulative effect of accounting change, net	 	 	(.01	)	 	 	–	 	 	 	–	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.22	 	 	$	2.19	 	 	$	1.96	 	

 
See notes to consolidated financial statements.

36

Table of Contents

MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
for the years ended December 31, 2006, 2005 and 2004

 	 	(In Millions)	 	
 	 	2006	 	 	2005	 	 	2004	 	
 		
Cash Flows From (For) Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	488	 	 	$	940	 	 	$	893	 	
Depreciation and amortization	 	 	244	 	 	 	241	 	 	 	237	 	
Deferred income taxes	 	 	(42	)	 	 	75	 	 	 	91	 	
(Gain) loss on disposition of businesses, net	 	 	(51	)	 	 	(63	)	 	 	33	 	
Gain on disposition of investments, net	 	 	(31	)	 	 	(98	)	 	 	(92	)	
Income regarding litigation settlement	 	 	(1	)	 	 	(6	)	 	 	(30	)	
Cumulative effect of accounting change, net	 	 	3	 	 	 	–	 	 	 	–	 	
Impairment charges:	 	 	 	 	 	 	 	 	 	 	 	 	
Financial investments	 	 	101	 	 	 	45	 	 	 	21	 	
Goodwill	 	 	331	 	 	 	69	 	 	 	168	 	
Stock-based compensation	 	 	100	 	 	 	71	 	 	 	74	 	
Minority interest	 	 	27	 	 	 	22	 	 	 	19	 	
Other items, net	 	 	96	 	 	 	69	 	 	 	50	 	
Decrease (increase) in receivables	 	 	106	 	 	 	(94	)	 	 	(114	)	
Increase in inventories	 	 	(126	)	 	 	(57	)	 	 	(138	)	
(Decrease) increase in accounts payable and accrued liabilities, net	 	 	(37	)	 	 	160	 	 	 	242	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash from operating activities	 	 	1,208	 	 	 	1,374	 	 	 	1,454	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Flows From (For) Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Increase in debt	 	 	21	 	 	 	33	 	 	 	33	 	
Payment of debt	 	 	(31	)	 	 	(120	)	 	 	(73	)	
Issuance of notes, net of issuance costs	 	 	988	 	 	 	494	 	 	 	293	 	
Retirement of notes	 	 	(827	)	 	 	–	 	 	 	(266	)	
Purchase of Company common stock	 	 	(854	)	 	 	(986	)	 	 	(943	)	
Issuance of Company common stock	 	 	28	 	 	 	33	 	 	 	58	 	
Tax benefit from exercise of stock options	 	 	18	 	 	 	–	 	 	 	–	 	
Cash dividends paid	 	 	(349	)	 	 	(339	)	 	 	(302	)	
Proceeds from settlement of swaps	 	 	–	 	 	 	–	 	 	 	55	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash for financing activities	 	 	(1,006	)	 	 	(885	)	 	 	(1,145	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Flows From (For) Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(388	)	 	 	(282	)	 	 	(310	)	
Purchases of marketable securities	 	 	(142	)	 	 	(155	)	 	 	(349	)	
Proceeds from disposition of:	 	 	 	 	 	 	 	 	 	 	 	 	
Marketable securities	 	 	174	 	 	 	301	 	 	 	629	 	
Businesses, net of cash disposed	 	 	160	 	 	 	278	 	 	 	172	 	
Property and equipment	 	 	16	 	 	 	37	 	 	 	37	 	
Other financial investments, net	 	 	39	 	 	 	47	 	 	 	50	 	
Acquisition of businesses, net of cash acquired	 	 	(28	)	 	 	(25	)	 	 	(16	)	
Other, net	 	 	(57	)	 	 	(15	)	 	 	(52	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash (for) from investing activities	 	 	(226	)	 	 	186	 	 	 	161	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and cash investments	 	 	18	 	 	 	(5	)	 	 	29	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and Cash Investments:	 	 	 	 	 	 	 	 	 	 	 	 	
(Decrease) increase for the year	 	 	(6	)	 	 	670	 	 	 	499	 	
Cash at businesses held for sale	 	 	–	 	 	 	38	 	 	 	(38	)	
At January 1	 	 	1,964	 	 	 	1,256	 	 	 	795	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
At December 31	 	$	1,958	 	 	$	1,964	 	 	$	1,256	 	

 
See notes to consolidated financial statements.

37

Table of Contents

MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
for the years ended December 31, 2006, 2005 and 2004

 	 	(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, 2004	 	$	5,456	 	 	$	458	 	 	$	1,443	 	 	$	3,299	 	 	$	421	 	 	$	(165	)	
Net income	 	 	893	 	 	 	 	 	 	 	 	 	 	 	893	 	 	 	 	 	 	 	 	 	
Cumulative translation adjustments	 	 	214	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	214	 	 	 	 	 	
Unrealized loss on marketable securities, net of income tax benefit of $2	 	 	(3	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(3	)	 	 	 	 	
Minimum pension liability, net of income tax benefit of $3	 	 	(5	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	1,099	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares issued	 	 	58	 	 	 	20	 	 	 	38	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	 	 	(903	)	 	 	(31	)	 	 	(872	)	 	 	 	 	 	 	 	 	 	 	 	 	
Surrendered (non-cash)	 	 	(15	)	 	 	 	 	 	 	(15	)	 	 	 	 	 	 	 	 	 	 	 	 	
Cash dividends declared	 	 	(312	)	 	 	 	 	 	 	 	 	 	 	(312	)	 	 	 	 	 	 	 	 	
Stock-based compensation	 	 	40	 	 	 	 	 	 	 	48	 	 	 	 	 	 	 	 	 	 	 	(8	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2004	 	$	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	 	 	$	–	 	

 
See notes to consolidated financial statements.

38

Table of Contents

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 program 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 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. 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 $84 million and $78 million at December 31, 2006 and 2005, respectively. Receivables include unbilled revenue related to the Installation and Other Services segment of $40 million and $57 million at December 31, 2006 and 2005, 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

39

Table of Contents

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 $230 million, $208 million and $204 million in 2006, 2005 and 2004, 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, profit margins 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 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 aggregate market value of non-current investments and long-term debt at December 31, 2005 was approximately $367 million and $3,654 million, compared with the aggregate carrying value of $395 million and $3,915 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 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 instruments,

40

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
A. 	ACCOUNTING POLICIES – (Continued)	

 
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 were 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 does 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 at December 31, 2006.

41

Table of Contents

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 and 2004, as if the fair value method were applied to all previously issued stock options, in millions, except per common share amounts:

 	 	2005	 	 	2004	 	
 		
Net income, as reported	 	$	940	 	 	$	893	 	
Add:	 	 	 	 	 	 	 	 	
Stock-based employee compensation expense included in reported net income, net of tax	 	 	47	 	 	 	48	 	
Deduct:	 	 	 	 	 	 	 	 	
Stock-based employee compensation expense, net of tax	 	 	(47	)	 	 	(48	)	
Stock-based employee compensation expense determined under the fair value method for stock options granted prior to 2003, net of tax	 	 	(7	)	 	 	(12	)	
 	 	 	 	 	 	 	 	 	
Pro forma net income	 	$	933	 	 	$	881	 	
 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	
Basic as reported	 	$	2.23	 	 	$	2.01	 	
Basic pro forma	 	$	2.21	 	 	$	1.98	 	
 	 	 	 	 	 	 	 	 	
Diluted as reported	 	$	2.19	 	 	$	1.96	 	
Diluted pro forma	 	$	2.17	 	 	$	1.93	 	

Reclassifications.  Certain prior-year amounts have been reclassified to conform to the 2006 presentation in the consolidated financial statements. The results of operations related to 2006, 2005 and 2004 discontinued operations have been reclassified and separately stated in the accompanying consolidated statements of income for 2006, 2005 and 2004. In the Company’s consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.
 
Other Recently Issued Accounting Pronouncements.  In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108, “Quantifying Financial Statement Misstatements,” (“SAB 108”). Historically, the Company evaluated financial statement misstatements using an “iron-curtain” method, which primarily focused on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior-year errors on the statement of income. SAB 108 clarified that the evaluation of financial statement misstatements must be made based upon all relevant quantitative and qualitative factors; this is referred to as a “dual approach.” SAB 108 is effective for the year ended December 31, 2006. The adoption of SAB 108 did not have an effect on the Company’s consolidated financial statements.
 
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. The Company is currently evaluating the impact that the provisions of SFAS No. 157 will have on its consolidated financial statements.
 
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 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. FIN No. 48 also provides guidance on classification, interest and

42

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
A. 	ACCOUNTING POLICIES – (Concluded)	

 
penalties, accounting in interim periods, disclosure and transition. The adoption of FIN No. 48 is effective January 1, 2007.
 
Historically, the Company has established reserves for tax contingencies in accordance with SFAS No. 5, “Accounting for Contingencies,” (“SFAS No. 5”). Under this standard, 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 lower threshold for recognizing reserves for income tax contingencies on uncertain tax positions than the thresholds under SFAS No. 5. Therefore, although the Company has not completed its evaluation of the impact of FIN No. 48 on its consolidated financial statements, it currently estimates that its reserves for income tax contingencies net of any federal tax benefit will increase by approximately $25 million to $45 million, as of the date of adoption. The cumulative effect of applying FIN No. 48 will be recorded as a reduction to beginning retained earnings in 2007. The Company believes that, in future years, there will be a greater potential for volatility in its effective tax rate because this lower threshold allows changes in the income tax environment to affect the tax reserve computation to a greater degree than SFAS No. 5.
 
In addition, the Company expects to reclassify the majority of its reserves for income tax contingencies from current to non-current liabilities in accordance with the provisions of FIN No. 48.

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 2006, 2005 and 2004, except as noted, as discontinued operations.
 
In 2004, the Company determined that several European business units were not core to the Company’s long-term growth strategy and, accordingly, embarked on a plan of disposition (the “2004 Plan”). The discontinued operations were previously included in each of the Company’s segments, except the Installation and Other Services segment. In 2004, the Company recognized pre-tax charges of $139 million ($151 million including tax effect) for those European business units that were expected to be divested at a loss. Any gains resulting from the dispositions were recognized when the transactions were completed. During 2004, in separate transactions, the Company completed the sale of its Jung Pumpen, The Alvic Group, Alma Kuchen, E. Missel and SKS Group business units in Europe. Total gross proceeds from the dispositions of these companies were $199 million, including cash of $193 million and notes receivable of $6 million. The Company recognized a pre-tax net gain (principally related to the sale of Jung Pumpen) on the dispositions of these businesses of $106 million.
 
During 2005, in separate transactions, the Company completed the sale of its Gebhardt Consolidated and GMU Group business units in Europe, as part of the Company’s 2004 Plan, as well as its Zenith Products and Aran Group businesses. 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 as gain on disposal of discontinued operations, approximately $4 million related to the reversal of certain fee and expense accruals that were recorded in 2004, as part of the 2004 Plan. In 2005, the Company also recorded as income from discontinued operations $3 million related to the reversal of severance accruals that were recorded in 2004.

43

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
B. 	DISCONTINUED OPERATIONS – (Concluded)	

 
 
In 2006, the Company completed the sale of Computerized Security Systems (“CSS”). 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. CSS supplies electronic locksets primarily to hospitality markets in the United States and Europe and was included in the Other Specialty Products segment. As a result of the sale, the Company reclassified the net sales and results of operations related to CSS to discontinued operations. 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.
 
Gains from the 2006, 2005 and 2004 discontinued operations discussed above were included in income (loss) 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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Net sales	 	$	55	 	 	$	315	 	 	$	648	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from discontinued operations	 	$	8	 	 	$	49	 	 	$	13	 	
Gain on disposal of discontinued operations, net	 	 	50	 	 	 	63	 	 	 	106	 	
Impairment of assets held for sale	 	 	—	 	 	 	—	 	 	 	(139	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	58	 	 	 	112	 	 	 	(20	)	
Income taxes	 	 	(28	)	 	 	(38	)	 	 	(31	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from discontinued operations, net	 	$	30	 	 	$	74	 	 	$	(51	)	

 
Included in gain on disposal of discontinued operations, net, for 2006 was the gain related to CSS, as well as additional expenses, net of gains reflecting the receipt of final purchase price payments, related to businesses disposed in 2005.
 
Included in income taxes above was income tax related to income from discontinued operations of $4 million, $15 million and $7 million in 2006, 2005 and 2004, respectively. Income (loss) before income taxes above includes non-cash, pre-tax goodwill impairment charges of $56 million for 2004.
 
The unusual relationship between income taxes and income (loss) before income taxes in 2004 (including the impairment charge for assets held for sale and the net gain on disposals) resulted primarily from certain losses providing no current tax benefit and from the reversal of deferred tax assets of the discontinued operations which were no longer expected to be realized.
 
During 2006, the Company also completed the sale of Gamco Products, General Accessory, Cambridge Brass and Faucet Queens, relatively small businesses, the results of which are included in continuing operations through the date 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. Gamco Products is a supplier of plumbing products in North America and was included in the Plumbing Products segment. General Accessory is a supplier of bathroom accessories in North America and was included in the Decorative Architectural Products segment. Cambridge Brass is a supplier of plumbing fittings in North America and was included in the Plumbing Products segment. Faucet Queens is a supplier of home hardware and repair products to food and drug stores in North America and was included in the Other Specialty Products segment. 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.

44

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

C. ACQUISITIONS
 
During 2006, 2005 and 2004, 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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Cash, net	 	$	28	 	 	$	10	 	 	$	8	 	
Assumed debt	 	 	9	 	 	 	2	 	 	 	2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	37	 	 	$	12	 	 	$	10	 	

 
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. The Company paid an additional $15 million and $31 million (including $8 million in cash) of acquisition-related consideration, including amounts to satisfy share price guarantees, contingent consideration and other purchase price adjustments in 2005 and 2004, respectively, relating to previously acquired companies. At December 31, 2006, the Company had additional consideration payable in cash of $6 million contingent upon the operating performance of the acquired businesses.

D. INVENTORIES

 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2006	 	 	2005	 	
 		
Finished goods	 	$	610	 	 	$	525	 	
Raw material	 	 	480	 	 	 	427	 	
Work in process	 	 	173	 	 	 	175	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	1,263	 	 	$	1,127	 	

 
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.

45

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

E. FINANCIAL INVESTMENTS
 
The Company has maintained investments in 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. Financial investments included in other assets were as follows, in millions:

 	 	At December 31	 	
 	 	2006	 	 	2005	 	
 		
Marketable securities	 	$	72	 	 	$	115	 	
Private equity funds	 	 	211	 	 	 	262	 	
Metaldyne Corporation	 	 	57	 	 	 	94	 	
TriMas Corporation	 	 	30	 	 	 	46	 	
Other investments	 	 	9	 	 	 	12	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	379	 	 	$	529	 	

 
Investments in marketable securities are accounted for as available-for-sale. Accordingly, the Company records these investments at fair value, and unrealized gains and 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 had investments in 18 different marketable securities at December 31, 2006. 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 2005 and 2004, the Company recognized impairment charges of $28 million and $21 million, respectively, related to its then investment in four million shares of Furniture Brands International common stock.
 
The Company’s investments in marketable securities were as follows, in millions:

 	 	 	 	 	Pre-tax	 	 	 	 	
 	 	 	 	 	Unrealized	 	 	Unrealized	 	 	Recorded	 	
 	 	Cost Basis	 	 	Gains	 	 	Losses	 	 	Basis	 	
 		
December 31, 2006	 	$	67	 	 	$	9	 	 	$	(4	)	 	$	72	 	
December 31, 2005	 	$	94	 	 	$	21	 	 	$	–	 	 	$	115	 	

At December 31, 2006, no marketable securities were in an unrealized loss position for more than twelve months.
 
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 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.

46

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

E.  FINANCIAL INVESTMENTS – (Continued)

 
At December 31, 2006, the Company had investments in 49 private equity funds, split between buyout funds and venture capital funds, with a carrying value of $211 million. The 31 buyout funds, which constitute approximately 75 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 18 venture capital funds, which constitute approximately 25 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 seven funds with a carrying value greater than $10 million that aggregate $112 million of carrying value. It is not practicable 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.
 
In November 2000, the Company reduced its common equity ownership in Metaldyne Corporation (“Metaldyne”) (formerly MascoTech, Inc.) through a recapitalization merger with an affiliate of Heartland Industrial Partners, L.P. (“Heartland”), a private equity fund in which the Company had a remaining investment of $17 million at December 31, 2006 (representing less than five percent of the fund). The Company in that transaction retained six percent of the common equity of Metaldyne. At December 31, 2006, the Company also held preferred stock of Metaldyne, which accrues dividends at the annual rate of 15 percent. Additionally, the Company owned an approximate 10 percent investment in TriMas Corporation (“TriMas”) common stock. Investments in Metaldyne and TriMas are accounted for on the cost basis.

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 the second quarter of 2006, the Company recognized a non-cash, pre-tax impairment charge aggregating $78 million for its investments in Metaldyne ($40 million), TriMas ($6 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 impairment charges of $13 million and $15 million in 2006 and 2005, respectively. In the fourth quarter of 2006, the Company received new information related to its TriMas investment and determined that the additional decline in the estimated value for this investment was other-than-temporary. Accordingly, in the fourth quarter of 2006, the Company recognized an additional non-cash, pre-tax impairment charge of $10 million related to its investment in TriMas.
 
In 2005, the Company reviewed its portfolio of private equity funds and determined that there were impairment indicators for three funds. As of December 31, 2005, the Company determined that the declines in value were temporary based upon a review of the fund reports, analysis of investments in the funds, analyst reports, industry information, length of time the funds have been in existence, the remaining amounts of available capital commitments that the fund manager could utilize to support its investments and the Company’s ability and intent to hold the investments in these funds for a reasonable period of time sufficient for the forecasted recovery of fair value.

47

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

E.  FINANCIAL INVESTMENTS – (Concluded)

 
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, 2006	 	$	–	 	 	$	–	 	 	$	–	 	
December 31, 2005	 	$	43	 	 	$	19	 	 	$	9	 	

The remaining private equity investments in 2006 and 2005 with an aggregate carrying value of $211 million and $191 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.
 
Subsequent Event:  On January 11, 2007, the acquisition of Metaldyne by Asahi Tec Corporation, a Japanese automotive supplier, was finalized. The combined fair value of Asahi Tec common and preferred stock received in exchange for the Company’s investment in Metaldyne (common and preferred stock) approximates $74 million and the Company’s carrying value of the Metaldyne investment was $57 million at December 31, 2006. As a result, a gain of approximately $17 million will be recognized in the first quarter of 2007. Any unrealized gains or losses subsequent to January 11, 2007, will be recognized, net of tax, through shareholders’ equity, as a component of other comprehensive income, in the Company’s consolidated balance sheet beginning in the first quarter of 2007.
 
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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Realized gains from marketable securities	 	$	14	 	 	$	39	 	 	$	70	 	
Realized losses from marketable securities	 	 	(10	)	 	 	(9	)	 	 	(20	)	
Dividend income from marketable securities	 	 	3	 	 	 	4	 	 	 	14	 	
Income from other investments, net	 	 	27	 	 	 	68	 	 	 	42	 	
Dividend income from other investments	 	 	7	 	 	 	12	 	 	 	13	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from financial investments, net	 	$	41	 	 	$	114	 	 	$	119	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Impairment charges:	 	 	 	 	 	 	 	 	 	 	 	 	
Metaldyne Corporation	 	$	(40	)	 	$	–	 	 	$	–	 	
Private equity funds	 	 	(40	)	 	 	(15	)	 	 	–	 	
TriMas Corporation	 	 	(16	)	 	 	–	 	 	 	–	 	
Other investments	 	 	(5	)	 	 	–	 	 	 	–	 	
Marketable securities	 	 	–	 	 	 	(30	)	 	 	(21	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total impairment charges	 	$	(101	)	 	$	(45	)	 	$	(21	)	

 
The impairment charges, related to the Company’s financial investments, recognized during 2006, 2005 and 2004 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.

48

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 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 6.787% in 2006. At December 31, 2006, 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 2006, the Company recognized an increase in interest expense of $8 million related to this swap agreement, due to increasing interest rates. The amount recognized as a reduction of interest expense was $3 million and $22 million in 2005 and 2004, 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. At December 31, 2005, the Company, including certain European operations, had entered into foreign currency forward contracts with notional amounts of $12 million, $10 million and $4 million to manage exposure to currency fluctuations in the United States dollar, Great Britain pound and various other currencies, respectively. Based upon year-end market prices, no asset or liability was recorded at December 31, 2006 and 2005, 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	 	
 	 	2006	 	 	2005	 	
 		
Land and improvements	 	$	205	 	 	$	188	 	
Buildings	 	 	1,069	 	 	 	974	 	
Machinery and equipment	 	 	2,566	 	 	 	2,356	 	
 	 	 	 	 	 	 	 	 	
 	 	 	3,840	 	 	 	3,518	 	
Less: Accumulated depreciation	 	 	1,477	 	 	 	1,345	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	2,363	 	 	$	2,173	 	

49

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
G. 	PROPERTY AND EQUIPMENT – (Concluded)	

 
 
The Company leases certain equipment and plant facilities under noncancellable operating leases. Rental expense, recorded in the consolidated statements of income, totaled approximately $164 million, $145 million and $141 million during 2006, 2005 and 2004, respectively. Future minimum lease payments at December 31, 2006 were approximately as follows: 2007 – $108 million; 2008 – $74 million; 2009 – $48 million; 2010 – $32 million; and 2011 and beyond – $96 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 $9 million, $12 million and $13 million in 2006, 2005 and 2004, respectively.

H. 	GOODWILL AND OTHER INTANGIBLE ASSETS	

The changes in the carrying amount of goodwill for 2006 and 2005, by segment, were as follows, in millions:

 	 	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	 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At	 	 	 	 	 	 	 	 	Pre-tax	 	 	 	 	 	At	 	
 	 	December 31,	 	 	 	 	 	Discontinued	 	 	Impairment	 	 	 	 	 	December 31,	 	
 	 	2004	 	 	Additions (A)	 	 	Operations	 	 	Charge	 	 	Other (C)	 	 	2005	 	
 		
Cabinets and Related Products	 	$	644	 	 	$	2	 	 	$	(39	)	 	$	–	 	 	$	(60	)	 	$	547	 	
Plumbing Products	 	 	514	 	 	 	–	 	 	 	–	 	 	 	(7	)	 	 	(46	)	 	 	461	 	
Installation and Other Services	 	 	1,710	 	 	 	8	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	1,718	 	
Decorative Architectural Products	 	 	344	 	 	 	–	 	 	 	–	 	 	 	(26	)	 	 	(7	)	 	 	311	 	
Other Specialty Products	 	 	1,196	 	 	 	12	 	 	 	–	 	 	 	(36	)	 	 	(38	)	 	 	1,134	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	4,408	 	 	$	22	 	 	$	(39	)	 	$	(69	)	 	$	(151	)	 	$	4,171	 	

 
			
(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.	
 
The Company completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarters of 2006 and 2005. This test indicated that other indefinite-lived intangible assets were not impaired; however, goodwill recorded for certain of the Company’s European business units was impaired. The Company recognized the related non-cash, pre-tax impairment charges for goodwill of $331 million ($331 million, after tax) and $69 million ($69 million, after tax)

50

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
H. 	GOODWILL AND OTHER INTANGIBLE ASSETS – (Concluded)	

 
for 2006 and 2005, respectively. 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 (Tvilum-Scanbirk); and reflects the long-term outlook for that business unit, including declining demand for certain products, as well as decreased operating profit margins.
 
Other indefinite-lived intangible assets were $246 million and $254 million at December 31, 2006 and 2005, respectively, and principally included registered trademarks. The carrying value of the Company’s definite-lived intangible assets was $60 million at December 31, 2006 (net of accumulated amortization of $51 million) and $53 million at December 31, 2005 (net of accumulated amortization of $58 million) and principally included customer relationships and non-compete agreements, with a weighted average amortization period of 13 years and 12 years in 2006 and 2005, respectively. Amortization expense related to the definite-lived intangible assets was $10 million, $22 million and $20 million in 2006, 2005 and 2004, respectively.
 
At December 31, 2006, amortization expense related to the definite-lived intangible assets during each of the next five years was as follows: 2007 – $10 million; 2008 – $8 million; 2009 – $7 million; 2010 – $7 million; and 2011 - $5 million.

I. 	OTHER ASSETS	

 	 	 	 	 	 	 	 	 	
 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2006	 	 	2005	 	
 		
Financial investments (Note E)	 	$	379	 	 	$	529	 	
In-store displays, net	 	 	72	 	 	 	81	 	
Debenture expense	 	 	33	 	 	 	25	 	
Notes receivable	 	 	14	 	 	 	14	 	
Prepaid benefit cost (Note N)	 	 	1	 	 	 	43	 	
Other	 	 	85	 	 	 	93	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	584	 	 	$	785	 	

 
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 $55 million, $63 million and $51 million in 2006, 2005 and 2004, respectively.

51

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
J. 	ACCRUED LIABILITIES	

 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2006	 	 	2005	 	
 		
Salaries, wages and commissions	 	$	218	 	 	$	201	 	
Insurance	 	 	207	 	 	 	194	 	
Advertising and sales promotion	 	 	165	 	 	 	140	 	
Warranty (Note T)	 	 	120	 	 	 	105	 	
Dividends payable	 	 	86	 	 	 	83	 	
Interest	 	 	76	 	 	 	74	 	
Employee retirement plans	 	 	49	 	 	 	216	 	
Income taxes	 	 	61	 	 	 	61	 	
Property, payroll and other taxes	 	 	46	 	 	 	57	 	
Litigation	 	 	8	 	 	 	10	 	
Other	 	 	92	 	 	 	84	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	1,128	 	 	$	1,225	 	

 
		
K. 	DEBT	

 	 	 	 	 	 	 	 	 	
 	 	(In Millions)	 	
 	 	At December 31	 	
 	 	2006	 	 	2005	 	
 		
Notes and debentures:	 	 	 	 	 	 	 	 	
6.75%, due Mar. 15, 2006	 	$	–	 	 	$	800	 	
4.625%, due Aug. 15, 2007	 	 	300	 	 	 	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	 	 	 	–	 	
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)	 	 	874	 	 	 	848	 	
Floating-Rate Notes, due Mar. 9, 2007	 	 	300	 	 	 	300	 	
Notes payable to banks	 	 	–	 	 	 	–	 	
Other	 	 	145	 	 	 	139	 	
 	 	 	 	 	 	 	 	 	
 	 	 	4,979	 	 	 	4,747	 	
Less: Current portion	 	 	1,446	 	 	 	832	 	
 	 	 	 	 	 	 	 	 	
Total Long-term debt	 	$	3,533	 	 	$	3,915	 	

 
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.

52

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
K. 	DEBT – (Continued)	

 
 
During 2006, the Company retired $800 million of 6.75% notes due March 2006. During 2006, the Company reclassified to current liabilities from long-term debt, $823 million of Zero Coupon Senior Convertible Notes, as the next put option date was January 20, 2007, $300 million of floating-rate notes due March 2007 and $300 million of 4.625% notes due August 2007. On October 3, 2006, the Company issued $1 billion of fixed-rate 6.125% notes due 2016, resulting in net proceeds of $988 million. The Note offering was in anticipation of the 2007 debt maturities, including the put option related to the Zero Coupon Convertible Senior Notes.
 
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 exchanged the Notes as a result of EITF No. 04-08 that would have required the total number of shares underlying the Old Notes to be included in the calculation of diluted earnings per common share, whether or not the Old Notes were convertible according to their terms. At December 31, 2006, over 99 percent of the outstanding Notes were New Notes.
 
The New Notes have substantially the same terms as the Old Notes, except for the form of consideration payable upon conversion. Upon conversion of the Old Notes, the Company would have delivered shares of its common stock at the applicable conversion rate. Upon conversion of the New 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. Similar to the Old Notes, the New 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 New Notes ($467.03 per $1,000 principal amount at maturity as of December 31, 2006) divided by the conversion rate of 12.7317 shares for each $1,000 principal amount at maturity of the New Notes or $43.41 per common share at December 31, 2006. The New Notes, similar to the Old 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.
 
Similar to the Old 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. Similar to the Old Notes, holders of the New Notes have the option to require that the Notes be repurchased by the Company on January 20, 2007, July 20, 2011 and every five years thereafter.
 
At December 31, 2006, 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 borrowings under the 5-Year Revolving Credit Agreement at December 31, 2006 and 2005.
 
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, 2006, the Company’s net worth exceeded such requirement by $1.1 billion. The 5-Year Revolving Credit Agreement, as amended, also contains limitations on additional borrowings; at December 31, 2006, the Company had additional borrowing capacity, subject to availability, of up to $1.7 billion.

53

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
K. 	DEBT – (Concluded)	

 
 
At December 31, 2006, the maturities of long-term debt during each of the next five years were as follows: 2007 – $1,447 million (including $825 million related to the Zero Coupon Senior Convertible Notes, the accreted value at the next put option date of January 20, 2007); 2008 – $112 million; 2009 – $13 million; 2010 – $2 million; and 2011 – $52 million.
 
At December 31, 2006, the amount of debt and equity securities issuable under the Company’s unallocated shelf registration statement with the Securities and Exchange Commission was $500 million.
 
Interest paid was $238 million, $246 million and $219 million in 2006, 2005 and 2004, respectively.
 
Subsequent Event:  On January 20, 2007, holders of $1.8 billion (94 percent) principal amount at maturity of the Zero Coupon Convertible Senior Notes (“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 will be payable in June 2007. Subsequent to the repurchase, there were outstanding $108 million principal amount at maturity of such Notes, with an accreted value of $51 million, which has been included in long-term debt at December 31, 2006, as the next put option date is July 20, 2011. The Company may, at any time on or after January 25, 2007, redeem all or part of the Notes at their accreted value.
 
L. MINORITY INTEREST

The Company owned 64 percent of Hansgrohe AG. The aggregate minority interest, net of dividends, of $108 million and $89 million at December 31, 2006 and 2005, respectively, was recorded in deferred income taxes and other liabilities on the Company’s consolidated balance sheets.

M. 	STOCK-BASED COMPENSATION	

Effective January 1, 2003, the Company adopted SFAS No. 148. 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 does 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 at December 31, 2006.
 
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, 2006, outstanding stock-based incentives were in the form of restricted 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.

54

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
M. 	STOCK-BASED COMPENSATION – (Continued)	

 
Pre-tax compensation expense and the related income tax benefit, related to these stock-based incentives were as follows, in millions:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Restricted long-term stock awards	 	$	52	 	 	$	44	 	 	$	39	 	
Stock options	 	 	46	 	 	 	29	 	 	 	21	 	
Phantom stock awards and stock appreciation rights	 	 	2	 	 	 	2	 	 	 	17	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	100	 	 	$	75	 	 	$	77	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax benefit	 	$	37	 	 	$	28	 	 	$	28	 	

 
In 2006, the Company recognized pre-tax expense of $15 million ($9 million or $.02 per common share, after tax), related to the adoption of SFAS No. 123R. In addition, 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, related to the adoption of SFAS No. 123R and the change from the intrinsic value method to the fair value method of accounting for stock appreciation rights.
 
At December 31, 2006, a total of 19,975,100 shares and 303,400 shares of Company common stock were available under the 2005 Plan and the 1997 Plan, respectively, for the granting of stock options and other restricted long-term stock incentive awards.
 
Restricted 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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Unvested stock award shares at January 1	 	 	9	 	 	 	10	 	 	 	10	 	
Weighted average grant date fair value	 	$	25	 	 	$	23	 	 	$	21	 	
Stock award shares granted	 	 	2	 	 	 	2	 	 	 	2	 	
Weighted average grant date fair value	 	$	29	 	 	$	36	 	 	$	28	 	
Stock award shares vested	 	 	2	 	 	 	2	 	 	 	2	 	
Weighted average grant date fair value	 	$	24	 	 	$	21	 	 	$	20	 	
Stock award shares forfeited	 	 	–	 	 	 	1	 	 	 	–	 	
Weighted average grant date fair value	 	$	27	 	 	$	24	 	 	$	22	 	
Unvested stock award shares at December 31	 	 	9	 	 	 	9	 	 	 	10	 	
Weighted average grant date fair value	 	$	27	 	 	$	25	 	 	$	23	 	

The Company continues to measure 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, 2006, the Company had remaining $21 million of

55

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
M. 	STOCK-BASED COMPENSATION – (Continued)	

 
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 six years, or immediately upon a grantee’s retirement.
 
There was $185 million of unrecognized compensation expense, 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. At December 31, 2006, there was $195 million of unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of seven years.
 
The total market value (at the vesting date) of stock award shares which vested during 2006, 2005 and 2004 was $51 million, $60 million and $45 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 4,317,000 of stock option shares, including restoration stock option shares, during 2006 with a grant date exercise price range of $26 to $33 per share. During 2006, 922,000 stock option shares were forfeited (including options that expired unexercised).

56

Table of Contents

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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Option shares outstanding at January 1	 	 	27	 	 	 	26	 	 	 	26	 	
Weighted average exercise price	 	$	26	 	 	$	25	 	 	$	22	 	
Option shares granted, including restoration options	 	 	4	 	 	 	4	 	 	 	6	 	
Weighted average exercise price	 	$	27	 	 	$	31	 	 	$	31	 	
Option shares exercised	 	 	4	 	 	 	2	 	 	 	5	 	
Aggregate intrinsic value on date of exercise (A)	 	$	27 million	 	 	$	32 million	 	 	$	69 million	 	
Weighted average exercise price	 	$	25	 	 	$	20	 	 	$	20	 	
Option shares forfeited	 	 	1	 	 	 	1	 	 	 	1	 	
Weighted average exercise price	 	$	30	 	 	$	25	 	 	$	23	 	
Option shares outstanding at December 31	 	 	26	 	 	 	27	 	 	 	26	 	
Weighted average exercise price	 	$	26	 	 	$	26	 	 	$	25	 	
Weighted average remaining option term (in years)	 	 	6	 	 	 	6	 	 	 	6	 	
Option shares vested and expected to vest at December 31	 	 	26	 	 	 	27	 	 	 	26	 	
Weighted average exercise price	 	$	26	 	 	$	26	 	 	$	25	 	
Aggregate intrinsic value (A)	 	$	106 million	 	 	$	124 million	 	 	$	310 million	 	
Weighted average remaining option term (in years)	 	 	6	 	 	 	6	 	 	 	6	 	
Option shares exercisable (vested) at December 31	 	 	15	 	 	 	16	 	 	 	10	 	
Weighted average exercise price	 	$	25	 	 	$	25	 	 	$	24	 	
Aggregate intrinsic value (A)	 	$	75 million	 	 	$	93 million	 	 	$	131 million	 	
Weighted average remaining option term (in years)	 	 	5	 	 	 	4	 	 	 	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, 2006, the Company had $16 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 four years, or immediately upon a grantee’s retirement.

57

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
M. 	STOCK-BASED COMPENSATION – (Continued)	

 
 
At December 31, 2006, there was $90 million of unrecognized compensation expense (using the Black-Scholes option pricing model) 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 $28 million, $33 million and $58 million in 2006, 2005 and 2004, 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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Weighted average grant date fair value	 	$	8.24	 	 	$	10.33	 	 	$	10.36	 	
Risk-free interest rate	 	 	4.89%	 	 	 	4.10%	 	 	 	4.40%	 	
Dividend yield	 	 	3.1%	 	 	 	2.3%	 	 	 	2.1%	 	
Volatility factor	 	 	34.0%	 	 	 	35.8%	 	 	 	37.0%	 	
Expected option life	 	 	7 years	 	 	 	7 years	 	 	 	7 years	 	

The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2006, shares in millions:

Option Shares Outstanding	 	 	Option Shares Exercisable	 	
 	 	 	 	 	 	Weighted	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Average	 	Weighted	 	 	 	 	 	Weighted	 	
 	 	 	 	 	 	Remaining	 	Average	 	 	 	 	 	Average	 	
Range of	 	 	Number of	 	 	Option	 	Exercise	 	 	Number of	 	 	Exercise	 	
Prices	 	 	Shares	 	 	Term	 	Price	 	 	Shares	 	 	Price	 	
 		
$	20-23	 	 	 	9	 	 	4 Years	 	$	20	 	 	 	8	 	 	$	20	 	
$	24-28	 	 	 	8	 	 	8 Years	 	$	27	 	 	 	3	 	 	$	27	 	
$	29-32	 	 	 	9	 	 	7 Years	 	$	30	 	 	 	4	 	 	$	30	 	
$	33-38	 	 	 	—	 	 	4 Years	 	$	35	 	 	 	—	 	 	$	35	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
$	20-38	 	 	 	26	 	 	6 Years	 	$	26	 	 	 	15	 	 	$	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 continues to account 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. For 2006, the Company granted 175,000 shares of phantom stock awards with an aggregate fair value of $5 million and paid $4 million in cash to settle phantom stock awards.
 
SARs are linked to the value of the Company’s common stock 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-

58

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
M. 	STOCK-BASED COMPENSATION – (Concluded)	

 
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 also recognized expense of $400,000 related to the valuation of SARs for 2006. During 2006, the Company granted SARs for 422,300 shares with an aggregate fair value of $4 million.
 
Information related to phantom stock awards and SARs was as follows, in millions:

 	 	At December 31, 2006	 	
 	 	Phantom Stock	 	 	Stock Appreciation	 	
 	 	Awards	 	 	Rights	 	
 		
Accrued compensation cost liability	 	$	15	 	 	$	9	 	
Unrecognized compensation cost	 	$	9	 	 	$	5	 	
Equivalent common shares	 	 	1	 	 	 	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 $54 million and $44 million in 2006, $51 million and $42 million in 2005 and $55 million and $42 million in 2004, respectively.
 
In September 2006, the FASB issued 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 postretirement 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. The adoption of SFAS No. 158 was effective for the year ended December 31, 2006, and the effect was included in the Company’s consolidated balance sheet.
 
Adjustments made to the Company’s recorded assets and (liabilities) at December 31, 2006, upon adoption of SFAS No. 158, were as follows, in millions:

 	 	 	 	 	 	 	 	Balance at	 	
 	 	Before	 	 	SFAS No. 158	 	 	December 31,	 	
 	 	SFAS No. 158	 	 	Adjustments	 	 	2006	 	
 		
Other intangible assets, net	 	$	312	 	 	$	(6	)	 	$	306	 	
Accrued liabilities	 	 	(1,130	)	 	 	2	 	 	 	(1,128	)	
Deferred income taxes and other	 	 	(866	)	 	 	(66	)	 	 	(932	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities, net	 	$	(1,684	)	 	$	(70	)	 	$	(1,754	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Accumulated other comprehensive income	 	$	442	 	 	$	70	 	 	$	512	 	

59

Table of Contents

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:

 	 	2006	 	 	2005	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Changes in projected benefit obligation:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Projected benefit obligation at January 1	 	$	771	 	 	$	143	 	 	$	712	 	 	$	125	 	
Service cost	 	 	18	 	 	 	3	 	 	 	18	 	 	 	3	 	
Interest cost	 	 	41	 	 	 	7	 	 	 	40	 	 	 	7	 	
Participant contributions	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
Plan amendments	 	 	—	 	 	 	3	 	 	 	(2	)	 	 	2	 	
Actuarial (gain) loss, net	 	 	(28	)	 	 	(7	)	 	 	50	 	 	 	10	 	
Foreign currency exchange	 	 	21	 	 	 	—	 	 	 	(17	)	 	 	—	 	
Settlements	 	 	(6	)	 	 	—	 	 	 	(2	)	 	 	—	 	
Disposition	 	 	(7	)	 	 	—	 	 	 	—	 	 	 	—	 	
Benefit payments	 	 	(31	)	 	 	(5	)	 	 	(29	)	 	 	(4	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Projected benefit obligation at December 31	 	$	780	 	 	$	144	 	 	$	771	 	 	$	143	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Changes in fair value of plan assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets at January 1	 	$	540	 	 	$	—	 	 	$	519	 	 	$	—	 	
Actual return on plan assets	 	 	57	 	 	 	—	 	 	 	30	 	 	 	—	 	
Foreign currency exchange	 	 	10	 	 	 	—	 	 	 	(6	)	 	 	—	 	
Company contributions	 	 	31	 	 	 	5	 	 	 	27	 	 	 	4	 	
Participant contributions	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
Settlements	 	 	(6	)	 	 	—	 	 	 	(2	)	 	 	—	 	
Disposition	 	 	(7	)	 	 	—	 	 	 	—	 	 	 	—	 	
Expenses	 	 	(1	)	 	 	—	 	 	 	—	 	 	 	—	 	
Benefit payments	 	 	(31	)	 	 	(5	)	 	 	(29	)	 	 	(4	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets at December 31	 	$	594	 	 	$	—	 	 	$	540	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Funded status at December 31:	 	$	(186	)	 	$	(144	)	 	$	(231	)	 	$	(143	)	
Unamortized net transition obligation	 	 	—	 	 	 	—	 	 	 	1	 	 	 	—	 	
Unamortized net prior service cost	 	 	—	 	 	 	—	 	 	 	5	 	 	 	3	 	
Unamortized net loss	 	 	—	 	 	 	—	 	 	 	194	 	 	 	36	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net liability at December 31	 	$	(186	)	 	$	(144	)	 	$	(31	)	 	$	(104	)	

60

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
N.  	EMPLOYEE RETIREMENT PLANS – (Continued)	

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

 	 	At December 31, 2006	 	 	At December 31, 2005	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Other assets	 	$	1	 	 	$	—	 	 	$	43	 	 	$	—	 	
Other intangible assets, net	 	 	—	 	 	 	—	 	 	 	9	 	 	 	3	 	
Accrued liabilities	 	 	(2	)	 	 	(8	)	 	 	(74	)	 	 	(104	)	
Deferred income taxes and other	 	 	(185	)	 	 	(136	)	 	 	(146	)	 	 	(32	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total net liability	 	$	(186	)	 	$	(144	)	 	$	(168	)	 	$	(133	)	

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

 	 	At December 31, 2006	 	 	At December 31, 2005	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Net loss	 	$	149	 	 	$	25	 	 	$	137	 	 	$	28	 	
Net transition obligation	 	 	1	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net prior service cost	 	 	2	 	 	 	5	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	152	 	 	$	30	 	 	$	137	 	 	$	28	 	

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

 	 	At December 31	 	
 	 	2006	 	 	2005	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Projected benefit obligation	 	$	669	 	 	$	144	 	 	$	766	 	 	$	143	 	
Accumulated benefit obligation	 	$	613	 	 	$	135	 	 	$	712	 	 	$	134	 	
Fair value of plan assets	 	$	481	 	 	$	—	 	 	$	535	 	 	$	—	 	

The projected benefit obligation was in excess of plan assets for all except one of the Company’s qualified defined-benefit pension plans at December 31, 2006 and for all of the Company’s qualified defined-benefit pension plans at December 31, 2005.

61

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
N.  	EMPLOYEE RETIREMENT PLANS – (Continued)	

 
 
Net periodic pension cost for the Company’s defined-benefit pension plans were as follows, in millions:

 	 	2006	 	 	2005	 	 	2004	 	
 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	 	Qualified	 	 	Non-Qualified	 	
 		
Service cost	 	$	19	 	 	$	3	 	 	$	18	 	 	$	3	 	 	$	16	 	 	$	3	 	
Interest cost	 	 	41	 	 	 	7	 	 	 	40	 	 	 	7	 	 	 	39	 	 	 	7	 	
Expected return on plan assets	 	 	(45	)	 	 	—	 	 	 	(42	)	 	 	—	 	 	 	(38	)	 	 	—	 	
Amortization of prior service cost	 	 	1	 	 	 	2	 	 	 	1	 	 	 	2	 	 	 	1	 	 	 	2	 	
Recognized curtailment (gain) loss	 	 	1	 	 	 	(1	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Recognized settlement loss	 	 	1	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Amortization of net loss	 	 	8	 	 	 	4	 	 	 	5	 	 	 	5	 	 	 	6	 	 	 	5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic pension cost	 	$	26	 	 	$	15	 	 	$	22	 	 	$	17	 	 	$	24	 	 	$	17	 	

 
The Company expects to recognize $7 million and $1 million of net loss and prior service costs, respectively, from accumulated other comprehensive income into net periodic pension cost in 2007.
 
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	 	
 	 	2006	 	 	2005	 	
 		
Equity securities	 	 	69%	 	 	 	83%	 	
Debt securities	 	 	4%	 	 	 	4%	 	
Other	 	 	27%	 	 	 	13%	 	
 	 	 	 	 	 	 	 	 	
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 (85%), debt securities (5%) and other investments (10%).
 
Plan assets included 1.4 million shares of Company common stock valued at $42 million and $43 million at December 31, 2006 and 2005, respectively.

62

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
N.  	EMPLOYEE RETIREMENT PLANS – (Concluded)	

 
 
Major assumptions used in accounting for the Company’s defined-benefit pension plans were primarily as follows:

 	 	December 31	 	
 	 	2006	 	 	2005	 	 	2004	 	
 		
Discount rate for obligations	 	 	5.50%	 	 	 	5.25%	 	 	 	5.75%	 	
Expected return on plan assets	 	 	8.50%	 	 	 	8.50%	 	 	 	8.50%	 	
Rate of compensation increase	 	 	4.00%	 	 	 	4.00%	 	 	 	4.00%	 	
Discount rate for net periodic pension cost	 	 	5.25%	 	 	 	5.75%	 	 	 	6.25%	 	

The discount rate for obligations was based upon the expected duration of each defined-benefit pension plan’s liabilities matched to the December 31, 2006 Citigroup Pension Discount Curve. Such rates for the Company’s defined-benefit pension plans ranged from 4.00 percent to 6.00 percent, with the most significant portion of the liabilities having a discount rate for obligations of 5.50 percent or higher at December 31, 2006.
 
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 asset allocation of the plan assets. The measurement date used to determine the defined-benefit pension expense is 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 (including $2 million related to the adoption of SFAS No. 158) and $7 million at December 31, 2006 and 2005, respectively.
 
Cash Flows
 
At December 31, 2006, the Company expected to contribute approximately $19 million to its qualified defined-benefit pension plans in 2007. The Company also expected to pay benefits of $2 million and $8 million, respectively to participants of its unfunded qualified and non-qualified defined-benefit pension plans in 2007.
 
At December 31, 2006, 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	 	
 		
2007	 	$	30	 	 	$	8	 	
2008	 	$	31	 	 	$	8	 	
2009	 	$	33	 	 	$	9	 	
2010	 	$	34	 	 	$	10	 	
2011	 	$	35	 	 	$	11	 	
2012-2016	 	$	210	 	 	$	57	 	

63

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
O. 	SHAREHOLDERS’ EQUITY	
 
In May 2006, 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 2005. At December 31, 2006, the Company had remaining authorization to repurchase up to 36 million shares of its common stock in open-market transactions or otherwise. The Company repurchased and retired 29 million common shares in 2006 and 31 million common shares in both 2005 and 2004 for cash aggregating $854 million, $986 million and $903 million in 2006, 2005 and 2004, respectively.
 
On the basis of amounts paid (declared), cash dividends per common share were $.86 ($.88) in 2006, $.78 ($.80) in 2005 and $.66 ($.68) in 2004, respectively. In 2006, the Company increased its quarterly cash dividend by 10 percent to $.22 per common share from $.20 per common share.
 
Accumulated Other Comprehensive Income
 
The Company’s total comprehensive income was as follows, in millions:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Net income	 	$	488	 	 	$	940	 	 	$	893	 	
Other comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	
Cumulative translation adjustments	 	 	208	 	 	 	(251	)	 	 	214	 	
Unrealized loss on marketable securities, net	 	 	(10	)	 	 	(10	)	 	 	(3	)	
Minimum pension liability, net	 	 	56	 	 	 	(38	)	 	 	(5	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	742	 	 	$	641	 	 	$	1,099	 	

 
The unrealized loss, net, on marketable securities is net of income tax benefit of $6 million, $5 million and $2 million for 2006, 2005 and 2004, respectively. The minimum pension liability, net, is net of income tax (benefit) of $33 million, $(23) million and $(3) million for 2006, 2005 and 2004, respectively.
 
The components of accumulated other comprehensive income were as follows, in millions:

 	 	At December 31	 	
 	 	2006	 	 	2005	 	
 		
Cumulative translation adjustments	 	$	627	 	 	$	419	 	
Unrealized gain on marketable securities, net	 	 	3	 	 	 	13	 	
Unrecognized prior service cost and net loss, net	 	 	(118	)	 	 	—	 	
Minimum pension liability, net	 	 	—	 	 	 	(104	)	
 	 	 	 	 	 	 	 	 	
Accumulated other comprehensive income	 	$	512	 	 	$	328	 	

 
The unrealized gain on marketable securities, net, is reported net of income tax of $2 million and $8 million at December 31, 2006 and 2005, respectively. The unrecognized prior service cost and net loss, net, is reported net of income tax benefit of $66 million at December 31, 2006. The minimum pension liability, net, is reported net of income tax benefit of $61 million at December 31, 2005.
 
The realized gains, net, on marketable securities of $3 million, net of tax effect, for 2006 were included in determining net income and were reclassified from accumulated other comprehensive income. There were no realized gains, net, on marketable securities to be reclassified from accumulated other comprehensive income for 2005.

64

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
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 home construction markets through mass merchandisers, hardware stores, home centers, builders, 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.

65

Table of Contents

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)	 	
 	 	2006	 	 	2005	 	 	2004	 	 	2006	 	 	2005	 	 	2004	 	 	2006	 	 	2005	 	 	2004	 	
 		
The Company’s operations by segment were:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	$	3,286	 	 	$	3,324	 	 	$	3,065	 	 	$	122	 	 	$	515	 	 	$	519	 	 	$	1,860	 	 	$	2,017	 	 	$	2,272	 	
Plumbing Products	 	 	3,296	 	 	 	3,176	 	 	 	3,057	 	 	 	280	 	 	 	367	 	 	 	370	 	 	 	2,400	 	 	 	2,206	 	 	 	2,356	 	
Installation and Other Services	 	 	3,158	 	 	 	3,063	 	 	 	2,771	 	 	 	344	 	 	 	382	 	 	 	358	 	 	 	2,488	 	 	 	2,496	 	 	 	2,433	 	
Decorative Architectural Products	 	 	1,777	 	 	 	1,681	 	 	 	1,610	 	 	 	357	 	 	 	252	 	 	 	269	 	 	 	1,007	 	 	 	976	 	 	 	1,086	 	
Other Specialty Products	 	 	1,261	 	 	 	1,325	 	 	 	1,280	 	 	 	225	 	 	 	229	 	 	 	225	 	 	 	2,089	 	 	 	2,128	 	 	 	2,224	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	12,778	 	 	$	12,569	 	 	$	11,783	 	 	$	1,328	 	 	$	1,745	 	 	$	1,741	 	 	$	9,844	 	 	$	9,823	 	 	$	10,371	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company’s operations by geographic area were:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
North America	 	$	10,537	 	 	$	10,440	 	 	$	9,673	 	 	$	1,417	 	 	$	1,567	 	 	$	1,608	 	 	$	7,390	 	 	$	7,443	 	 	$	7,145	 	
International, principally Europe	 	 	2,241	 	 	 	2,129	 	 	 	2,110	 	 	 	(89	)	 	 	178	 	 	 	133	 	 	 	2,454	 	 	 	2,380	 	 	 	3,226	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total, as above	 	$	12,778	 	 	$	12,569	 	 	$	11,783	 	 	 	1,328	 	 	 	1,745	 	 	 	1,741	 	 	 	9,844	 	 	 	9,823	 	 	 	10,371	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General corporate expense, net (7)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(203	)	 	 	(192	)	 	 	(194	)	 	 	 	 	 	 	 	 	 	 	 	 	
Gains on sale of corporate fixed assets, net	 	 	—	 	 	 	8	 	 	 	7	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income regarding litigation settlement (8)	 	 	1	 	 	 	6	 	 	 	30	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating profit, as reported	 	 	1,126	 	 	 	1,567	 	 	 	1,584	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense), net	 	 	(226	)	 	 	(165	)	 	 	(50	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net	 	$	900	 	 	$	1,402	 	 	$	1,534	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate assets	 	 	2,481	 	 	 	2,736	 	 	 	2,007	 	
Assets held for sale	 	 	—	 	 	 	—	 	 	 	163	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	12,325	 	 	$	12,559	 	 	$	12,541	 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Property Additions	 	 	Depreciation and Amortization (5)	 	
 	 	2006	 	 	2005	 	 	2004	 	 	2006	 	 	2005	 	 	2004	 	
 		
The Company’s operations by segment were:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cabinets and Related Products	 	$	169	 	 	$	77	 	 	$	86	 	 	$	60	 	 	$	58	 	 	$	55	 	
Plumbing Products	 	 	101	 	 	 	76	 	 	 	69	 	 	 	89	 	 	 	71	 	 	 	68	 	
Installation and Other Services	 	 	32	 	 	 	15	 	 	 	19	 	 	 	24	 	 	 	26	 	 	 	33	 	
Decorative Architectural Products	 	 	17	 	 	 	47	 	 	 	36	 	 	 	19	 	 	 	19	 	 	 	18	 	
Other Specialty Products	 	 	71	 	 	 	55	 	 	 	87	 	 	 	38	 	 	 	37	 	 	 	36	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	390	 	 	 	270	 	 	 	297	 	 	 	230	 	 	 	211	 	 	 	210	 	
Unallocated amounts, principally related to corporate assets	 	 	11	 	 	 	9	 	 	 	6	 	 	 	14	 	 	 	24	 	 	 	18	 	
Assets of dispositions (acquisitions), net	 	 	—	 	 	 	3	 	 	 	7	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	401	 	 	$	282	 	 	$	310	 	 	$	244	 	 	$	235	 	 	$	228	 	

66

Table of Contents

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 $253 million, $244 million and $208 million in 2006, 2005 and 2004, respectively.	
 		
(2) 	Intra-company sales between segments represented approximately two percent of net sales in 2006 and one percent of net sales in 2005 and 2004.	
 		
(3) 	Included in net sales were sales to one customer of $2,547 million, $2,654 million and $2,614 million in 2006, 2005 and 2004, 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 $10,188 million, $10,120 million and $9,424 million in 2006, 2005 and 2004, respectively.	
 		
(5) 	Net sales, operating profit and depreciation and amortization expense for 2006, 2005 and 2004 excluded the results of businesses reported as discontinued operations in 2006, 2005 and 2004.	
 		
(6) 	Long-lived assets of the Company’s operations in the U.S. and Europe were $4,959 million and $1,510 million, $4,892 million and $1,610 million, and $4,981 million and $2,017 million at December 31, 2006, 2005 and 2004, respectively.	
 		
(7) 	General corporate expense included those expenses not specifically attributable to the Company’s segments.	
 		
(8) 	The income regarding litigation settlement related to litigation discussed in Note T pertaining to the Company’s subsidiary, Behr Process Corporation, which is included in the Decorative Architectural Products segment.	
 		
(9) 	Included in segment operating profit for 2006 were impairment charges for goodwill as follows: Cabinets and Related Products – $316 million; Plumbing Products – $1 million; and Decorative Architectural Products – $14 million. Included in segment operating profit for 2005 were impairment charges for goodwill as follows: Plumbing Products – $7 million; Decorative Architectural Products – $26 million; and Other Specialty Products – $36 million. Included in segment operating profit for 2004 were impairment charges for goodwill as follows: Plumbing Products – $25 million; Decorative Architectural Products – $62 million; and Other Specialty Products – $25 million. These charges for goodwill were principally related to certain of the Company’s European business units.	

(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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Income from cash and cash investments	 	$	47	 	 	$	36	 	 	$	11	 	
Other interest income	 	 	2	 	 	 	7	 	 	 	7	 	
Income from financial investments, net (Note E)	 	 	41	 	 	 	114	 	 	 	119	 	
Other items, net	 	 	25	 	 	 	(30	)	 	 	51	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other, net	 	$	115	 	 	$	127	 	 	$	188	 	

 
Other items, net, included realized foreign currency transaction gains (losses) of $14 million, $(25) million and $26 million in 2006, 2005 and 2004, respectively, as well as other miscellaneous items.

67

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
R. 	INCOME TAXES	

 	 	 	 	 	(In Millions)	 	
 	 	2006	 	 	2005	 	 	2004	 	
 		
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. 	 	$	967	 	 	$	1,217	 	 	$	1,375	 	
Foreign	 	 	(67	)	 	 	185	 	 	 	159	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	900	 	 	$	1,402	 	 	$	1,534	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Provision for income taxes on income from continuing operations before minority interest and cumulative effect of accounting change, net:	 	 	 	 	 	 	 	 	 	 	 	 	
Currently payable:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Federal	 	$	341	 	 	$	346	 	 	$	335	 	
State and local	 	 	44	 	 	 	37	 	 	 	46	 	
Foreign	 	 	69	 	 	 	80	 	 	 	80	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Federal	 	 	(51	)	 	 	52	 	 	 	93	 	
State and local	 	 	(3	)	 	 	6	 	 	 	8	 	
Foreign	 	 	12	 	 	 	(7	)	 	 	9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	412	 	 	$	514	 	 	$	571	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred tax assets at December 31:	 	 	 	 	 	 	 	 	 	 	 	 	
Receivables	 	$	21	 	 	$	23	 	 	 	 	 	
Inventories	 	 	31	 	 	 	28	 	 	 	 	 	
Other assets	 	 	102	 	 	 	38	 	 	 	 	 	
Accrued liabilities	 	 	163	 	 	 	171	 	 	 	 	 	
Long-term liabilities	 	 	106	 	 	 	82	 	 	 	 	 	
Foreign tax credit carryforward	 	 	61	 	 	 	50	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	484	 	 	 	392	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred tax liabilities at December 31:	 	 	 	 	 	 	 	 	 	 	 	 	
Property and equipment	 	 	288	 	 	 	304	 	 	 	 	 	
Investment in foreign subsidiaries	 	 	13	 	 	 	32	 	 	 	 	 	
Intangibles	 	 	352	 	 	 	296	 	 	 	 	 	
Other, principally notes payable	 	 	161	 	 	 	143	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	814	 	 	 	775	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net deferred tax liability at December 31	 	$	330	 	 	$	383	 	 	 	 	 	

 
At December 31, 2006 and 2005, the net deferred tax liability consisted of net short-term deferred tax assets included in prepaid expenses and other of $137 million and $217 million, respectively, and net long-term deferred tax liabilities of $467 million and $600 million, respectively.
 
The Company made dividend distributions of accumulated earnings from certain of its foreign subsidiaries from 2004 to 2006. 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 created a $61 million and $50 million foreign tax credit carryforward at December 31, 2006 and 2005, 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 identified potential sources of

68

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
R. 	INCOME TAXES – (Concluded)	

 
future income taxed in foreign jurisdictions at rates less than the present U.S. rate of 35 percent; therefore, a valuation allowance was not required at December 31, 2006 and 2005.
 
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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
U.S. Federal statutory rate	 	 	35%	 	 	 	35%	 	 	 	35%	 	
State and local taxes, net of Federal tax benefit	 	 	3	 	 	 	2	 	 	 	2	 	
Lower taxes on foreign earnings	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Change in U.S. and foreign taxes on distributed and undistributed foreign earnings, including the impact of foreign tax credit	 	 	(3	)	 	 	—	 	 	 	—	 	
Foreign goodwill impairment charges providing no tax benefit	 	 	13	 	 	 	2	 	 	 	2	 	
Domestic production deduction	 	 	(1	)	 	 	(1	)	 	 	—	 	
Other, net	 	 	—	 	 	 	—	 	 	 	(1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Effective tax rate	 	 	46%	 	 	 	37%	 	 	 	37%	 	

 
Income taxes paid were approximately $496 million, $457 million and $406 million in 2006, 2005 and 2004, respectively.

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:

 	 	2006	 	 	2005	 	 	2004	 	
 		
Numerator (basic and diluted):	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before cumulative effect of accounting change, net	 	$	461	 	 	$	866	 	 	$	944	 	
Income (loss) from discontinued operations, net	 	 	30	 	 	 	74	 	 	 	(51	)	
Cumulative effect of accounting change, net	 	 	(3	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	488	 	 	$	940	 	 	$	893	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Denominator:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic common shares (based on weighted average)	 	 	394	 	 	 	422	 	 	 	445	 	
Add:	 	 	 	 	 	 	 	 	 	 	 	 	
Contingent common shares	 	 	5	 	 	 	4	 	 	 	6	 	
Stock option dilution	 	 	1	 	 	 	4	 	 	 	5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted common shares	 	 	400	 	 	 	430	 	 	 	456	 	

69

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
S. 	EARNINGS PER COMMON SHARE – (Concluded)	

 
 
At December 31, 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, 2006 and 2005 did not exceed the equivalent accreted value of the Notes. At December 31, 2004, the Company included approximately one million common shares related to the Notes in the calculation of diluted earnings per common share, as the price of the Company’s common stock at December 31, 2004 exceeded the equivalent accreted value of the Notes.
 
Additionally, 16 million common shares, 13 million common shares and one million common shares for 2006, 2005 and 2004, 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 December 31, 2006); shares outstanding for legal requirements include 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.
 
As the Company reported in previous filings, late in the second half of 2002, the Company and its subsidiary, Behr Process Corporation, agreed to two Settlements (the National Settlement and the Washington State Settlement) to resolve all class action lawsuits pending in the United States involving certain exterior wood coating products formerly manufactured by Behr. The evaluation, processing and payment of claims for both the National Settlement and the Washington State Settlement were completed in 2006 except for a small number of administrative appeals of claim awards, which should be resolved in the first half of 2007.
 
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 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 agreed in principle with the plaintiffs to settle this matter. 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

70

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
T. 	OTHER COMMITMENTS AND CONTINGENCIES – (Continued)	

 
representation basis. An additional lawsuit, seeking class action status and alleging anticompetitive conduct, was filed in a Florida state court against the Company and a number of its insulation suppliers. This lawsuit was recently dismissed by the court with prejudice. 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.
 
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.
 
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.

71

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
T. 	OTHER COMMITMENTS AND CONTINGENCIES – (Continued)	

 
 
Changes in the Company’s warranty liability were as follows, in millions:

 	 	2006	 	 	2005	 	
 		
Balance at January 1	 	$	105	 	 	$	100	 	
Accruals for warranties issued during the year	 	 	69	 	 	 	67	 	
Accruals related to pre-existing warranties	 	 	7	 	 	 	1	 	
Settlements made (in cash or kind) during the year	 	 	(62	)	 	 	(57	)	
Other, net	 	 	1	 	 	 	(6	)	
 	 	 	 	 	 	 	 	 	
Balance at December 31	 	$	120	 	 	$	105	 	

 
Acquisition-Related Commitments
 
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 outstanding shares, hold an option expiring in December 2007 to require the Company to purchase such shares in Hansgrohe either with cash or Company common stock. The put option can only be exercised once by each minority shareholder and only with respect to all of such shares. The fair value of the put option is not material. The amount payable under the put option to acquire shares is based upon Hansgrohe’s operating results (principally a multiple of operating earnings which is designed to reflect the appropriate fair value of the shares) and, if exercised at December 31, 2006, would have approximated $42 million if settled in cash; if the put option were settled in stock, the common shares to be issued at December 31, 2006 would have been 1,588,300. Such shares were included in the Company’s diluted share count for computation of earnings per common share.
 
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, 2006, the Company had additional consideration payable in cash of $6 million contingent upon the operating performance of the acquired businesses.
 
Stock Price Guarantees
 
During 2005, the Company settled the guarantee related to the value of 1.6 million shares of Company common stock for a stock price of $40 per share related to a 2001 divestiture. The guarantee was settled for cash and stock aggregating approximately $12 million. At December 31, 2006 and 2005, there were no outstanding stock price guarantees.
 
Investments
 
With respect to the Company’s investments in private equity funds, the Company had, at December 31, 2006, commitments to contribute up to $60 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.

72

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
T. 	OTHER COMMITMENTS AND CONTINGENCIES – (Concluded)	

 

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 18 to 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, 2006.
 
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, 2006, 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.

73

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
U. 	INTERIM FINANCIAL INFORMATION (UNAUDITED)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	(In Millions, Except Per Common Share Data)	 	
 	 	Total	 	 	Quarters Ended	 	
 	 	Year	 	 	December 31	 	 	September 30	 	 	June 30	 	 	March 31	 	
 		
2006:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	12,778	 	 	$	2,946	 	 	$	3,295	 	 	$	3,370	 	 	$	3,167	 	
Gross profit	 	$	3,519	 	 	$	743	 	 	$	923	 	 	$	979	 	 	$	874	 	
Income (loss) from continuing operations	 	$	461	 	 	$	(186	)	 	$	225	 	 	$	215	 	 	$	207	 	
Net income (loss)	 	$	488	 	 	$	(187	)	 	$	252	 	 	$	219	 	 	$	204	 	
Earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations	 	$	1.17	 	 	$	(.48	)	 	$	.58	 	 	$	.54	 	 	$	.51	 	
Net income (loss)	 	$	1.24	 	 	$	(.49	)	 	$	.65	 	 	$	.55	 	 	$	.50	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations	 	$	1.15	 	 	$	(.48	)	 	$	.57	 	 	$	.53	 	 	$	.50	 	
Net income (loss)	 	$	1.22	 	 	$	(.49	)	 	$	.64	 	 	$	.54	 	 	$	.50	 	
2005:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	12,569	 	 	$	3,128	 	 	$	3,278	 	 	$	3,267	 	 	$	2,896	 	
Gross profit	 	$	3,584	 	 	$	861	 	 	$	940	 	 	$	961	 	 	$	822	 	
Income from continuing operations	 	$	866	 	 	$	140	 	 	$	254	 	 	$	266	 	 	$	206	 	
Net income	 	$	940	 	 	$	173	 	 	$	262	 	 	$	274	 	 	$	231	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	$	2.05	 	 	$	.34	 	 	$	.60	 	 	$	.63	 	 	$	.48	 	
Net income	 	$	2.23	 	 	$	.42	 	 	$	.62	 	 	$	.65	 	 	$	.53	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	$	2.01	 	 	$	.33	 	 	$	.59	 	 	$	.62	 	 	$	.47	 	
Net income	 	$	2.19	 	 	$	.41	 	 	$	.61	 	 	$	.64	 	 	$	.52	 	

Earnings (loss) per common share amounts for the four quarters of 2006 and 2005 may not total to the earnings per common share amounts for the years ended December 31, 2006 and 2005 due to the timing of common stock repurchases.
 
Fourth quarter 2006 loss from continuing operations and net loss include non-cash impairment charges for goodwill of $321 million after tax ($321 million pre-tax), and income regarding litigation settlement of $1 million after tax ($1 million pre-tax). Income from continuing operations 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 ($6 million pre-tax), $27 million ($52 million pre-tax) and $(1) million ($(1) million pre-tax) in the first, second, third and fourth quarters of 2006, respectively.

74

Table of Contents

MASCO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Concluded)

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

 
 
Fourth quarter 2005 income from continuing operations and net income include non-cash impairment charges for goodwill of $69 million after tax ($69 million pre-tax). Income from continuing operations and net income include after-tax income regarding litigation settlement of $1 million ($2 million pre-tax), $2 million ($3 million pre-tax) and $1 million ($1 million pre-tax) in the first, second and third quarters of 2005, respectively. Income from continuing operations and net income include after-tax impairment charges for financial investments of $1 million ($2 million pre-tax) and $28 million ($43 million pre-tax) in the second and third quarters of 2005, respectively. Net income for 2005 includes after-tax income, net, related to discontinued operations of $25 million ($24 million pre-tax), $8 million ($12 million pre-tax), $8 million ($13 million pre-tax) and $33 million ($63 million pre-tax) in the first, second, third and fourth quarters of 2005, respectively.

75

Table of Contents

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, 2006. 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 related 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.
 
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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 2007 Annual Meeting of Stockholders, to be filed on or before April 28, 2007, and such information is incorporated herein by reference.

Item 11. 	Executive Compensation.	
 
Information required by this Item will be contained in the Company’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders, to be filed on or before April 28, 2007, 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. The following table sets forth information as of December 31, 2006

76

Table of Contents

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	 	 	 	 	 	Number of Securities	 	 	 	 	
 	 	Securities to be	 	 	 	 	 	Remaining Available for	 	 	 	 	
 	 	Issued Upon	 	 	 	 	 	Future Issuance Under	 	 	 	 	
 	 	Exercise of	 	 	Weighted-Average	 	 	Equity Compensation Plans	 	 	 	 	
 	 	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	 	 	26,619,000	 	 	$	26.17	 	 	 	20,278,500	 	 	 	 	 	

The remaining information required by this Item will be contained in the Company’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders, to be filed on or before April 28, 2007, 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 2007 Annual Meeting of Stockholders, to be filed on or before April 28, 2007, 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 2007 Annual Meeting of Stockholders, to be filed on or before April 28, 2007, and such information is incorporated herein by reference.

77

Table of Contents
 
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, 2006 and 2005, and for the years ended December 31, 2006, 2005 and 2004, 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, 2006, 2005 and 2004, 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 February 6, 2007 ( Incorporated by reference to Exhibit 3.1 of Masco’s Form 8-K filed 2-8-2007 ).	
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 ( Filed herewith) 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 ).	

78

Table of Contents

 	 	 	
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 ( Filed herewith) and Directors’ Resolutions establishing Masco Corporation’s:	
 	 	(i)  5 7 / 8 % Notes Due July 15, 2012 ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2002 Form 10-K filed 3-14-2003 );	
 	 	(ii)  4 5 / 8 % Notes Due August 15, 2007 ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2002 Form 10-K filed 3-14-2003 );	
 	 	(iii) 6 1 / 2 % Notes Due August 15, 2032 ( Incorporated by reference to Exhibit 4.b of Masco’s 2002 Form 10-K filed 3-14-2003 );	
 	 	(iv) Floating Rate Notes Due 2007 ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2004 Form 10-K filed 3-16-2005 );	
 	 	(v)  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) ; and	
 	 	(vi) 6.125% Notes Due October 3, 2016 (Filed herewith) .	
4.b.ii	 	First Supplemental Indenture dated as of July 20, 2001 to the Indenture dated February 12, 2001 by and among 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, relating to the Company’s Zero Coupon Convertible Senior Notes Due July 20, 2031 (Filed herewith) ;	
 	 	(i)  Amendment No. 1 dated as of July 19, 2002 ( Incorporated by reference to Exhibit 4.b of Masco’s 2nd Quarter Form 10-Q filed 8-13-2002 ); and	
 	 	(ii)  Amendment No. 2 dated as of November 2, 2004 ( Incorporated by reference to Exhibit 4 of Masco’s 3rd Quarter Form 10-Q filed 11-04-2004 ).	
4.b.iii	 	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 (Filed herewith) .	
4.b.iv	 	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.h constitute the management contracts and executive compensatory plans or arrangements in which certain of the Directors and executive officers of the Company participate.	

79

Table of Contents

 	 	 	
Exhibit	 	 	
Number	 	 	
 		
10.a	 	Masco Corporation 1991 Long Term Stock Incentive Plan (as amended and restated October 26, 2006) ( Filed herewith ).	
 	 	(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 11-04-2004 );	
 	 	(iii) Forms of Stock Option Grant ( Incorporated by reference to Exhibit 10.a.iii of Masco’s 3rd Quarter Form 10-Q filed 11-04-2004 );	
 	 	(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 11-04-2004 ); 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	 	Masco Corporation 2005 Long Term Stock Incentive Plan (as amended and restated October 26, 2006) ( Filed herewith ).	
 	 	(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.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 Directors ( Incorporated by reference to Exhibit 10.o of Masco’s 2004 Form 10-K filed 3-16-2005 ).	
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	 	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 (Filed herewith).	

80

Table of Contents

 	 	 	
Exhibit	 	 	
Number	 	 	
 		
10.j	 	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 ( Filed herewith ).	
10.k	 	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.” ( Filed herewith ).	
12	 	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Filed herewith).	
21	 	List of Subsidiaries (Filed herewith).	
23	 	Consent of 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.

81

Table of Contents
 
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/   Timothy Wadhams	

Timothy Wadhams
Senior Vice President and Chief Financial Officer
 
February 27, 2007
 
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/   Richard A. Manoogian

Richard A. Manoogian	 	Chairman of the Board and Chief Executive Officer	 	 	
 	 	 	 	 	
Principal Financial Officer andPrincipal Accounting Officer:	 	 	 	 	
 	 	 	 	 	
/s/   Timothy Wadhams

Timothy Wadhams	 	Senior Vice President 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 27, 2007	
 	 	 	 	 	
/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/   Lisa A. Payne

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

Mary Ann Van Lokeren	 	Director	 	 	

82

Table of Contents

MASCO CORPORATION
 
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
 
for the years ended December 31, 2006, 2005 and 2004

 	 	 	 	 	 	 	 	 	 	 	 	 	 	(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	 	 	Deductions	 	 	Period	 	
 	 	 	 	 	 	 	 	(a)	 	 	(b)	 	 	 	 	
 		
Allowance for doubtful accounts, deducted from accounts receivable in the balance sheet:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2006	 	$	78	 	 	$	14	 	 	$	(2	)	 	$	(6	)	 	$	84	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2005	 	$	82	 	 	$	13	 	 	$	(5	)	 	$	(12	)	 	$	78	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2004	 	$	84	 	 	$	19	 	 	$	(6	)	 	$	(15	)	 	$	82	 	

 
			
(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.	

83

Table of Contents
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 February 6, 2007 ( Incorporated by reference to Exhibit 3.1 of Masco’s Form 8-K filed 2-8-2007 ).	
 	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 ( Filed herewith) 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 ( Filed herewith) and Directors’ Resolutions establishing Masco Corporation’s:	
 	 	 	 	(i)  5 7 / 8 % Notes Due July 15, 2012 ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2002 Form 10-K filed 3-14-2003 );	
 	 	 	 	(ii)  4 5 / 8 % Notes Due August 15, 2007 ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2002 Form 10-K filed 3-14-2003 );	
 	 	 	 	(iii) 6 1 / 2 % Notes Due August 15, 2032 ( Incorporated by reference to Exhibit 4.b of Masco’s 2002 Form 10-K filed 3-14-2003 );	
 	 	 	 	(iv) Floating Rate Notes Due 2007 ( Incorporated by reference to Exhibit 4.b.i of Masco’s 2004 Form 10-K filed 3-16-2005 );	
 	 	 	 	(v)  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) ; and	
 	 	 	 	(vi) 6.125% Notes Due October 3, 2016 (Filed herewith) .	

84

Table of Contents

 	 	 	 	 	
Exhibit	 	 	
Number	 	Description of Exhibits	
 		
 	4	.b.ii	 	First Supplemental Indenture dated as of July 20, 2001 to the Indenture dated February 12, 2001 by and among 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, relating to the Company’s Zero Coupon Convertible Senior Notes Due July 20, 2031 (Filed herewith) ;	
 	 	 	 	(i)  Amendment No. 1 dated as of July 19, 2002 ( Incorporated by reference to Exhibit 4.b of Masco’s 2nd Quarter Form 10-Q filed 8-13-2002 ); and	
 	 	 	 	(ii)  Amendment No. 2 dated as of November 2, 2004 ( Incorporated by reference to Exhibit 4 of Masco’s 3rd Quarter Form 10-Q filed 11-04-2004 ).	
 	4	.b.iii	 	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 (Filed herewith) .	
 	4	.b.iv	 	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.h 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) ( Filed herewith ).	
 	 	 	 	(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 11-04-2004 );	
 	 	 	 	(iii) Forms of Stock Option Grant ( Incorporated by reference to Exhibit 10.a.iii of Masco’s 3rd Quarter Form 10-Q filed 11-04-2004 );	
 	 	 	 	(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 11-04-2004 ); 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 ).	

85

Table of Contents

 	 	 	 	 	
Exhibit	 	 	
Number	 	Description of Exhibits	
 		
 	10	.b	 	Masco Corporation 2005 Long Term Stock Incentive Plan (as amended and restated October 26, 2006) ( Filed herewith ).	
 	 	 	 	(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	.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 Directors ( Incorporated by reference to Exhibit 10.o of Masco’s 2004 Form 10-K filed 3-16-2005 ).	
 	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	 	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 (Filed herewith).	
 	10	.j	 	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 ( Filed herewith ).	
 	10	.k	 	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.” ( Filed herewith ).	
 	12	 	 	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Filed herewith).	
 	21	 	 	List of Subsidiaries (Filed herewith).	

86

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).	

87
 
EXHIBIT 4.a.i
[CONFORMED COPY]

MASCO CORPORATION
AND
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
TRUSTEE

INDENTURE
DATED AS OF DECEMBER 1, 1982

 
TIE-SHEET
of provisions of Trust Indenture Act of 1939 with Indenture dated as of December 1, 1982 between Masco Corporation and Morgan Guaranty Trust Company of New York, Trustee:

      SECTION OF ACT                                SECTION OF INDENTURE
      --------------                                --------------------

310(a)(1) and (2)                                           6.09
310(a)(3) and (4)                                           Not applicable
310(b)                                                      6.08 and 6.10(a)(b)
                                                               and (d)
310(c)                                                      Not applicable
311(a) and (b)                                              6.13
311(c)                                                      Not applicable
312(a)                                                      4.01 and 4.02(a)
312(b) and (c)                                              4.02(b) and (c)
313(a)                                                      4.04(a)
313(b)(1)                                                   Not applicable
313(b)(2)                                                   4.04(b)
313(c)                                                      4.04(c)
313(d)                                                      4.04(d)
314(a)                                                      4.03
314(b)                                                      Not applicable
314(c)(1) and (2)                                           13.05
314(c)(3)                                                   Not applicable
314(d)                                                      Not applicable
314(e)                                                      13.05
314(f)                                                      Not applicable
315(a)(c) and (d)                                           6.01
315(b)                                                      5.08
315(e)                                                      5.09
316(a)(1)                                                   5.01 and 5.07
316(a)(2)                                                   Omitted
316(a) last sentence                                        7.04
316(b)                                                      5.04
317(a)                                                      5.02
317(b)                                                      3.04(a)
318(a)                                                      13.07

---------------
This tie-sheet is not part of the Indenture as executed.	

TABLE OF CONTENTS*

                                                                         PAGE
                                                                         ----

PARTIES                                                                    1

RECITALS                                                                   1
       Authorization of Indenture                                          1
       Compliance with Legal Requirements                                  1
       Purpose of and Consideration for Indenture                          1

                                ARTICLE ONE.	

DEFINITIONS.

 SECTION 1.01.   Definitions                                                1
                   Attributable Debt                                        2
                   Authenticating Agent                                     3
                   Board of Directors                                       3
                   Company                                                  3
                   Consolidated Net Tangible Assets                         3
                   Event of Default                                         4
                   Funded Debt                                              4
                   Indenture                                                4
                   Interest                                                 5
                   Officers' Certificate                                    5
                   Opinion of Counsel                                       5
                   Original Issue Date                                      5
                   Original Issue Discount Security                         5
                   Person                                                   5
                   Principal Office of the Trustee                          6
                   Principal Property                                       6
                   Responsible Officer                                      6
                   Security or Securities; Outstanding                      6
                   Securityholder                                           7
                   Subsidiary; Consolidated Subsidiary                      7
                   Trustee                                                  8
                   Trust Indenture Act of 1939                              8
                   Yield to Maturity                                        9

---------------	

*This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.
ii

ARTICLE TWO.
SECURITIES.
 PAGE
SECTION 2.01. Forms Generally 9
SECTION 2.02. Form of Trustee's Certificate of Authentication 9
SECTION 2.03. Amount Unlimited; Issuable in Series 9
SECTION 2.04. Authentication and Delivery 11
SECTION 2.05. Date and Denomination of Securities 13
SECTION 2.06. Execution of Securities 14
SECTION 2.07. Exchange and Registration of Transfer of Securities 14
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities 15
SECTION 2.09. Temporary Securities 17
SECTION 2.10. Cancellation of Securities Paid, etc. 17
ARTICLE THREE.
PARTICULAR COVENANTS OF THE COMPANY.
SECTION 3.01. Payment of Principal, Premium and Interest 18
SECTION 3.02. Offices for Notices and Payments, etc. 18
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office 19
SECTION 3.04. Provision as to Paying Agent 19
SECTION 3.05. Limitation on Liens 20
SECTION 3.06. Limitation on Sale and Leaseback 22
SECTION 3.07. Certificate to Trustee 23
ARTICLE FOUR.
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE.
SECTION 4.01. Securityholders' Lists 23
SECTION 4.02. Preservation and Disclosure of Lists 24
SECTION 4.03. Reports by Company 26
SECTION 4.04. Reports by the Trustee 26
iii
ARTICLE FIVE.
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
PAGE
SECTION 5.01. Events of Default 28
SECTION 5.02. Payment of Securities on Default; Suit Therefor 31
SECTION 5.03. Application of Moneys Collected by Trustee 34
SECTION 5.04. Proceedings by Securityholders 35
SECTION 5.05. Proceedings by Trustee 35
SECTION 5.06. Remedies Cumulative and Continuing 36
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by Majority of Securityholders 36
SECTION 5.08. Notice of Defaults 37
SECTION 5.09. Undertaking to Pay Costs 38
ARTICLE SIX.
CONCERNING THE TRUSTEE.
SECTION 6.01. Duties and Responsibilities of Trustee 38
SECTION 6.02. Reliance on Documents, Opinions, etc. 40
SECTION 6.03. No Responsibility for Recitals, etc. 41
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Securities 41
SECTION 6.05. Moneys to be Held in Trust 41
SECTION 6.06. Compensation and Expenses of Trustee 42
SECTION 6.07. Officers' Certificate as Evidence 43
SECTION 6.08. Conflicting Interest of Trustee 43
SECTION 6.09. Eligibility of Trustee 50
SECTION 6.10. Resignation or Removal of Trustee 50
SECTION 6.11. Acceptance by Successor Trustee 52
SECTION 6.12. Succession by Merger, etc. 53
SECTION 6.13. Limitation on Rights of Trustee as a Creditor 53
SECTION 6.14. Authenticating Agents 58
iv
ARTICLE SEVEN.
CONCERNING THE SECURITYHOLDERS.
PAGE
SECTION 7.01. Action by Securityholders 60
SECTION 7.02. Proof of Execution by Securityholders 60
SECTION 7.03. Who Are Deemed Absolute Owners 60
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding 61
SECTION 7.05. Revocation of Consents; Future Holders Bound 61
ARTICLE EIGHT.
SECURITYHOLDERS' MEETINGS.
SECTION 8.01. Purpose of Meetings 62
SECTION 8.02. Call of Meetings by Trustee 63
SECTION 8.03. Call of Meetings by Company or Securityholders 63
SECTION 8.04. Qualifications for Voting 63
SECTION 8.05. Regulations 63
SECTION 8.06. Voting 64
ARTICLE NINE.
SUPPLEMENTAL INDENTURES.
SECTION 9.01. Supplemental Indentures without Consent of Securityholders 65
SECTION 9.02. Supplemental Indentures with Consent of Securityholders 67
SECTION 9.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures 68
SECTION 9.04. Notation on Securities 69
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be Furnished Trustee 69
ARTICLE TEN.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE BY THE COMPANY.
SECTION 10.01. Consolidations and Mergers of Company and Con- veyances Permitted Subject to Certain Conditions 69
SECTION 10.02. Successor Corporation to be Substituted for Company 70
SECTION 10.03. Securities to be Secured in Certain Events 71
SECTION 10.04. Evidence to be Furnished Trustee 71
v
ARTICLE ELEVEN.
SATISFACTION AND DISCHARGE OF INDENTURE.
PAGE
SECTION 11.01. Discharge of Indenture 71
SECTION 11.02. Deposited Moneys to be Held in Trust by Trustee 73
SECTION 11.03. Paying Agent to Repay Moneys Held 73
SECTION 11.04. Return of Unclaimed Moneys 74
ARTICLE TWELVE.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS.
SECTION 12.01. Indenture and Securities Solely Corporate Obligations 74
ARTICLE THIRTEEN.
MISCELLANEOUS PROVISIONS.
SECTION 13.01. Successors 74
SECTION 13.02. Official Acts by Successor Corporation 75
SECTION 13.03. Addresses for Notices, etc. 75
SECTION 13.04. New York Contract 75
SECTION 13.05. Evidence of Compliance with Conditions Precedent 75
SECTION 13.06. Legal Holidays 76
SECTION 13.07. Trust Indenture Act to Control 76
SECTION 13.08. Table of Contents, Headings, etc. 76
SECTION 13.09. Execution in Counterparts 76
SECTION 13.10. No Security Interest Created 76
ARTICLE FOURTEEN.
REDEMPTION OF SECURITIES-MANDATORY AND
OPTIONAL SINKING FUND.

SECTION 14.01.  Applicability of Article                                   77
SECTION 14.02.  Notice of Redemption; Selection of Securities              77
SECTION 14.03.  Payment of Securities Called for Redemption                78
SECTION 14.04.  Mandatory and Optional Sinking Fund                        78
TESTIMONIUM                                                                82
SIGNATURES                                                                 82
ACKNOWLEDGEMENTS                                                           83	

THIS INDENTURE, dated as of December 1, 1982, between MASCO CORPORATION, a Delaware corporation (hereinafter sometimes called the "Company"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as trustee (hereinafter sometimes called the "Trustee").
W I T N E S S E T H :
WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue from time to time of its unsecured debentures, notes or other evidence of indebtedness to be issued in one or more series (the "Securities") up to such principal amount or amounts as may from time to time be authorized in accordance with the terms of this Indenture and, to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and
WHEREAS, all acts and things necessary to make this Indenture a valid agreement according to its terms, have been done and performed;
Now, THEREFORE, THIS INDENTURE WITNESSETH:
In consideration of the premises, and the purchase of the Securities by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Securities or of a series thereof, as follows:
ARTICLE ONE.
DEFINITIONS.
SECTION 1.01. Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939, as amended, or which are by reference therein defined in the Securities Act of 1933, as amended, shall (except as herein otherwise expressly provided or unless the context otherwise requires) have the meanings assigned to such terms in said Trust Indenture Act and in said
2
Securities Act as in force at the date of this Indenture as originally executed. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles and the term "generally accepted accounting principles" means such accounting principles as are generally accepted at the time of any computation. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
Attributable Debt:
The term "Attributable Debt" in respect of a sale and leaseback arrangement, shall mean, at the time of determination, the lesser of (x) the fair value of the property subject to such arrangement (as determined by the Board of Directors of the Company) or (y) the present value (discounted at the rate per annum equal to the interest borne by fixed-rate Securities or the Yield to Maturity at the time of issuance of any Original Issue Discount Securities determined on a weighted average basis compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended or may, at the option of the lessor, be extended) after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water and utility rates and similar charges. In the case of any such lease which may be terminated by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated.
Notwithstanding the foregoing, there shall not be deemed to be any Attributable Debt in respect of a sale and leaseback arrangement if (i) such arrangement involves property of a type to which Section 3.05 does not apply, (ii) the Company or a Consolidated Subsidiary would be entitled pursuant to the provisions of Section 3.05(a) to issue, assume or guarantee Debt (as defined in said Section 3.05(a)) secured by a mortgage upon the property involved in such arrangement without equally and ratably securing the Securities, or (iii) the greater of the proceeds of such arrangement or the fair market value of the property so leased has been applied or credited in accordance with clause (b) of
Section 3.06.
3
Authenticating Agent:
The term "Authenticating Agent" shall mean any agent or agents of the Trustee which at the time shall be appointed and acting pursuant to Section 6.14.
Board of Directors:
The term "Board of Directors" shall mean the Board of Directors of the Company or any committee of such Board duly authorized to act hereunder.
Company:
The term "Company" shall mean Masco Corporation, a Delaware corporation, and, subject to the provisions of Article Ten, shall include its successors and assigns.
Consolidated Net Tangible Assets:
The term "Consolidated Net Tangible Assets" shall mean the aggregate amount of assets (less applicable reserves) of the Company and its Consolidated Subsidiaries after deducting therefrom (a) all current liabilities (excluding any such liabilities deemed to be Funded Debt), (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, and (c) all investments in any Subsidiary other than a Consolidated Subsidiary, in all cases computed in accordance with generally accepted accounting principles and which under generally accepted accounting principles would appear on a consolidated balance sheet of the Company and its Consolidated Subsidiaries. For purposes of the foregoing, the term "investment in any Subsidiary other than a Consolidated Subsidiary" shall mean all evidences of indebtedness, capital stock, other securities, obligations or indebtedness of any Subsidiary other than a Consolidated Subsidiary owned or held by or owed to the Company or any Consolidated Subsidiary, except an evidence of indebtedness, an account receivable or an obligation or indebtedness on open account resulting directly from the sale of goods or merchandise or services for fair value in the ordinary course of business by the Company or the Consolidated Subsidiary to a Subsidiary other than a Consolidated Subsidiary.
4
Event of Default:
The term "Event of Default" shall mean any event specified in Section 5.01, continued for the period of time, if any, and after the giving of the notice, if any, therein designated.
Funded Debt:
The term "Funded Debt" shall mean all indebtedness having a maturity of more than twelve months from the date of the determination thereof or having a maturity of less than twelve months but by its terms being renewable or extendible at the option of the borrower beyond twelve months from the date of such determination (a) for money borrowed or (b) incurred in connection with the acquisition of any real or personal property, stock, debt or other assets (to the extent that any of the foregoing acquisition indebtedness is represented by any notes, bonds, debentures or similar evidences of indebtedness), and for the payment of which the Company or any Consolidated Subsidiary is directly or contingently liable, or which is secured by any property of the Company or any Consolidated Subsidiary.
Indenture:
The term "Indenture" shall mean this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented, or both, and shall include the form and terms of particular series of Securities established as contemplated hereunder; provided, however, that if at any time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities for which such Person is Trustee established as contemplated by Section 2.03, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is not Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party.
5
Interest:
The term "Interest" shall mean, when used with respect to non-interest bearing Securities, interest payable after maturity.
Officers' Certificate:
The term "Officers' Certificate" shall mean a certificate signed by the Chairman of the Board, the President or any Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 13.05 if and to the extent required by the provisions of such Section.
Opinion of Counsel:
The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or may be other counsel acceptable to the Trustee. Each such opinion shall include the statements provided for in Section 13.05 if and to the extent required by the provisions of such Section.
Original Issue Date:
The term "Original Issue Date" or "original issue date" of any Security (or any portion thereof) shall mean the earlier of (a) the date of such Security or
(b) the date of any Security (or portion thereof) for which such Security was issued (directly or indirectly) on registration of transfer, exchange or substitution.
Original Issue Discount Security:
The term "Original Issue Discount Security" shall mean any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to
Section 5.01.
Person:
The term "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organi- zation or government or any agency or political subdivision thereof.
6
Principal Office of the Trustee:
The term "principal office of the Trustee", or other similar term, shall mean the office of the Trustee at which at any particular time its corporate trust business shall principally be administered.
Principal Property:
The term "Principal Property" shall mean any manufacturing plant, research or engineering facility owned or leased by the Company or any Consolidated Subsidiary which is located within the United States of America or Puerto Rico, except any such plant or facility which, in the opinion of the Board of Directors, is not of material importance to the total business conducted by the Company and its Consolidated Subsidiaries as an entirety.
Responsible Officer:
The term "Responsible Officer", when used with respect to the Trustee, shall mean the chairman or vice chairman of the board of directors, the president, the secretary, the treasurer or any vice president, trust officer or other officer or assistant officer of the Trustee performing its corporate trust functions.
Security or Securities; Outstanding:
The terms "Security" or "Securities" shall have the meaning stated in the first recital of this Indenture and more particularly means any security or securities, as the case may be, authenticated and delivered under this Indenture, provided, however, that if at any time there is more than one Person acting as Trustee under this instrument, "Security" or "Securities" with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this instrument and shall more particularly mean any securities, as the case may be, authenticated and delivered under this instrument, exclusive, however, of securities of any series as to which such Person is not Trustee.
The term "outstanding" (except as otherwise provided in Section 6.08), when used with reference to Securities, shall, subject to the provisions of
7
Section 7.04, mean, as of any particular time, all Securities authenticated and delivered by the Trustee or the Authenticating Agent under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or the Authenticating Agent or delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided that, if such Securities, or portions thereof, are to be redeemed prior to maturity thereof, notice of such redemption shall have been given as in Article Fourteen provided or provisions satisfactory to the Trustee shall have been made for giving such notice; and
(c) Securities paid or in lieu of or in substitution for which other Securities shall have been authenticated and delivered pursuant to the terms of Section 2.08, unless proof satisfactory to the Company and the Trustee is presented that any such Securities are held by bona fide holders in due course.
In determining whether the holders of the requisite principal amount of outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the maturity thereof pursuant to Section 5.01.
Securityholder:
The terms "Securityholder", "holder of Securities", "Holder", or other similar terms, shall mean any person in whose name at the time a particular Security is registered on the register kept by the Company or the Trustee for that purpose in accordance with the terms hereof.
Subsidiary; Consolidated Subsidiary:
The term "Subsidiary" shall mean any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary
8
voting power to elect a majority of the board of directors of such corporation (excluding in the computation of such percentage stock of any class or classes of such corporation which has or might have voting power by reason of the happening of any contingency) is at the time owned by the Company, or by one or more Subsidiaries, or by the Company and one or more Subsidiaries.
The term "Consolidated Subsidiary" shall mean each Subsidiary other than any Subsidiary the accounts of which (i) are not required by generally accepted accounting principles to be consolidated with those of the Company for financial reporting purposes, (ii) were not consolidated with those of the Company in the Company's then most recent annual report to stockholders and
(iii) are not intended by the Company to be consolidated with those of the Company in its next annual report to stockholders; provided, however, that the term "Consolidated Subsidiary" shall not include (a) any Subsidiary which is principally engaged in (i) owning, leasing, dealing in or developing real property, or (ii) purchasing or financing accounts receivable, making loans, extending credit or other activities of a character conducted by a finance company or (b) any Subsidiary, substantially all of the business, properties or assets of which were acquired after December 1, 1982 (by way of merger, consolidation, purchase or otherwise), unless the Board of Directors thereafter designates such Subsidiary a Consolidated Subsidiary.
Trustee:
The term "Trustee" shall mean the Person identified as "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series.
Trust Indenture Act of 1939:
The term "Trust Indenture Act of 1939" shall mean the Trust Indenture Act of 1939 as in force at the date of execution of this Indenture, except as provided in Sections 2.03 and 9.03.
9
Yield to Maturity:
The term "Yield to Maturity" shall mean the yield to maturity on a series of Securities, calculated at the time of issuance of such series of Securities, or if applicable, at the most recent redetermination of interest on such series and calculated in accordance with accepted financial practice.
ARTICLE TWO.
SECURITIES.
SECTION 2.01. Forms Generally. The Securities of each series shall be in substantially the form as shall be established by or pursuant to a resolution of the Board of Directors or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any law or with any rules made pursuant thereto or with any rules of any securities exchange or all as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
SECTION 2.02 Form of Trustee's Certificate of Authentication. The Trustee's certificate of authentication on all Securities shall be in substan- tially the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By ...........................
Authorized Officer
SECTION 2.03. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
10
The Securities shall rank equally and pari passu and may be issued in one or more series. There shall be established in or pursuant to a resolution of the Board of Directors or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series:
(1) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 2.07, 2.08, 2.09, 9.04 or 14.03);
(3) the date or dates on which the principal of and premium, if any, on the Securities of the series is payable;
(4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method by which such interest may be determined, the date or dates from which such interest shall accrue, the interest payment dates on which such interest shall be payable and the record dates for the determination of holders to whom interest is payable;
(5) the place or places where the principal of, and premium, if any, and any interest on Securities of the series shall be payable;
(6) the price or prices at which, the period or periods within which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, pursuant to any sinking fund or otherwise;
(7) the obligation, if any, of the Company to redeem, purchase or repay Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Securityholder thereof and the price or prices at which and the period or periods within which and the terms and conditions upon which Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation;
(8) the right, if any, of the Company to discharge the Indenture as to the Securities of the series pursuant to Section 11.01 (c) or to limit
the
11
Indenture as to the Securities of the series pursuant to the last sentence of Section 11.01 (and if any sinking fund is applicable to such series, the obligations of such sinking fund shall survive and be provided for upon the discharge of the Indenture pursuant to Section 11.01 (c) or the limitation of the Indenture pursuant to the last sentence of Section 11.01);
(9) if other than denominations of $1,000 and any multiple thereof, the denominations in which Securities of the series shall be issuable;
(10) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 5.01 or provable in bankruptcy pursuant to Section 5.02;
(11) any Events of Default with respect to the Securities of a particular series, in addition to or in lieu of those set forth herein;
(12) any trustees, authenticating or paying agents, warrant agents, transfer agents or registrars with respect to the Securities of such series; and
(13) any other terms of the series (which terms shall conform to the requirements of the Trust Indenture Act of 1939 as then in effect, shall not adversely affect the rights of the Securityholders of any other Securities then outstanding and shall not be inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such resolution of the Board of Directors or in any such indenture supplemental hereto.
SECTION 2.04. Authentication and Delivery. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Securities to or upon the written order of the Company, signed by its Chairman of the Board of Directors, its President or any Vice President and by its Treasurer or Assistant Treasurer, its Secretary or an Assistant
12
Secretary without any further action by the Company hereunder. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon:
(1) a copy of any resolution or resolutions of the Board of Directors relating thereto and, if applicable, an appropriate record of any action taken pursuant to such resolution, in each case certified by the Secretary or an Assistant Secretary of the Company;
(2) an executed supplemental indenture, if any;
(3) an Officers' Certificate prepared in accordance with Section 13.05 setting forth the form and terms of the Securities as required pursuant to Sections 2.01 and 2.03, respectively; and
(4) an Opinion of Counsel prepared in accordance with Section 13.05 which shall also state
(a) that the form of such Securities has been established by or pursuant to a resolution of the Board of Directors or by a supplemental indenture as permitted by Section 2.01 in conformity with the provisions of this Indenture;
(b) that the terms of such Securities have been established by or pursuant to a resolution of the Board of Directors or by a supplemental indenture as permitted by Section 2.03 in conformity with the provisions of this Indenture;
(c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company;
(d) that all laws and requirements in respect of the execution and delivery by the Company of the Securities have been complied with and that authentication and delivery of the Securities by the Trustee will not violate the terms of this Indenture; and
(e) such other matters as the Trustee may reasonably request.
The Trustee shall have the right to decline to authenticate and deliver any Securities under this Section if the Trustee, being advised by counsel,
13
determines that such action may not lawfully be taken or if the Trustee in good faith by its board of directors or trustees, executive committee, or a trust committee of directors or trustees and/or vice presidents shall determine that such action would expose the Trustee to personal liability to existing holders.
SECTION 2.05. Date and Denomination of Securities. The Securities shall be issuable as registered Securities without coupons and in such denominations as shall be specified as contemplated by Section 2.03. In the absence of any such specification with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any multiple thereof. The Securities shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the officers of the Company executing the same may determine with the approval of the Trustee as evidenced by the execution and authentication thereof.
Every Security shall be dated the date of its authentication, shall bear interest, if any, from such date and shall be payable on such dates, in each case, as contemplated by Section 2.03.
The person in whose name any Security of any series is registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to receive the interest, if any, payable on such interest payment date notwithstanding the cancellation of such Security upon any transfer or exchange subsequent to the record date and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid to the persons in whose names outstanding Securities are registered on a subsequent record date established by notice given by mail by or on behalf of the Company to the holders of Securities and the Trustee not less than 15 days preceding such subsequent record date, such subsequent record date to be not less than ten days preceding the date of payment of such defaulted interest. The term "record date" as used in this Section with respect to any interest payment date shall mean if such interest payment date is the first day of a calendar month, the fifteenth day of the next preceding calendar month and shall mean, if such interest payment date is the fifteenth day of a calendar month, the first day of such calendar month, whether or not such record date is a business day.
14
SECTION 2.06. Execution of Securities. The Securities shall be signed in the name and on behalf of the Company by the facsimile signature of its Chairman of the Board or its President and imprinted with a facsimile of its corporate seal and attested by the facsimile signature of its Secretary or an Assistant Secretary. Each such signature upon the Securities may be in the form of a facsimile signature of any such officer and may be imprinted or otherwise reproduced on the Securities and for that purpose the Company may adopt and use the facsimile signature of any person who has been or is such officer, and in case any such officer of the Company signing any of the Securities shall cease to be such officer before the Securities so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Securities nevertheless may be authenticated and delivered or disposed of as though such person had not ceased to be such officer of the Company. Only such Securities as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, executed by the Trustee or the Authenticating Agent, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee or the Authenticating Agent upon any Security executed by the Company shall be conclusive evidence that the Security so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture.
SECTION 2.07. Exchange and Registration of Transfer of Securities. Securities of any series may be exchanged for a like aggregate principal amount of Securities of the same series of other authorized denominations. Securities to be exchanged may be surrendered at the principal office of the Trustee or at any office or agency to be maintained by the Company for such purpose as provided in Section 3.02, and the Company or the Trustee shall execute and register and the Trustee or the Authenticating Agent shall authenticate and deliver in exchange therefor the Security or Securities which the Securityholder making the exchange shall be entitled to receive. Upon due presentment for registration of transfer of any Security of any series at the principal office of the Trustee or at any office or agency of the Company maintained for such purpose as provided in Section 3.02, the Company or the Trustee shall execute and register and the Trustee or the Authenticating Agent shall authenticate and deliver in the name of the transferee or transferees a new Security or Securities of the same series for a like aggregate principal amount. Registration or registration of transfer of
15
any Security by the Trustee or by any agent of the Company appointed pursuant to
Section 3.02, and delivery of such Security, shall be deemed to complete the registration or registration of transfer of such Security.
The Company or the Trustee shall keep, at the principal office of the Trustee, a register for each series of Securities issued hereunder in which, subject to such reasonable regulations as it may prescribe, the Company or the Trustee shall register all Securities and shall register the transfer of all Securities as in this Article Two provided. Such register shall be in written form or in any other form capable of being converted into written form within a reasonable time.
All Securities presented for registration of transfer or for exchange or payment shall (if so required by the Company or the Trustee or the Authenticating Agent) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee or the Authenticating Agent duly executed by, the holder or his attorney duly authorized in writing.
No service charge shall be made for any exchange or registration of transfer of Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith.
The Company or the Trustee shall not be required to exchange or register a transfer of (a) any Security of a series for a period of 15 days next preceding the date of selection of Securities of such series for redemption, or (b) any Securities of any series selected, called or being called for redemption in whole or in part, except, in the case of any Securities of any series to be redeemed in part, the portion thereof not so to be redeemed.
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities. In case any temporary or definitive Security shall become mutilated or be destroyed, lost or stolen, the Company in the case of a mutilated Security shall, and in the case of a lost, stolen or destroyed Security may in its discretion, execute, and upon its request the Trustee shall authenticate and deliver, a new Security of the same series bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Security, or in lieu of and in substitution for the Security so destroyed, lost or stolen. In every case the applicant for a substituted Security shall furnish to the
16
Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of such Security and of the ownership thereof.
The Trustee may authenticate any such substituted Security and deliver the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Security, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith and in addition a further sum not exceeding two dollars for each Security so issued in substitution. In case any Security which has matured or is about to mature or has been called for redemption in full shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Security, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Security) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless and, in case of destruction, loss or theft, evidence satisfactory to the Company and to the Trustee of the destruction, loss or theft of such Security and of the ownership thereof.
Every substituted Security of any series issued pursuant to the provisions of this Section 2.08 by virtue of the fact that any such Security is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series duly issued hereunder. All Securities shall be held and owned upon the express condition that, to the extent permitted by applicable law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender.
17
SECTION 2.09. Temporary Securities. Pending the preparation of definitive Securities of any series the Company may execute and the Trustee shall authenticate and deliver temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the definitive Securities but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every such temporary Security shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Securities. Without unreasonable delay the Company will execute and deliver to the Trustee or the Authenticating Agent definitive Securities and thereupon any or all temporary Securities of such series may be surrendered in exchange therefor, at the principal office of the Trustee or at any office or agency maintained by the Company for such purpose as provided in Section 3.02, and the Trustee or the Authenticating Agent shall authenticate and deliver in exchange for such temporary Securities a like aggregate principal amount of such definitive Securities. Such exchange shall be made by the Company at its own expense and without any charge therefor except that in case of any such exchange involving a registration of transfer the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series authenticated and delivered hereunder.
SECTION 2.10. Cancellation of Securities Paid, etc. All Securities surrendered for the purpose of payment, redemption, exchange or registration of transfer or for credit in lieu of retiring Funded Debt pursuant to Section 3.06 shall, if surrendered to the Company or any paying agent, be surrendered to the Trustee and promptly cancelled by it, or, if surrendered to the Trustee or any Authenticating Agent, shall be promptly cancelled by it, and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. All Securities cancelled by any Authenticating Agent shall be delivered to the Trustee. The Trustee shall destroy cancelled Securities and shall deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Securities, however, such acquisition shall not operate as a redemption or
18
satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation.
ARTICLE THREE.
PARTICULAR COVENANTS OF THE COMPANY.
SECTION 3.01. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of and premium, if any, and any interest on each of the Securities of that series at the place, at the respective times and in the manner provided in such Securities. Each installment of interest, if any, on the Securities of any series may be paid by mailing checks for such interest payable to the order of the holders of Securities entitled thereto as they appear on the registry books of the Company.
SECTION 3.02. Offices for Notices and Payments, etc. So long as any of the Securities remains outstanding, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Securities of each series may be presented for payment, an office or agency where the Securities of that series may be presented for registration of transfer and for exchange as in this Indenture provided and an office or agency where notices and demands to or upon the Company in respect of the Securities of that series or of this Indenture may be served. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. Until otherwise designated from time to time by the Company in a notice to the Trustee, or specified as contemplated by Section 2.03, such office or agency for all of the above purposes shall be the principal office of the Trustee. In case the Company shall fail to maintain any such office or agency in the Borough of Manhattan, The City of New York, or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the principal office of the Trustee.
In addition to such office or agency, the Company may from time to time designate one or more offices or agencies outside the Borough of Manhattan, The City of New York, where the Securities may be presented
19
for registration of transfer and for exchange in the manner provided in this Indenture, and the Company may from time to time rescind such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain such office or agency in the Borough of Manhattan, The City of New York, for the purposes above mentioned. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof.
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee with respect to the Securities of any series, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 3.04:
(1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest, if any, on the Securities of such series (whether such sums have been paid to it by the Company or by any other obligor on the Securities of such series) in trust for the benefit of the holders of the Securities of such series; and
(2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall be due and payable.
(b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of and premium, if any, or interest, if any, on the Securities of any series, set aside, segregate and hold in trust for the benefit of the holders of the Securities of such series a sum sufficient to pay such principal, premium or interest so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or by any other obligor under the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall become due and payable.
20
(c) Anything in this Section 3.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge with respect to one or more or all series of Securities hereunder, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust for any such series by the Trustee or any paying agent hereunder, as required by this Section 3.04, such sums to be held by the Trustee upon the trusts herein contained.
(d) Anything in this Section 3.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 3.04 is subject to Sections 11.03 and 11.04.
SECTION 3.05. Limitation on Liens. (a) The Company will not, nor will it permit any Consolidated Subsidiary to, issue, assume or guarantee any debt for money borrowed or any Funded Debt (hereinafter in this Article Three referred to as "Debt"), secured by a mortgage, security interest, pledge, lien or other encumbrance (mortgages, security interests, pledges, liens and other encumbrances being hereinafter called a "mortgage" or "mortgages") upon any Principal Property or upon any shares of stock or indebtedness of any Consolidated Subsidiary which owns or leases a Principal Property (whether such Principal Property, shares of stock or indebtedness are now owned or hereafter acquired) without in any such case effectively providing concurrently with the issuance, assumption or guaranty of any such Debt that the Securities (together with, if the Company shall so determine, any other indebtedness of or guaranteed by the Company or such Consolidated Subsidiary ranking equally with the Securities and then existing or thereafter created) shall be secured equally and ratably with such Debt; provided, however, that the foregoing restrictions shall not apply to Debt secured by
(i) mortgages on property, shares of stock or indebtedness of any corporation existing at the time such corporation becomes a Consolidated Subsidiary;
(ii) mortgages on property existing at the time of acquisition of such property by the Company or a Consolidated Subsidiary, or mortgages to secure the payment of all or any part of the purchase price of such property upon the acquisition of such property by the Company or a Consolidated Subsidiary or to secure any Debt incurred by the
21
Company or a Consolidated Subsidiary prior to, at the time of, or within 120 days after the later of the acquisition, the completion of construction (including any improvements on an existing property) or the commencement of commercial operation of such property, which Debt is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; pro- vided, however, that in the case of any such acquisition, construction or improvement, the mortgage shall not apply to any property theretofore owned by the Company or a Consolidated Subsidiary, other than any property on which the property so constructed or the improvement is located or to which the property so constructed or the improvement is appurtenant;
(iii) mortgages securing Debt of a Consolidated Subsidiary owing to the Company or to another Consolidated Subsidiary;
(iv) mortgages on property of a corporation existing at the time such corporation is merged or consolidated with the Company or a Consolidated Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation or firm as an entirety or substantially as an entirety to the Company or a Consolidated Subsidiary; provided, however, that no such mortgage shall extend to any other Principal Property of the Company or any Consolidated Subsidiary or to any shares of capital stock or any indebtedness of any Consolidated Subsidiary which owns or leases a Principal Property;
(v) mortgages on property of the Company or a Consolidated Subsidiary in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country, or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute (including Debt of the pollution control or industrial revenue bond type) or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of construction of the property subject to such mortgages; or
(vi) any extension, renewal or replacement (or successive exten- sions, renewals or replacements) in whole or in part of mortgages existing at the date of this Indenture, or any mortgage referred to in
the
22
foregoing clauses (i) through (v), inclusive, provided, however, that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the property which secured the mortgage so extended, renewed or replaced (plus improvements on such property).
(b) Notwithstanding the foregoing provisions of this Section 3.05, the Company may, and may permit any Consolidated Subsidiary to, issue, assume or guarantee Debt secured by a mortgage not excepted by clauses (i) through (vi) of paragraph (a) above without equally and ratably securing the Securities, provided, however, that the aggregate principal amount of all such Debt then outstanding, plus the aggregate principal amount of the Debt then being issued, assumed, or guaranteed, and the aggregate amount of the Attributable Debt in respect of sale and lease-back arrangements, shall not exceed 5% of Consolidated Net Tangible Assets, determined as of a date not more than 90 days prior thereto.
SECTION 3.06. Limitation on Sale and Leaseback. The Company will not, nor will it permit any Consolidated Subsidiary to, enter into any arrangement with any person providing for the leasing by the Company or any Consolidated Subsidiary of any Principal Property (whether such Principal Property is now owned or hereafter acquired) (except for leases for a term of not more than three years and except for leases between the Company and a Consolidated Subsidiary or between Consolidated Subsidiaries), which property has been or is to be sold or transferred by the Company or such Consolidated Subsidiary to such person, unless (a) the Company or such Subsidiary would be entitled, pursuant to the provisions of Section 3.05, to issue, assume or guarantee Debt secured by a mortgage upon such property at least equal in amount to the Attributable Debt in respect of such arrangement without equally and ratably securing the Securities or (b) the Company or a Consolidated Subsidiary, within 120 days of the effective date of any such arrangement, applies an amount equal to the greater of the net proceeds of the sale of the Principal Property leased pursuant to such arrangement or the fair market value of the Principal Property so leased at the time of entering into such arrangement (as determined by the Board of Directors of the Company) to the retirement (other than any mandatory retirement or by way of payment at maturity) of
23
Funded Debt of the Company or any Consolidated Subsidiary (other than Funded Debt owned by the Company or any Consolidated Subsidiary and other than Funded Debt subordinated in the payment of principal or interest to the Securities and except that no Security shall be retired if such retirement of Securities pursuant to this provision would be prohibited by the resolutions or supplemental indentures referred to in Section 2.03), provided, however, that in lieu of applying all or any part of such net proceeds or fair market value to such retirement, the Company may at its option (i) deliver to the Trustee Securities theretofore purchased or otherwise acquired by the Company, or (ii) receive credit for Securities theretofore redeemed pursuant to the resolutions or supplemental indentures referred to in Section 2.03 hereof, which Securities have not theretofore been made the basis for the reduction of a sinking fund payment pursuant to Section 14.04 or applied in lieu of retiring Funded Debt pursuant hereto. If the Company shall so deliver Securities to the Trustee (or receive credit for Securities so delivered), the amount of cash which the Company shall be required to apply to the retirement of Funded Debt pursuant to this Section 3.06 shall be reduced by an amount equal to the aggregate principal amount of such Securities.
SECTION 3.07. Certificate to Trustee. The Company will deliver to the Trustee on or before April 1 in each year (beginning with April 1, 1983), so long as Securities of any series are outstanding hereunder, an Officers' Certificate stating that in the course of the performance by the signers of their duties as officers of the Company they would normally have knowledge of any default by the Company in the performance of any covenants contained in Sections 3.05, 3.06 and 10.03, stating whether or not they have knowledge of any such default and, if so, specifying each such default of which the signers have knowledge and the nature thereof.
ARTICLE FOUR.
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE.
SECTION 4.01. Securityholders' Lists. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each record date for each series of Securities, a list, in such form as the Trustee may
24
reasonably require, of the names and addresses of the Securityholders of such series of Securities as of such record date (and on dates to be determined pursuant to Section 2.03 for non-interest bearing Securities in each year); and
(b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished,
except that no such lists need be furnished so long as the Trustee is in possession thereof by reason of its acting as Securities registrar for such series.
SECTION 4.02. Preservation and Disclosure of Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of each series of Securities (1) contained in the most recent list furnished to it as provided in Section 4.01 or
(2) received by it in the capacity of Securities registrar (if so acting) hereunder. The Trustee may destroy any list furnished to it as provided in
Section 4.01 upon receipt of a new list so furnished.
(b) In case three or more holders of Securities of any series (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Securities of such series or with holders of all Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within five business days after the receipt of such application, at its election, either:
(1) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, or
(2) inform such applicants as to the approximate number of holders of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the
25
Trustee in accordance with the provisions of subsection (a) of this Section 4.02, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder of such series or all Securities, as the case may be, whose name and address appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02 a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Securities and Exchange Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Securities of such series or all Securities, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If said Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, said Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
(c) Each and every holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Securities in accordance with the provisions of subsection (b) of this Section 4.02, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b).
26
SECTION 4.03. Reports by Company. (a) The Company covenants and agrees to file with the Trustee, within 15 days after the Company is required to file the same with the Securities and Exchange Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as said Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with said Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and said Commission, in accordance with rules and regulations prescribed from time to time by said Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the Securities and Exchange Commission, in accordance with the rules and regulations prescribed from time to time by said Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations.
(c) The Company covenants and agrees to transmit by mail to all holders of Securities, as the names and addresses of such holders appear upon the Securities register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 4.03 as may be required by rules and regulations prescribed from time to time by the Securities and Exchange Commission.
SECTION 4.04. Reports by the Trustee. (a) On or before June 15, 1983, and on or before June 15 in every year thereafter, so long as any Securities are outstanding hereunder, the Trustee shall transmit to the Securityholders of each series of Securities for which such Trustee is appointed, as hereinafter in this
Section 4.04 provided, a brief report dated as of a date convenient to the Trustee no more than 60 days prior thereto with respect to:
27
(1) its eligibility under Section 6.09, and its qualification under
Section 6.08, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under such Sections, a written statement to such effect;
(2) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to state such advances if such advances so remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities for any series outstanding on the date of such report;
(3) the amount, interest rate, and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except any indebtedness based upon a creditor relationship arising in any manner described in paragraph (2), (3), (4) or
(6) of subsection (b) of Section 6.13;
(4) the property and funds, if any, physically in the possession of the Trustee, as such, on the date of such report;
(5) any additional issue of Securities which the Trustee has not previously reported; and
(6) any action taken by the Trustee in the performance of its duties under this Indenture which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by it in accordance with the provisions of Section 5.08.
(b) The Trustee shall transmit to the Securityholders for each series, as hereinafter provided, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such), since the date of the last report transmitted pursuant to the provisions of subsection
28
(a) of this Section 4.04 (or, if no such report has yet been so transmitted, since the date of execution of this Indenture), for the reimbursement of which it claims or may claim a lien or charge prior to that of the Securities of such series on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of Securities for such series outstanding at such time, such report to be transmitted within 90 days after such time.
(c) Reports pursuant to this Section 4.04 shall be transmitted by mail to all holders of Securities as the names and addresses of such holders appear upon the Securities register.
(d) A copy of each such report shall, at the time of such transmission to Securityholders, be filed by the Trustee with each stock exchange upon which the Securities of any applicable series are listed and also with the Securities and Exchange Commission. The Company will notify the Trustee when and as the Securities of any series become listed on or delisted by any stock exchange.
ARTICLE FIVE.
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
SECTION 5.01. Events of Default. "Event of Default", whenever used herein with respect to Securities of any series, means any one of the following events and such other events as may be established with respect to the Securities of that series as contemplated by Section 2.03 hereof.
(a) default in the payment of any interest upon any Securities of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
(b) default in the payment of all or any part of the principal of (or premium, if any, on) any Securities of that series as and when the same shall become due and payable either at maturity, upon redemption (including redemption for the sinking fund), by declaration or otherwise; or
(c) default in the performance, or breach, of any covenant of the Company in this Indenture (other than a covenant a default in whose
29
performance or whose breach is elsewhere in this Section specifically dealt with and other than those set forth exclusively in terms of any particular series of Securities established as contemplated in this Indenture), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or
(d) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or
(e) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due.
If an Event of Default described in clause (a) or (b) or established pursuant to Section 2.03 occurs and is continuing, then, and in each and every such case, unless the principal of all of the Securities of such series shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Securities of such series then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the
30
terms of that series) of all the Securities of such series and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. If an Event of Default described in clause (c), (d) or (e) occurs and is continuing, then and in each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of all the Securities then outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Securityholders), may declare the entire principal (or, if any Securities are Original Issue Discount Securities, such portion of the principal as may be specified in the terms thereof) of all the Securities then outstanding and interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the condition that if, at any time after the principal (or, if the Securities are Original Issue Discount Securities, such portion of the principal as may be specified in the terms thereof) of the Securities of any series (or of all the Securities, as the case may be) shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest, if any, upon all the Securities of any series (or of all the Securities, as the case may be) and the principal of and premium, if any, on any and all Securities of such series (or of all the Securities, as the case may be) which shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series, or at the respective rates of interest or Yields to Maturity of all the Securities, as the case may be, to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and if any and all Events of Default under this
31
Indenture, other than the non-payment of the principal of or premium, if any, on Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein--then and in every such case the holders of a majority in aggregate principal amount of the Securities of such series (or of all the Securities, as the case may be) then outstanding, by written notice to the Company and to the Trustee, may waive all defaults with respect to that series (or with respect to all Securities, as the case may be, in such case, treated as a single class) and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the holders of the Securities shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the holders of the Securities shall continue as though no such proceeding had been taken.
SECTION 5.02. Payment of Securities on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment of any installment of interest upon any of the Securities of any series as and when the same shall become due and payable, and such default shall have continued for a period of 30 days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Securities of any series as and when the same shall have become due and payable, whether at maturity of the Securities of that series or upon redemption or by declaration or otherwise--then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Securities of that series, the whole amount that then shall have become due and payable on all such Securities of that series for principal and premium, if any, or interest, or both, as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) borne by the Securities of that series, and, in addition thereto, such further amount as shall be sufficient to cover the costs
32
and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith.
In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on such Securities and collect in the manner provided by law out of the property of the Company or any other obligor on such Securities wherever situated the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Securities of any series under Title 11, United States Code, or any other applicable law, or in case a receiver or trustee (or similar official) shall have been appointed for the property of the Company or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or other obligor upon the Securities of any series, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.02, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and interest (or, if the Securities of that series are Original Issue Discount Securities such portion of the principal amount as may be specified by the terms of that series) owing and unpaid in respect of the Securities of such series and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Securityholders allowed in such judicial proceedings relative to the
33
Company or any other obligor on the Securities of any series or to the creditors or property of the Company or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Securities of any series in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Securityholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all amounts owing to the Trustee and each predecessor Trustee under
Section 6.06.
Nothing herein contained shall be construed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Secunityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities of any series or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or under any of the Securities, may be enforced by the Trustee without the possession of any of the Securities, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of all the Securities in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Securities of the series affected thereby and it shall not be necessary to make any such holders of the Securities parties to any such proceedings.
34
SECTION 5.03. Application of Moneys Collected by Trustee. Any moneys collected by the Trustee shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Securities of any series in respect of which moneys have been collected, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid:
FIRST. To the payment of costs and expenses of collection appli- cable to each such series and all other amounts owing to the Trustee or any predecessor Trustee under Section 6.06;
SECOND: In case the principal of the outstanding Securities in respect of which moneys have been collected shall not have become due and be unpaid, to the payment of interest on the Securities of each such series, in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue instalments of interest at the respective rates borne by the Securities of each such series, such payments to be made ratably to the persons entitled thereto;
THIRD: In case the principal of the outstanding Securities in respect of which moneys have been collected shall have become due, by declaration or otherwise, to the payment of the whole amount then owing and unpaid upon the Securities of each such series, for principal and premium, if any, and interest, with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the respective rates or Yield to Maturity ( in the case of Original Issue Discount Securities) specified in the Securities of each such series, and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of each such series, then to the payment of such principal and premium, if any, and interest without preference or priority of principal and premium, if any, over interest, or of interest over principal and premium, if any, or of any instalment of interest over any other instalment of interest, or of any Security of each such series over any other Security of each such series, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest.
35
Any surplus then remaining shall be paid to the Company or to such other person as shall be entitled to receive it.
SECTION 5.04. Proceedings by Securityholders. No holder of any Security of any series shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of default and of the continuance thereof, as herein before provided, and unless also the holders of not less than 25% in aggregate principal amount of the Securities of that series then outstanding or, in the case of any Event of Default described in clause (c), (d) or (e) of Section 5.10, 25% in aggregate principal amount of all Securities then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action, suit or proceeding, it being understood and intended, and being expressly covenanted by the taker and holder of every Security with every other taker and holder and the Trustee, that no one or more holders of Securities of any series shall have any right in any manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Securities, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Securities of the applicable series.
Notwithstanding any other provisions in this Indenture, however, the right of any holder of any Security to receive payment of the principal of, premium, if any, and interest, if any, on such Security, on or after the same shall have become due and payable, or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the consent of such holder.
SECTION 5.05. Proceedings by Trustee. In case of an Event of Default hereunder the Trustee may in its discretion proceed to protect and enforce
36
the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing. All powers and remedies given by this Article Five to the Trustee or to the Securityholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Securities, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Securities to exercise any right or power accruing upon any default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of
Section 5.04, every power and remedy given by this Article Five or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by Majority of Securityholders. The holders of a majority in aggregate principal amount of the Securities of any or all series affected at the time outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that (subject to the provisions of Sections 6.01 and 6.02) the Trustee shall have the right to decline to follow any such direction if the Trustee shall determine that the action so directed would be unjustly prejudicial to the holders not taking part in such direction or if the Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors or trustees, executive committee, or a trust committee of directors or trustees and/or Responsible Officers shall determine that the action or proceedings so directed would involve the Trustee in personal liability. Subject to Section 5.01 the holders
37
of a majority in aggregate principal amount of the Securities of any such series at the time outstanding may on behalf of the holders of all of the Securities of such series waive any past default or Event of Default including any default or Event of Default established pursuant to Section 2.03 (or, in the case of an event specified in clause (c), (d) or (e) of Section 5.01, the holders of a majority in aggregate principal amount of all the Securities then outstanding (voting as one class)) may waive such default or Event of Default, and its consequences, except a default (a) in the payment of principal of, premium, if any, or interest on any of the Securities or (b) in respect of covenants or provisions hereof which cannot be modified or amended without the consent of the holder of each Security affected. Upon any such waiver the Company, the Trustee and the holders of the Securities of that series (or of all Securities, as the case may be) shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 5.07, said default or Event of Default shall for all purposes of the Securities of that series (or of all Securities, as the case may be) and this Indenture be deemed to have been cured and to be not continuing.
SECTION 5.08. Notice of Defaults. The Trustee shall, within 90 days after the occurrence of a default with respect to any of the Securities of any series, mail to all Securityholders of that series, as the names and addresses of such holders appear upon the Securities register, notice of all defaults with respect to that series known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purpose of this
Section 5.08 being hereby defined to be the events specified in clauses (a),
(b), (c), (d) and (e) of Section 5.01, not including periods of grace, if any, provided for therein, and irrespective of the giving of written notice specified in clause (c) of Section 5.01 ); and provided that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors or trustees, the executive committee, or a trust committee of directors or trustees and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Securityholders of such series, and provided further, that in the case of any default of the character
38
specified in Section 5.01 (c) no such notice to Securityholders shall be given until at least 90 days after the occurrence thereof but shall be given within 120 days after such occurrence.
SECTION 5.09. Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.09 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders of any series holding in the aggregate more than 10% in principal amount of the Securities of that series
(or, in the case of any suit relating to or arising under clause (c), (d) or (e)
of Section 5.01, 10% in aggregate principal amount of all Securities) outstanding, or to any suit instituted by any Securityholder for the enforce- ment of the payment of the principal of or premium, if any, or interest on any Security against the Company on or after the same shall have become due and payable.
ARTICLE SIX.
CONCERNING THE TRUSTEE.
SECTION 6.01. Duties and Responsibilities of Trustee. With respect to any series of Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to Securities of that series and after the curing or waiving of all Events of Default which may have occurred with respect to Securities of that series, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to such series. In case an Event of Default with respect to the Securities of a series has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture with respect to such series, and use the same degree of care and skill in their
39
exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect to the Securities of a series and after the curing or waiving of all Events of Default with respect to that series which may have occurred
(1) the duties and obligations of the Trustee with respect to the Securities of a series shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations with respect to such series as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certifi- cates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provision hereof are specific- ally required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith, in accordance with the direction of the Securityholders pursuant to Section 5.07, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture.
40
None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc. Except as otherwise provided in Section 6.01
(a) the Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, note, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, coupon or other paper or document, unless requested in writing to do so by the holders of not less than a majority in principal amount of the Securities of all
41
series affected then outstanding; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding;
(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents (including any Authenticating Agent) or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care; and
(h) the Trustee shall not be deemed to have knowledge or notice of any Event of Default or default with respect to any series of Securities unless a Responsible Officer of the Trustee has actual knowledge thereof or unless holders of not less than 25% in aggregate principal amount of the outstanding Securities of that series shall have notified the Trustee thereof.
SECTION 6.03. No Responsibility for Recitals, etc. The recitals contained herein and in the Securities (except in the certificate of authentication of the Trustee or the Authenticating Agent) shall be taken as the statements of the Company, and the Trustee and the Authenticating Agent assume no responsibility for the correctness of the same. The Trustee and the Authenticating Agent make no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee and the Authenticating Agent shall not be accountable for the use or application by the Company of any Securities or the proceeds of any Securities authenticated and delivered by the Trustee or the Authenticating Agent in conformity with the provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Securities. The Trustee or any Authenticating Agent or any paying agent or any transfer agent or any Securities registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, Authenticating Agent, paying agent, transfer agent or Securities registrar.
SECTION 6.05. Moneys to be Held in Trust. Subject to the provisions of
Section 11.04, all moneys received by the Trustee or any paying agent shall, until used or applied as herein provided, be held in trust for the purpose for
42
which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee and any paying agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon the written order of the Company, signed by the Chairman of the Board of Directors, the President, any Vice President, the Treasurer or any Assistant Treasurer of the Company.
SECTION 6.06. Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse each of the Trustee and any predecessor Trustee upon its request for all its reasonable expenses, disbursements and advances incurred or made in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ and any amounts it paid to any Authenticating Agent pursuant to
Section 6.14) except any such expense, disbursement or advance as may arise from its own negligence or bad faith. If any property other than cash shall at any time be subject to the lien of this Indenture, the Trustee, if and to the extent authorized by a receivership or bankruptcy court of competent jurisdiction or by the supplemental instrument subjecting such property to such lien, shall be entitled to make advances for the purpose of preserving such property or of discharging tax liens or other prior liens or encumbrances thereon. The Company also covenants to indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part and arising out of or in connection with the acceptance or administration of this trust and the performance of its duties hereunder, including the costs and expenses of defending itself against any claim of liability in the premises. The obligations of the Company under this
Section 6.06 to compensate the Trustee and to pay or reimburse each of the Trustee and any predecessor Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a claim prior to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Securities.
43
SECTION 6.07. Officers' Certificate as Evidence. Except as otherwise provided in Section 6.01 and 6.02, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof.
SECTION 6.08. Conflicting Interest of Trustee. (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section 6.08 with respect to the Securities of any series, it shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign with respect to the Securities of that series in the manner and with the effect specified in Section 6.10.
(b) In the event that the Trustee shall fail to comply with the provisions of subsection (a) of this Section 6.08 with respect to the Securities of any series, the Trustee shall, within ten days after the expiration of such 90-day period, transmit notice of such failure to all holders of Securities of that series, as the names and addresses of such holders appear upon the Securities register.
(c) For the purposes of this Section 6.08 the Trustee shall be deemed to have a conflicting interest with respect to Securities of any series if
(1) the Trustee is trustee under this Indenture with respect to the Securities of any other series or under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company or other obligor on the Securities of such series (each of which is hereafter in this Section called a "Security party") are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of Securities issued under this Indenture; provided that there shall be excluded from the operation of this paragraph (A) the Indenture between the Company and Morgan Guaranty Trust Company of New York, Trustee, dated as of June 1, 1976, pursuant to the provisions of which the Company's
44
8 7/8% Debentures Due 2001 are outstanding, (B) the Indenture between the Company and Morgan Guaranty Trust Company of New York, Trustee, dated as of May 1, 1980, pursuant to the provisions of which the Company's 12 1/4% Notes Due 1985 are outstanding, and (C) this Indenture with respect to the Securities of any other series and any other indenture or indentures under which other securities, or certificates of interest or participation in other securities, of a Security party are outstanding if (i) this Indenture is and, if applicable, this Indenture and such other indenture or indentures are wholly unsecured and such other indenture or indentures are hereafter qualified under the Trust Indenture Act of 1939, unless the Securities and Exchange Commission shall have found and declared by order pursuant to subsection (b) of Section 305 or subsection (c) of Section 307 of the Trust Indenture Act of 1939 that differences exist between the provisions of this Indenture with respect to Securities of such series and one or more other series or, if applicable, this Indenture and the provisions of such other indenture or indentures which are so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture and such other indenture or indentures, or (ii) the Company shall have sustained the burden of proving, on application to the Securities and Exchange Commission and after opportunity for hearing thereon, that trusteeship under this Indenture with respect to Securities of such series and one or more other series or, if applicable, this Indenture and such other Indenture or indentures is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture with respect to Securities of such series and one or more other series or, if applicable, this Indenture and one of such indentures;
(2) the Trustee or any of its directors or executive officers if an obligor upon the Securities of any series issued under this Indenture or an underwriter for a Security party;
(3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with a Security party;
45
(4) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee, or representative of a Security party, or of an underwriter (other than the Trustee itself) for a Security party who is currently engaged in the business of underwriting, except that (A) one individual may be a director and/or an executive officer of the Trustee and a director and/or an executive officer of a Security party, but may not be at the same time an executive officer of both the Trustee and a Security party; (B) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director and/or an executive officer of the Trustee and a director of a Security party; and (C) the Trustee may be designated by a Security party or by an underwriter for a Security party to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent, or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this subsection (c), to act as trustee whether under an indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is beneficially owned either by a Security party or by any director, partner, or executive officer thereof, or 20% or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 10% or more of the voting securities of the Trustee is beneficially owned either by an underwriter for a Security party or by any director, partner, or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, (A) 5% or more of the voting securities, or 10% or more of any other class of security, of a Security party, not including the Securities issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (B) 10% or more of any class of security of an underwriter for a Security party;
(7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, a Security party;
46
(8) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, 10% or more of any class of security of any person who, to the knowledge of the Trustee, owns 50% or more of the voting securities of a Security party; or
(9) the Trustee owns on May 15 in any calendar year, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7), or (8) of this subsection (c). As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply, for a period of two years from the date of such acquisition, to the extent that such securities included in such estate do not exceed 25% of such voting securities or 25% of any such class of security. Promptly after May 15, in each calendar year, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such May 15. If the Company fails to make payment in full of principal of or any interest on any of the Securities when and as the same become due and payable, and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period and, after such date, notwithstanding the foregoing provisions of this paragraph (9), all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7), and (8) of this subsection (c).
The specifications of percentages in paragraphs (5) to (9), inclusive, of this subsection (c) shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of para- graph (3) or (7) of this subsection (c).
47
For the purposes of paragraphs (6), (7), (8), and (9) of this subsection
(c) only, (A) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (B) an obligation shall be deemed to be in default when a default in payment of principal shall have continued for 30 days or more and shall not have been cured; and (C) the Trustee shall not be deemed to be the owner or holder of (i) any security which it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as defined in clause (B) above, or (ii) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (iii) any security which it holds as agent for collection, or as custodian, escrow agent, or depositary, or in any similar representative capacity.
Except as provided in the next preceding paragraph hereof, the word security" or "securities" as used in this Indenture shall mean any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-Trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas or other mineral rights, or, in general, any interest or instrument commonly known as a "security" or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of the foregoing.
(d) For the purposes of this Section 6.08:
(1) The term "underwriter" when used with reference to a Security party shall mean every person who, within three years prior to the time as of which the determination is made, has purchased from such Security party with a view to, or has offered or sold for such Security party in connection with, the distribution of any security of such Security party outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of
48
any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission.
(2) The term "director" shall mean any director of a corporation or any individual performing similar functions with respect to any organization whether incorporated or unincorporated.
(3) The term "person" shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or a government or political subdivision thereof. As used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.
(4) The term "voting security" shall mean any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person.
(5) The term "executive officer" shall mean the president, every vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors.
The percentages of voting securities and other securities specified in this
Section 6.08 shall be calculated in accordance with the following provisions:
(A) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section 6.08 (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person.
49
(B) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding.
(C) The term "amount", when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares, and the number of units if relating to any other kind of security.
(D) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise;
(iv) securities held in escrow if placed in escrow by the issuer thereof;
provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof.
(E) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes, and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture.
50
SECTION 6.09. Eligibility of Trustee. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States or any State or Territory thereof or of the District of Columbia authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $5,000,000, subject to supervision or examination by Federal, State, Territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 6.09 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.09, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation or Removal of Trustee. (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign with respect to one or more or all series of Securities by giving written notice of such resignation to the Company and by mailing notice thereof to the holders of the applicable series of Securities at their addresses as they shall appear on the Securities register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee or trustees with respect to the applicable series by written instrument, in duplicate, executed by order of its Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed with respect to any series of Securities and have accepted appointment within 60 days after the mailing of such notice of resignation to the affected Securityholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Securityholder who has been a bona fide holder of a Security or Securities of the applicable series for at least six months may, subject to the provisions of Section 5.09, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee.
51
(b) In case at any time any of the following shall occur--
(1) the Trustee shall fail to comply with the provisions of subsection (a) of Section 6.08 after written request therefor by the Company or by any Securityholder who has been a bona fide holder of a Security or Securities for at least six months, or
(2) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Securityholder, or
(3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 5.09, any Securityholder who has been a bona fide holder of a Security or Securities of the applicable series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the Securities of one or more series (each series voting as a class) or all series (voting as one class) at the time outstanding may at any time remove the Trustee with respect to the applicable series of Securities or all series, as the case may be, and nominate a successor trustee with respect to the applicable series of Securities or all series, as the case may be, which shall be deemed appointed as successor trustee with respect to the applicable series unless within ten days after such nomination the Company objects thereto, in which case the Trustee so removed or any Securityholder of the applicable series, upon the terms and conditions and otherwise as in subdivision (a) of this Section 6.10 provided, may petition any court of competent jurisdiction for an appointment of a successor trustee with respect to such series.
52
(d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 6.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 6.10 shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee with respect to all or any applicable series shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations with respect to such series of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the Trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 6.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the Trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a claim upon all property or funds held or collected by such Trustee to secure any amounts then due it pursuant to the provisions of Section 6.06.
If a successor trustee is appointed with respect to the Securities of one or more (but not all) series, the Company, the predecessor Trustee and each successor trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of any series as to which the predecessor Trustee is not retiring shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trust hereunder by more than one trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such trustees co-trustees of the same trust and that each such trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such trustee.
53
No successor trustee shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 6.08 and eligible under the provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as provided in this
Section 6.11, the Company shall mail notice of the succession of such trustee hereunder to the holders of Securities of any applicable series at their addresses as they shall appear on the Securities register. If the Company fails to mail such notice within ten days after the acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company.
SECTION 6.12. Succession by Merger, etc. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities of any series shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities of any series shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities of such series or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Securities of any series in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a Creditor. (a) Subject to the provisions of subsection (b) of this Section 6.13, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or
54
unsecured, of the Company or of any other obligor on the Securities (each of which is hereafter in this Section 6.13 called a "Security party") within four months prior to a default, as defined in paragraph (1) of subsection (c) of this Section 6.13, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the holders of the Securities, and the holders of other indenture securities (as defined in paragraph (2) of subsection (c) of this Section 6.13),
(1) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such four-month period and valid as against such Security party and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy has been filed by or against such Security party upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such four-month period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of such Security party and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on account of any such claim by any person (other than such Security party) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third person, and (iii) distributions made in cash, securities, or other property in respect of claims filed against such Security party in bankruptcy or receivership or in proceedings for reorganization pursuant to Title II, United States Code or applicable state law;
(B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such four-month period;
55
(C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such four-month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in subsection (c) of this Section 6.13, would occur within four months; or
(D) to receive payment on any claim referred to in paragraph (B) or
(C), against the release of any property held as security for such claim as provided in such paragraph (B) or (C), as the case may be, to the extent of the fair value of such property.
For the purposes of paragraphs (B), (C), and (D), property substituted after the beginning of such four-month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the Securityholders and the holders of other indenture securities in such manner that the Trustee, the Securityholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against such Security party in bankruptcy or receivership or in proceedings for reorganization pursuant to Title 11, United States Code, or applicable state law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from such Security party of the funds and property in such special account and before crediting to the respective claims of the Trustee, the Securityholders, and the holders of other indenture securities dividends on claims filed against such Security party in bankruptcy or receivership or in proceedings for reorganization pursuant to Title 11, United States Code or applicable state law, but after crediting thereon receipts on account of the indebtedness represented
56
by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or in proceedings for reorganization pursuant to Title 11, United States Code, or applicable state law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership, or proceeding for reorganization is pending shall have jurisdiction (i) to apportion among the Trustee, the Securityholders, and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and the proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee, the Securityholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the beginning of such four-month period shall be subject to the provisions of this subsection (a) as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such four-month period, it shall be subject to the provisions of this subsection (a) if and only if the following conditions exist:
(i) the receipt of property or reduction of claim which would have given rise to the obligation to account, if such Trustee had continued as trustee, occurred after the beginning of such four-month period; and
(ii) such receipt of property or reduction of claim occurred within four months after such resignation or removal.
(b) There shall be excluded from the operation of subsection (a) of this Section 6.13 a creditor relationship arising from
57
(1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of pre- serving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances hereon, if notice of such advance and of the circumstances surrounding the making thereof is given to the Securityholders at the time and in the manner provided in Section 4.04 with respect to reports pursuant to subsections (a) and (b) thereof, respectively;
(3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custo- dian, paying agent, fiscal agent or depositary, or other similar capacity;
(4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in subsection (c) of this
Section 6.13;
(5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of a Security party; or
(6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in subsection (c) of this Section 6.13.
(c) As used in this Section 6.13:
(1) The term "default" shall mean any failure to make payment in full of the principal of or interest, if any, upon any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable;
(2) The term "other indenture securities" shall mean securities upon which a Security party is an obligor (as defined in the Trust Indenture Act of 1939) outstanding under any other indenture (A)
58
under which the Trustee is also trustee, (B) which contains provisions substantially similar to the provisions of subsection (a) of this Section 6.13, and (C) under which a default exists at the time of the apportionment of the funds and property held in said special account;
(3) The term "cash transaction" shall mean any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand;
(4) The term "self-liquidating paper" shall mean any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by a Security party for the purpose of financing the purchase, processing, manufacture, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security; provided that the security is received by the Trustee simultaneously with the creation of the creditor relationship with such Security party arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.
SECTION 6.14. Authenticating Agents. There may be one or more Authenticating Agents appointed by the Trustee upon the request of the Company with power to act on the Trustee's behalf and subject to its direction in the authentication and delivery of Securities of any series issued upon exchange or transfer thereof as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized to authenticate and deliver Securities of such series; provided, that the Trustee shall have no liability to the Company for any acts or omissions of the Authenticating Agent with respect to the authentication and delivery of Securities of any series. Any such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States or of any State or Territory thereof or of the District of Columbia authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least $5,000,000 and being subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at
59
least annually pursuant to law or the requirements of such authority, then for the purposes of this Section 6.14 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provision of this Section, it shall resign immediately in the manner and with the effect herein specified in this Section.
Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this
Section 6.14, without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent.
Any Authenticating Agent may at any time resign with respect to one or more or all series of Securities by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent with respect to one or more or all series of Securities by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 6.14, the Trustee may, and upon the request of the Company shall, promptly appoint a successor Authenticating Agent with respect to the applicable series eligible under this Section 6.14, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all holders of the applicable series of Securities as the names and addresses of such holders appear on the Securities register. Any successor Authenticating Agent with respect to all or any series upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities with respect to such series of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein.
The Trustee agrees to pay to any Authenticating Agent from time to time reasonable compensation for its services, and the Trustee shall be
60
entitled to be reimbursed for such payments. Any Authenticating Agent shall have no responsibility or liability for any action taken by it as such in accordance with the directions of the Trustee.
ARTICLE SEVEN.
CONCERNING THE SECURITYHOLDERS.
SECTION 7.01. Action by Securityholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Securities of any or all series may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of such holders of Securities voting in favor thereof at any meeting of such Securityholders duly called and held in accordance with the provisions of Article Eight, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Securityholders.
SECTION 7.02. Proof of Execution by Securityholders. Subject to the provisions of Section 6.01, 6.02 and 8.05, proof of the execution of any instrument by a Securityholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Securities shall be proved by the Securities register or by a certificate of the Securities registrar.
The record of any Securityholders' meeting shall be proved in the manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners. The Trustee, any Authenticating Agent, any paying agent, any transfer agent and any Securities registrar may deem the person in whose name such Security shall be registered upon the Securities register to be, and may treat him as, the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notation of ownership or other writing
61
thereon) for the purpose of receiving payment of or on account of the principal of, premium, if any, and any interest on such Security and for all other purposes; and neither the Company nor the Trustee nor any Authenticating Agent nor any paying agent nor any transfer agent nor any Securities registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being or upon his order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Security.
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding. In determining whether the holders of the requisite aggregate principal amount of Securities have concurred in any direction, consent or waiver under this Indenture, Securities which are owned by the Company or any other obligor on the Securities or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Securities shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Securities which a Responsible Officer of the Trustee knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 7.04 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Securities and that the pledgee is not the Company or any such other obligor or person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of any of the above-described persons; and, subject to the provisions of
Section 6.01, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are outstanding for the purpose of any such determination.
SECTION 7.05. Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in
62
connection with such action, any holder of a Security (or any Security issued in whole or in part in exchange or substitution therefor) who consented to such action may, by filing written notice with the Trustee at its principal office and upon proof of holding as provided in Section 7.02, revoke such action so far as concerns such Security (or so far as concerns the principal amount represented by any exchanged or substituted Security). Except as aforesaid any such action taken by the holder of any Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Security, and of any Security issued in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon such Security or any Security issued in exchange or substitution therefor. Any action taken by the holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Securities.
ARTICLE EIGHT.
SECURITYHOLDERS' MEETINGS.
SECTION 8.01. Purpose of Meetings. A meeting of Securityholders, of any or all series may be called at any time and from time to time pursuant to the provisions of this Article Eight for any of the following purposes:
(a) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article Five;
(b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article Six;
(c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.02; or
(d) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of such Securities under any other provisions of this Indenture or under applicable law.
63
SECTION 8.02. Call of Meetings by Trustee. The Trustee may at any time call a meeting of Securityholders of any or all series to take any action specified in Section 8.01, to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of the Securityholders of any or all series, setting forth the record date, time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to holders of Securities of each series affected at their addresses as they shall appear on the Securities register of each series affected. Such notice shall be mailed not less than 20 nor more than 90 days prior to the date fixed for the meeting.
SECTION 8.03. Call of Meetings by Company or Securityholders. In case at any time the Company pursuant to a resolution of the Board of Directors, or the holders of at least 10% in aggregate principal amount of the Securities of any or all series, as the case may be, then outstanding, shall have requested the Trustee to call a meeting of Securityholders of any or all series, as the case may be, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or such Securityholders may determine the time and the place in said Borough of Manhattan for such meeting and may call such meeting to take any action authorized in Section 8.01, by mailing notice thereof as provided in
Section 8.02.
SECTION 8.04. Qualifications for Voting. To be entitled to vote at any meeting of Securityholders a Person shall (a) be a holder of one or more Securities with respect to which the meeting is being held or (b) a Person appointed by an instrument in writing as proxy by such a holder of one or more such Securities. The only Persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
SECTION 8.05. Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Securities and of the appointments of proxies, and in regard to
64
the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 8.03, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote of the meeting.
Subject to the provisions of Section 7.04, at any meeting each holder of Securities with respect to which such meeting is being held or proxy therefor shall be entitled to one vote for each $1,000 principal amount (in the case of Original Issue Discount Securities, such principal amount to be determined as provided in the definition "outstanding") of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Securityholders. At any meeting of Securityholders, the presence of Persons holding or representing Securities in an aggregate principal amount sufficient to take action on the business for the transaction of which such meeting was called shall constitute a quorum, but, if less than a quorum is present, the Persons holding or representing a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote may adjourn such meeting with the same effect, for all intents and purposes, as though a quorum had been present. Any meeting of Securityholders duly called pursuant to the provisions of Section 8.02 or 8.03 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice.
SECTION 8.06. Voting. The vote upon any resolution submitted to any meeting of holders of Securities with respect to which such meeting is being held shall be by written ballots on which shall be subscribed the signatures
65
of such holders or of their representatives by proxy and the serial number or numbers of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 8.02. The record shall show the serial numbers of the Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the matters therein stated.
ARTICLE NINE.
SUPPLEMENTAL INDENTURES.
SECTION 9.01. Supplemental Indentures Without Consent of Securityholders. The Company, when authorized by a resolution of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes:
(a) to evidence the succession of another corporation to the Company, or successive succession, and the assumption by the sucessor corporation of the covenants, agreements and obligations of the Company pursuant to Article Ten hereof;
(b) to add to the covenants of the Company such further covenants, restrictions or conditions for the protection of the holders of
66
all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities stating that such covenants are expressly being included for the benefit of such series) as the Board of Directors and the Trustee shall consider to be for the protection of the holders of such Securities, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default;
(c) to provide for the issuance under this Indenture of Securities in coupon form (including Securities registrable as to principal only) and to provide for exchangeability of such Securities with the Securities issued hereunder in fully registered form and to make all appropriate changes for such purpose;
(d) to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Securities any property or assets which the Company may desire or may be required to convey, transfer, assign, mortgage or pledge in accordance with the provisions of Section 3.05 or Section 10.03;
(e) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make other provisions in regard to matters or questions arising under this Indenture or to make any other changes hereto; provided that any such action shall not adversely affect the interests of the holders of the Securities;
(f) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 2.03; and
(g) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Securities of one or
67
more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Section 6.11.
The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties, obligations or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 9.01 may be executed by the Company and the Trustee without the consent of the holders of any of the Securities at the time outstanding, notwithstanding any of the provisions of Section 9.02.
SECTION 9.02. Supplemental Indentures with Consent of Securityholders. With the consent (evidenced as provided in Section 7.01) of the holders of not less than 66 2/3% in aggregate principal amount of the Securities at the time outstanding of all series affected by such supplemental indenture (voting as a class), the Company, when authorized by a resolution of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Securities of each series so affected; provided, however, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest or premium thereon payable in any coin or currency other than that provided in the Securities, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 5.01 or the amount thereof provable in bankruptcy pursuant to Section 5.02, or impair or affect the right of any Securityholder to institute suit for payment thereof or the right of repay-
68
ment, if any, at the option of the holder, without the consent of the holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities the holders of which are required to act pursuant to Section 5.07 or to consent to any such supplemental indenture, without the consent of the holders of each Security affected.
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of Securityholders of such series with respect to such covenant or provision, shall be deemed not to affect the rights under this Indenture of the Securityholders of any other series.
Upon the request of the Company accompanied by a copy of a resolution of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under this
Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance hereof.
SECTION 9.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures. Any supplemental indenture executed pursuant to the provisions of this Article Nine shall comply with the Trust Indenture Act of 1939, as then in effect. Upon the execution of any supplemental indenture pursuant to the provisions of this Article Nine, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Securities of each series affected thereby shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.
69
SECTION 9.04. Notation on Securities. Securities of any series authenti- cated and delivered after the execution of any supplemental indenture affecting such series pursuant to the provisions of this Article Nine may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company, authenticated by the Trustee or the Authenticating Agent and delivered in exchange for the Securities of any series then outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be Furnished Trustee. The Trustee, subject to the provisions of Sections 6.01 and 6.02, may receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article Nine.
ARTICLE TEN.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE BY THE COMPANY.
SECTION 10.01. Consolidations and Mergers of Company and Conveyances Permitted Subject to Certain Conditions. Subject to the provisions of Section 10.03, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other corporation or corporations, or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties or shall prevent any sale or conveyance of all or substantially all of the property of the Company to any other corporation authorized to acquire and operate the same; provided, that in any such case, (i) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) shall be a corporation organized and existing under the laws of the United States of America or a State thereof and such corporation shall expressly assume the due and punctual payment of the principal of, and premium, if any, and interest on all the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture satisfactory to the
70
Trustee, executed and delivered to the Trustee by such corporation, and (ii) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition and shall not immediately thereafter have outstanding any secured Debt (as defined in Section 3.05) not expressly permitted by the provisions of Section 3.05 unless the provisions of Section 10.03 shall previously have been complied with.
SECTION 10.02. Successor Corporation to be Substituted for Company. In case of any such consolidation, merger, sale or conveyance (other than a conveyance by way of lease) and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the Company thereupon shall be relieved of any further liability or obligation hereunder or upon the Securities and may thereupon or at any time thereafter be dissolved, wound up or liquidated. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Masco Corporation, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee or the Authenticating Agent; and, upon the order of such successor corporation (instead of the Company) and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee or the Authenticating Agent for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale or conveyance, such change in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate.
71
SECTION 10.03. Securities to be Secured in Certain Events. If, upon any such consolidation or merger of the Company with or into any other corporation, or upon any sale or conveyance of the property of the Company as an entirety or substantially as an entirety to any other corporation, any Principal Property or any shares of stock or indebtedness of any Consolidated Subsidiary owning any Principal Property owned immediately prior thereto would thereupon become subject to any mortgage (as defined in Section 3.05), unless the Company could create such mortgage pursuant to Section 3.05 without equally and ratably securing the Securities, the Company, prior to or simultaneously with such consolidation, merger, sale or conveyance, will secure the Securities outstanding hereunder, equally and ratably with any other obligation of the Company or any such Subsidiary then entitled thereto, prior to the Debt (as defined in Section 3.05) secured by such mortgage.
SECTION 10.04. Evidence to be Furnished Trustee. The Trustee, subject to the provisions of Sections 6.01 and 6.02, may receive and rely upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale or conveyance, and any such assumption complies with the provisions of this Article Ten.
ARTICLE ELEVEN.
SATISFACTION AND DISCHARGE OF INDENTURE.
SECTION 11.01. Discharge of Indenture. When (a) the Company shall have paid or caused to be paid the principal of and interest on all Securities of any series outstanding hereunder, as and when the same shall have become due and payable, (b) the Company shall deliver to the Trustee for cancellation all Securities of any series theretofore authenticated (other than any Securities of such series which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.08) and not theretofore cancelled, or (c) with respect to any series of Securities which, under the terms specified in the resolution or supplemental indenture or indentures referred to in Section 2.03, pursuant to which such series is created, can be discharged prior to maturity, the Company shall deposit with the Trustee, in trust, cash and/or a principal amount of obligations of or directly guaranteed by the United States of America maturing or redeem-
72
able at the option of the holder thereof not later than the date fixed for payment or redemption of all outstanding Securities of such series which, together with the income to be earned on such obligations prior to such date, equals the principal amount of (and any applicable premium on) all such Securities of such series not theretofore cancelled or delivered to the Trustee for cancellation, with interest to the date of their maturity or redemption, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of, or premium, if any, or interest on the Securities of such series (1) theretofore repaid to the Company in accordance with the provisions of Section 11.04, or (2) paid to any State or to the District of Columbia pursuant to its unclaimed property or similar laws, and if in any such case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then (except in the case of (c) above as to (i) rights of registration of transfer and exchange and any right of the Company of optional redemption and to deliver Securities of such series to the Trustee for cancellation, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Securities, (iii) the rights, obligations and immunities of the Trustee hereunder and (iv) the rights of the Securityholders as beneficiaries hereof with respect to the property so deposited with the Trustee, all of which shall continue in full force and effect) all of the Company's liability with respect to principal, premium, if any, and interest on the Securities of such series shall be discharged, this Indenture shall cease to be of further effect as to such series, and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture as to such series, the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Securities; provided, however, that the rights of Securityholders to receive amounts in respect of principal of and interest on the Securities held by them shall not be delayed longer than required by then-applicable mandatory rules or policies of any securities exchange if the Securities of such series continue to be listed. Notwithstanding the foregoing, if the Company makes a deposit of cash and/or obligations described in clause
(c) above with respect to any series of Securities which, under the terms specified in the resolution or supplemental indenture or indentures referred to in Section 2.03, pursuant to which such series is created, is subject to the provisions of this sentence
73
(whether or not such resolution or supplemental indenture provides that such series can be discharged prior to maturity under clause (c) above), and, concurrently with such deposit, notifies the Trustee that such series shall no longer have the benefit of all or any portion of the provisions of Article Five,
Section 3.05 and Section 3.06 of this Indenture and such other provisions of this Indenture or the resolution or supplemental indenture, pursuant to which such series is created, as are specifically permitted in such resolution or supplemental indenture to be made inapplicable under this sentence with respect to such series, this Indenture and such supplemental indenture or resolution shall thereupon be deemed amended with respect to such series solely by the deletion in their entirety of such provisions and this Indenture and such supplemental indenture or resolution shall in all other respects be unaffected thereby.
SECTION 11.02. Deposited Moneys to be Held in Trust by Trustee. Subject to the provisions of Section 11.04, all moneys and obligations deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Securities for the payment of which such moneys and obligations have been deposited with the Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest, if any; provided, however, that the Company shall be entitled from time to time to withdraw cash and/or obligations deposited under clause (c) or the last sentence of Section 11.01 provided that the cash and obligations thereafter on deposit and after giving effect to such withdrawal would, if then deposited under such clause, satisfy in all respects the requirements of such clause or the last last sentence of Section 11.01. At the time of any such withdrawal, the Company shall deliver to the Trustee an Officers' Certificate demonstrating compliance with the provisions of such clause or sentence.
SECTION 11.03. Paying Agent to Repay Moneys Held. Upon the satisfaction and discharge-of this Indenture all moneys then held by any paying agent of the Securities (other than the Trustee) shall, upon demand of the Company, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such moneys.
74
SECTION 11.04. Return of Unclaimed Moneys. Except as may be required under applicable law, any moneys deposited with or paid to the Trustee or any paying agent for payment of the principal of, and premium, if any, or interest, if any, on Securities and not applied but remaining unclaimed by the holders of Securities for two years after the date upon which the principal of, and premium, if any, or interest, if any, on such Securities, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee or such paying agent; and the holder of any of the Securities shall thereafter look only to the Company for any payment which such holder may be entitled to collect and all liability of the Trustee or such paying agent with respect to such moneys shall thereupon cease.
ARTICLE TWELVE.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS.
SECTION 12.01. Indenture and Securities Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest, if any, on any Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture, or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation of the Company, either directly or through the Company or any successor corporation of the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities.
ARTICLE THIRTEEN.
MISCELLANEOUS PROVISIONS.
SECTION 13.01. Successors. All the covenants, stipulations, promises and agreements in this Indenture contained by the Company shall bind its successors and assigns whether so expressed or not.
75
SECTION 13.02. Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company.
SECTION 13.03. Addresses for Notices, etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Securities on the Company may be given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee for the purpose) to Masco Corporation, 21001 Van Born Road, Taylor, Michigan 48180, Attention: President. Any notice, direction, request or demand by any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the office of the Trustee, 30 West Broadway, New York, N. Y. 10015, addressed to the attention of the Corporate Trust Department.
SECTION 13.04. New York Contract. This Indenture and each Security shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State.
SECTION 13.05. Evidence of Compliance with Conditions Precedent. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that in the opinion of the signers all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.
Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture (other than the Officers' Certificate called for by Section 3.07) shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation
76
upon which the statements or opinions contained in such certificate or opinions are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.
SECTION 13.06. Legal Holidays. In any case where the date of payment of interest on or principal of or premium, if any, on the Securities will be in The City of New York, New York a legal holiday or a day on which banking institutions are authorized by law to close, the payment of such interest on or principal of or premium, if any, on the Securities need not be made on such date but may be made on the next succeeding day not in such City a legal holiday or a day on which banking institutions are authorized by law to close, with the same force and effect as if made on the date of payment and no interest shall accrue for the period from and after such date.
SECTION 13.07. Trust Indenture Act to Control. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required to be included in this Indenture by any of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, such required provision shall control.
SECTION 13.08. Table Of Contents, Headings, etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.
SECTION 13.09. Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
SECTION 13.10. No Security Interest Created. Nothing in this Indenture or in the Securities, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction where property of the Company or its Subsidiaries is located.
77
ARTICLE FOURTEEN.
REDEMPTION OF SECURITIES-MANDATORY AND
OPTIONAL SINKING FUND.
SECTION 14.01. Applicability of Article. The provisions of this Article shall be applicable to the Securities of any series which are redeemable at the option of the Company before their maturity or to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 2.03 for Securities of such series.
SECTION 14.02. Notice of Redemption; Selection of Securities. In case the Company shall desire to exercise the right to redeem all, or, as the case may be, any part of the Securities of any series in accordance with their terms, it shall fix a date for redemption and shall mail a notice of such redemption at least 30 and not more than 60 days prior to the date fixed for redemption to the holders of Securities of such series so to be redeemed as a whole or in part at their last addresses as the same appear on the Securities register. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Security of a series designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security of such series.
Each such notice of redemption shall specify the date fixed for redemption, the redemption price at which Securities of such series are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Securities, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. If less than all the Securities of such series are to be redeemed the notice of redemption shall specify the numbers of the Securities of that series to be redeemed. In case any Security of a series is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Security, a new Security or Securities of that series in principal amount equal to the unredeemed portion thereof will be issued.
78
Prior to the redemption date specified in the notice of redemption given as provided in this Section, the Company will deposit with the Trustee or with one or more paying agents an amount of money sufficient to redeem on the redemption date all the Securities so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption.
If less than all the Securities of a series are to be redeemed the Company will give the Trustee notice not less than 60 days prior to the redemption date as to the aggregate principal amount of Securities of that series to be redeemed and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Securities of that series or portions thereof (in integral multiples of $1,000, except as otherwise set forth in the applicable form of Security) to be redeemed.
SECTION 14.03. Payment of Securities Called for Redemption. If notice of redemption has been given as provided in Section 14.02 or Section 14.04, the Securities or portions of Securities of the series with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption (unless such date is an interest payment date, in which case such accrued interest shall be paid to the holders of record on the relevant record date, and no such accrued interest shall be paid with the redemption price), and on and after said date (unless the Company shall default in the payment of such Securities at the redemption price, together with interest accrued to said date) interest on the Securities or portions of Securities of any series so called for redemption shall cease to accrue. On presentation and surrender of such Securities at a place of payment specified in said notice, the said Securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption (unless such date is an interest payment date, in which case such accrued interest shall be paid to the holders of record on the relevant record date, and no such accrued interest shall be paid with the redemption price).
Upon presentation of any Security of any series redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the holder thereof, at the expense of the Company, a new Security or
79
Securities of such series of authorized denominations, in principal amount equal to the unredeemed portion of the Security so presented.
SECTION 14.04. Mandatory and Optional Sinking Fund. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "optional sinking fund payment". The last date on which any such payment may be made is herein referred to as a "sinking fund payment date".
In lieu of making all or any part of any mandatory sinking fund payment with respect to any Securities of a series in cash, the Company may at its option (a) deliver to the Trustee Securities of that series (other than any previously called for redemption) theretofore purchased or otherwise acquired by the Company and (b) may apply as a credit Securities of that series which have been previously delivered to the Trustee by the Company or Securities of that series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of optional sinking fund payments pursuant to the next succeeding paragraph, in each case in satisfaction of all or any part of any mandatory sinking fund payment, provided that such Securities have not been previously so credited. Each such Security so delivered or applied as a credit shall be credited at the sinking fund redemption price for such Securities and the amount of any mandatory sinking fund shall be reduced accordingly. If the Company intends so to deliver or credit such Securities with respect to any mandatory sinking fund payment it shall deliver to the Trustee at least 60 days prior to the next succeeding sinking fund payment date for such series (a) a certificate signed by the Treasurer or an Assistant Treasurer of the Company specifying the portion of such sinking fund payment, if any, to be satisfied by payment of cash and the portion of such sinking fund payment, if any, which is to be satisfied by delivering and crediting such Securities and (b) any Securities to be so delivered if not previously delivered. All Securities so delivered to the Trustee shall be cancelled by the Trustee and no Securities shall be authenticated in lieu thereof. If the Company fails to deliver such certificate and Securities at or before the time provided above, the Company shall not be permitted to satisfy any portion of such mandatory sinking fund payment by delivery or credit of Securities.
80
At its option the Company may pay into the sinking fund for the retirement of Securities of any particular series, on or before each sinking fund payment date for such series, any additional sum in cash as specified by the terms of such series of Securities. If the Company intends to exercise its right to make any such optional sinking fund payment, it shall deliver to the Trustee at least 60 days prior to the next succeeding sinking fund payment date for such Series a certificate signed by the Treasurer or an Assistant Treasurer of the Company stating that the Company intends to exercise such optional right and specifying the amount which the Company intends to pay on such sinking fund payment date. If the Company fails to deliver such certificate at or before the time provided above, the Company shall not be permitted to make any optional sinking fund payment with respect to such sinking fund payment date. To the extent that such right is not exercised in any year it shall not be cumulative or carried forward to any subsequent year.
If the sinking fund payment or payments (mandatory or optional) made in cash plus any unused balance of any preceding sinking fund payments made in cash shall exceed $50,000 (or a lesser sum if the Company shall so request) with respect to the Securities of any particular series, it shall be applied by the Trustee or one or more paying agents on the next succeeding sinking fund payment date to the redemption of Securities of such series at the sinking fund redemption price together with accrued interest to the date fixed for redemption. The Trustee shall select, in the manner provided in Section 14.02, for redemption on such sinking fund payment date a sufficient principal amount of Securities of such series to absorb said cash, as nearly as may be, and the Trustee shall, at the expense and in the name of the Company, thereupon cause notice of redemption of Securities of such series to be given in substantially the manner and with the effect provided in Sections 14.02 and 14.03 for the redemption of Securities of that series in part at the option of the Company, except that the notice of redemption shall also state that the Securities of such series are being redeemed for the sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee or any paying agent to the redemption of Securities of that series shall be added to the next cash sinking fund payment received by the Trustee or such paying agent and, together with such payment, shall be applied in accordance with the provisions of this Section
14.04. Any and all sinking fund moneys held by the Trustee or any paying agent on the maturity date of the securities of any particular series, and not held for the payment or redemption of particular Securities of such series, shall be applied by the Trustee or such paying agent, together with other moneys, if
81
necessary, to be deposited sufficient for the purpose, to the payment of the principal of the Securities of that series at maturity.
On or before each sinking fund payment date, the Company shall pay to the Trustee or to one or more paying agents in cash a sum equal to all interest accrued to the date fixed for redemption on Securities to be redeemed on the next following sinking fund payment date pursuant to this Section.
Neither the Trustee nor any paying agent shall redeem any Securities of a series with sinking fund moneys, and the Trustee shall not mail any notice of redemption of Securities of such series by operation of the sinking fund, during the continuance of a default in payment of interest on such Securities or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph) with respect to such Securities, except that if the notice of redemption of any Securities shall theretofore have been mailed in accordance with the provisions hereof, the Trustee or any paying agent shall redeem such Securities if cash sufficient for that purpose shall be deposited with the Trustee or such paying agent for that purpose in accordance with the terms of this Article Fourteen. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such default or Event of Default shall occur and any moneys thereafter paid into the sinking fund shall, during the continuance of such default or Event of Default, be held as security for the payment of all Securities of such series; provided, however, that in case such Event of Default or default shall have been cured or waived as provided herein, such moneys shall thereafter be applied on the next succeeding sinking fund payment date on which such moneys may be applied pursuant to the provisions of this Section 14.04.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth.
82
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers thereunto duly authorized and their respective corporate seals to be hereunto duly affixed and attested, all as of the day and year first above written.
MASCO CORPORATION
Company
By RICHARD G. MOSTELLER
 Senior Vice President-Finance
[CORPORATE SEAL]
Attest:
JOHN R. LEEKLEY
 Assistant Secretary
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
Trustee
By J. N. CREAN

Trust Officer J. N. Crean 
[CORPORATE SEAL]
Attest:
G. J. CASTELLANO

Assistant Trust Officer
G. J. Castellano
83
STATE OF MICHIGAN ) SS.:
COUNTY OF WAYNE )
On the 20th day of November, 1985, before me personally came Richard G. Mosteller, to me known, who, being by me duly sworn, did depose and say that he resides at 531 Brentwood Dr., Dearborn, Mi.; that he is Senior Vice President-Finance of MASCO CORPORATION, the corporation described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority.
DIANE G. SALESKI
 Notary Public
DIANE G. SALESKI

                                 Notary Public, Wayne County, Mi.
                                My Commission Expires May 18, 1986
[NOTARIAL SEAL]

STATE OF NEW YORK   )   SS.:
COUNTY OF NEW YORK  )	

On the 21st day of November, 1985, before me personally came J. N. Crean, to me known, who, being by me duly sworn, did depose and say that he resides at 837 Franklin Turnpike, Allendale, N.J. 07401; that he is a Trust Officer of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority.
KAM LAW
 Notary Public
KAM LAW
 Notary Public, State of New York
No. 4823386
Qualified in New York County
My Commission Expires March 30, 1987
[NOTARIAL SEAL]

Exhibit 4.b.i
 
MASCO CORPORATION,
Issuer
AND
BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION
Trustee
 
Indenture
Dated as of February 12, 2001

   

 

Reconciliation and tie 1 between Trust Indenture Act of 1939, as amended, and
Indenture, dated as of February 12, 2001
between
Masco Corporation, Issuer
and
Bank One Trust Company, NA, Trustee
 	 	 	
Trust Indenture	 	Indenture	
Act Section	 	Section	
§ 310(a)(1)	 	6.09	
(a)(2)	 	6.09	
(a)(3)	 	Not Applicable	
(a)(4)	 	Not Applicable	
(b)	 	6.08	
 	 	6.10	
§ 311(a)	 	6.13	
(b)	 	6.13	
(b)(2)	 	7.03(a)(ii)	
 	 	 	
§ 312(a)	 	7.01	
 	 	7.02(a)	
(b)	 	7.02(b)	
(c)	 	7.02(c)	
§ 313(a)	 	7.03(a)	
(b)	 	7.03(b)	
(c)	 	7.03(a), 7.03(b)	
(d)	 	7.03(c)	
§ 314(a)	 	7.04	
(b)	 	Not Applicable	
(c)(1)	 	1.02	
(c)(2)	 	1.02	
(c)(3)	 	Not Applicable	
(d)	 	Not Applicable	
(e)	 	1.02	
§ 315 (a)	 	6.01(a)(i)	

1	 	NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.	
 2 

 

TABLE OF CONTENTS
 	 	 	 	 	
 	 	Page	
Article 1	 	 	 	 	
Definitions and Other Provisions	 	 	 	 	
 	 	 	 	 	
Section 1.01 Definitions For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:	 	 	1	 	
Section 1.02. Compliance Certificates And Opinions	 	 	8	 	
Section 1.03. Form Of Documents Delivered To Trustee	 	 	9	 	
Section 1.04. Acts Of Holders	 	 	9	 	
Section 1.05. Notices, Etc.	 	 	10	 	
Section 1.06. Notice To Holders; Waiver	 	 	11	 	
Section 1.07. Conflict With Trust Indenture Act	 	 	11	 	
Section 1.08. Effect Of Headings And Table Of Contents	 	 	11	 	
Section 1.09. Successors And Assigns	 	 	11	 	
Section 1.10. Separability Clause	 	 	12	 	
Section 1.11. Benefits Of Indenture	 	 	12	 	
Section 1.12. Governing Law	 	 	12	 	
Section 1.13. Legal Holidays	 	 	12	 	
Section 1.14. Counterparts	 	 	12	 	
 	 	 	 	 	
Article 2	 	 	 	 	
Security Forms	 	 	 	 	
 	 	 	 	 	
Section 2.01. Forms Generally	 	 	12	 	
Section 2.02. Securities In Permanent Global Form	 	 	13	 	
 	 	 	 	 	
Article 3	 	 	 	 	
The Securities	 	 	 	 	
 	 	 	 	 	
Section 3.01. Amount Unlimited; Issuable In Series	 	 	14	 	
Section 3.02. Denominations	 	 	17	 	
Section 3.03. Execution, Authentication, Delivery And Dating	 	 	17	 	
Section 3.04. Temporary Securities	 	 	20	 	
Section 3.05. Registration, Registration Of Transfer And Exchange	 	 	20	 	
Section 3.06. Mutilated, Destroyed, Lost And Stolen Securities	 	 	23	 	
Section 3.07. Payment Of Interest; Interest Rights Preserved	 	 	24	 	
Section 3.08. Persons Deemed Owners	 	 	25	 	
Section 3.09. Cancellation	 	 	25	 	
Section 3.10. Computation Of Interest	 	 	26	 	
 	 	 	 	 	
Article 4	 	 	 	 	
Satisfaction and Discharge	 	 	 	 	
 	 	 	 	 	
Section 4.01. Satisfaction And Discharge Of Indenture	 	 	26	 	
Section 4.02. Defeasance Of Securities Of Any Series	 	 	27	 	

 

 	 	 	 	 	
 	 	Page	
Section 4.03. Application Of Trust Funds; Indemnification	 	 	29	 	
Section 4.04. Reinstatement	 	 	30	 	
 	 	 	 	 	
Article 5	 	 	 	 	
Remedies	 	 	 	 	
 	 	 	 	 	
Section 5.01. Events Of Default	 	 	30	 	
Section 5.02. Acceleration Of Maturity; Rescission And Annulment	 	 	31	 	
Section 5.03. Collection Of Indebtedness And Suits For Enforcement By Trustee	 	 	32	 	
Section 5.04. Trustee May File Proofs Of Claim	 	 	33	 	
Section 5.05. Trustee May Enforce Claims Without Possession Of Securities	 	 	34	 	
Section 5.06. Application Of Money Collected	 	 	34	 	
Section 5.07. Limitation On Suits	 	 	35	 	
Section 5.08. Unconditional Right Of Holders To Receive Principal, Premium And Interest	 	 	35	 	
Section 5.09. Restoration Of Rights And Remedies	 	 	35	 	
Section 5.10. Rights And Remedies Cumulative	 	 	36	 	
Section 5.11. Delay Or Omission Not Waiver	 	 	36	 	
Section 5.12. Control By Holders	 	 	36	 	
Section 5.13. Waiver Of Past Defaults	 	 	36	 	
Section 5.14. Undertaking For Costs	 	 	37	 	
Section 5.15. Waiver Of Usury, Stay Or Extension Law	 	 	37	 	
 	 	 	 	 	
Article 6	 	 	 	 	
The Trustee	 	 	 	 	
 	 	 	 	 	
Section 6.01. Certain Duties And Responsibilities	 	 	38	 	
Section 6.02. Notice Of Defaults	 	 	39	 	
Section 6.03. Certain Rights Of Trustee	 	 	39	 	
Section 6.04. Not Responsible For Recitals Or Issuance Of Securities	 	 	40	 	
Section 6.05. May Hold Securities	 	 	40	 	
Section 6.06. Money Held In Trust	 	 	41	 	
Section 6.07. Compensation And Reimbursement	 	 	41	 	
Section 6.08. Disqualification; Conflicting Interest	 	 	41	 	
Section 6.09. Corporate Trustee Required; Eligibility	 	 	42	 	
Section 6.10. Resignation And Removal; Appointment Of Successor	 	 	42	 	
Section 6.11. Acceptance Of Appointment By Successor	 	 	43	 	
Section 6.12. Merger, Conversion, Consolidation Or Succession To Business	 	 	44	 	
Section 6.13. Preferential Collection Of Claims	 	 	45	 	
Section 6.14. Appointment Of Authenticating Agent	 	 	45	 	
 	 	 	 	 	
Article 7	 	 	 	 	
Holders’ List And Reports By Trustee And Company	 	 	 	 	
 	 	 	 	 	
Section 7.01. Company To Furnish Trustee Names And Addresses Of Holders	 	 	47	 	
Section 7.02. Preservation Of Information; Communications To Holders	 	 	47	 	
Section 7.03. Reports By Trustee	 	 	48	 	
Section 7.04. Reports By Company	 	 	50	 	
 ii 

 

 	 	 	 	 	
 	 	Page	
Article 8	 	 	 	 	
Consolidation, Merger, Conveyance, Transfer Or Lease	 	 	 	 	
 	 	 	 	 	
Section 8.01. Company May Consolidate, Etc.	 	 	50	 	
Section 8.02. Successor Corporation To Be Substituted For Company	 	 	51	 	
Section 8.03. Securities To Be Secured In Certain Events	 	 	51	 	
Section 8.04. Evidence To Be Furnished To The Trustee	 	 	52	 	
 	 	 	 	 	
Article 9	 	 	 	 	
Supplemental Indentures	 	 	 	 	
 	 	 	 	 	
Section 9.01. Supplemental Indentures Without Consent Of Holders	 	 	52	 	
Section 9.02. Supplemental Indentures With Consent Of Holders	 	 	53	 	
Section 9.03. Execution Of Supplemental Indentures	 	 	54	 	
Section 9.04. Effect Of Supplemental Indentures	 	 	54	 	
Section 9.05. Conformity With Trust Indenture Act	 	 	54	 	
Section 9.06. Reference In Securities To Supplemental Indentures	 	 	54	 	
 	 	 	 	 	
Article 10	 	 	 	 	
Covenants	 	 	 	 	
 	 	 	 	 	
Section 10.01. Payment Of Principal, Premium And Interest	 	 	55	 	
Section 10.02. Maintenance Of Office Or Agency	 	 	55	 	
Section 10.03. Money For Securities Payments To Be Held In Trust	 	 	55	 	
Section 10.04. Limitations On Liens	 	 	57	 	
Section 10.05. Limitation On Sale And Leaseback	 	 	58	 	
Section 10.06. Defeasance Of Certain Obligations	 	 	59	 	
Section 10.07. Certificate Of Officers Of The Company	 	 	60	 	
 	 	 	 	 	
Article 11	 	 	 	 	
Redemption of Securities	 	 	 	 	
 	 	 	 	 	
Section 11.01. Applicability Of Article	 	 	61	 	
Section 11.02. Election To Redeem; Notice To Trustee	 	 	61	 	
Section 11.03. Selection By Trustee Of Securities To Be Redeemed	 	 	61	 	
Section 11.04. Notice Of Redemption	 	 	62	 	
Section 11.05. Deposit Of Redemption Price	 	 	62	 	
Section 11.06. Securities Payable On Redemption Date	 	 	63	 	
Section 11.07. Securities Redeemed In Part	 	 	63	 	
 	 	 	 	 	
Article 12	 	 	 	 	
Sinking Funds	 	 	 	 	
 	 	 	 	 	
Section 12.01. Applicability Of Article	 	 	63	 	
Section 12.02. Satisfaction Of Sinking Fund Payments With Securities	 	 	64	 	
Section 12.03. Redemption Of Securities For Sinking Fund	 	 	64	 	
 	 	 	 	 	
EXHIBIT A — FORM OF SECURITIES	 	 	A-1	 	
 iii 

 

     INDENTURE, dated as o February 12, 2001, between MASCO CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein called the “ Company ”), and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as Trustee (herein called the “ Trustee ”).
RECITALS OF THE COMPANY
     The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the “ Securities ”), to be issued in one or more series as in this Indenture provided.
     All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.
     NOW, THEREFORE, THIS INDENTURE WITNESSETH:
     For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows:
ARTICLE 1
Definitions and Other Provisions
     Section 1.01 Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
     (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
     (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
     (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and except as otherwise herein expressly provided, the term “ generally accepted accounting principles ” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and
     (d) the words “ herein ,” “ hereof ” and “ hereunder ” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
     Certain terms, used principally in Article 6, are defined in that Article.

 

     “ Act ,” when used with respect to any Holder, has the meaning specified in Section 1.04.
     “ Affiliate ” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
     “ Attributable Debt ” means in respect of a sale and leaseback arrangement, at the time of determination, the lesser of (x) the fair value of the property subject to such arrangement (as determined by the Board of Directors) or (y) the present value (discounted at the rate per annum equal to the interest borne by fixed-rate Securities or the Yield to Maturity at the time of issuance of any Original Issue Discount Securities determined on a weighted average basis compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended or may, at the option of the lessor, be extended) after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water and utility rates and similar charges. In the case of any such lease which may be terminated by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. Notwithstanding the foregoing, there shall not be deemed to be any Attributable Debt in respect of a sale and leaseback arrangement if (i) such arrangement involves property of a type to which Section 10.04 does not apply, (ii) the Company or a Consolidated Subsidiary would be entitled pursuant to the provisions of Section 10.04(a) to issue, assume or guarantee Debt (as defined in said Section 10.04(a)), secured by a mortgage upon the property involved in such arrangement without equally and ratably securing the Securities, or (iii) the greater of the proceeds of such arrangement or the fair market value of the property so leased has been applied or credited in accordance with clause (b) of Section 10.05.
     “ Authenticating Agent ” means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities.
     “ Board of Directors ” means either the board of directors of the Company or any duly authorized committee of that board.
     “ Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
 2 

 

     “ Business Day ,” when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law to close.
     “ Commission ” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
     “ Company ” means the Person named as the “Company” in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor corporation.
     “ Company Request ” or “ Company Order ” means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
     “ Consolidated Net Tangible Assets ” means the aggregate amount of assets (less applicable reserves) of the Company and its Consolidated Subsidiaries after deducting therefrom (a) all current liabilities (excluding any such liabilities deemed to be Funded Debt), (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, and (c) all investments in any Subsidiary other than a Consolidated Subsidiary, in all cases computed in accordance with generally accepted accounting principles and which under generally accepted accounting principles would appear on a consolidated balance sheet of the Company and its Consolidated Subsidiaries. For purposes of the foregoing, the term “investment in any Subsidiary other than a Consolidated Subsidiary” shall mean all evidences of indebtedness, capital stock, other securities, obligations or indebtedness of any Subsidiary other than a Consolidated Subsidiary owned or held by or owed to the Company or any Consolidated Subsidiary, except an evidence of indebtedness, an account receivable or an obligation or indebtedness on open account resulting directly from the sale of goods or merchandise or services for fair value in the ordinary course of business by the Company or the Consolidated Subsidiary to a Subsidiary other than a Consolidated Subsidiary.
     “ Consolidated Subsidiary ” means each Subsidiary other than any Subsidiary the accounts of which (i) are not required by generally accepted accounting principles to be consolidated with those of the Company for financial reporting purposes, (ii) were not consolidated with those of the Company in the Company’s then most recent annual report to stockholders and (iii) are not intended by the Company to be consolidated with those of the Company in its next annual report to stockholders; provided , however , that the term “Consolidated Subsidiary” shall not include (a) any Subsidiary which is principally engaged in (i) owning, leasing, dealing in or developing real property, or (ii) purchasing or financing accounts receivable, making loans, extending credit or other activities of a character conducted by a finance company or (b) any Subsidiary, substantially all of the
 3 

 

business, properties or assets of which were acquired after [date of Indenture] (by way of merger, consolidation, purchase or otherwise), unless the Board of Directors thereafter designates such Subsidiary a Consolidated Subsidiary.
     “ Corporate Trust Office ” means the office of the Trustee in Chicago, Illinois at which at any particular time corporate trust business shall be principally administered. At the date of execution of this Indenture the address of the Corporate Trust Office is Bank One Plaza, Suite IL1-0126, Chicago, IL 60670-0126.
     “ Corporation ” includes corporations, associations, companies and business trusts.
     “ Defaulted Interest ” has the meaning specified in Section 3.07.
     “ Depositary ” means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more permanent global Securities, the Person designated as Depositary by the Company pursuant to Section 3.01, which must be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and if at any time there is more than one such Person, “Depositary” as used with respect to the Securities of any such series shall mean the Depositary with respect to the Securities of that series.
     “ Event of Default ” has the meaning specified in Section 5.01.
     “ Funded Debt ” means all indebtedness having a maturity of more than 12 months from the date of the determination thereof or having a maturity of less than 12 months but by its terms being renewable or extendible at the option of the borrower beyond 12 months from the date of such determination (a) for money borrowed or (b) incurred in connection with the acquisition of any real or personal property, stock, debt or other assets (to the extent that any of the foregoing acquisition indebtedness is represented by any notes, bonds, debentures or similar evidences of indebtedness), and for the payment of which the Company or any Consolidated Subsidiary is directly or contingently liable, or which is secured by any property of the Company or any Consolidated Subsidiary.
     “ Holder ” means a Person in whose name a Security is registered in the Security Register.
     “ Indenture ” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01.
     “ Interest ,” when used with respect to an Original Issue Discount Security which by its terms bears interest only upon Maturity, means interest payable after Maturity.
     “ Interest Payment Date ,” when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
 4 

 

     “ Maturity ,” when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
     “ Officers’ Certificate ” means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee.
     “ Opinion of Counsel ” means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee.
     “ Original Issue Discount Security ” means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02.
     “ Outstanding ,” used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except :
     (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;
     (ii) Securities for whose payment or redemption (a) money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities or (b) U.S. Government Obligations as contemplated by Section 4.02 in the necessary amount have been theretofore deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09) in trust for the Holders of such Securities in accordance with Section 4.03; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made;
     (iii) Securities as to which defeasance has been effected pursuant to Section 4.02 and not reinstated pursuant to Section 4.04; and
     (iv) Securities which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;
      provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and
 5 

 

payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 5.02, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 3.01, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by Section 3.01, of the principal amount of such Security (or, in the case of a Security described in clause (A) or (B) of this paragraph, of the amount determined as provided in such clause), and (D) Securities owned by the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
     “ Partnership ” means any joint venture, partnership or participation by which the Company with one or more Persons forms a business arrangement to own or acquire tangible personal property for the purpose of financing such property and allocating rights to profits and liabilities for losses, and establishing obligations, among the Company and such Persons relating to such financing.
     “ Paying Agent ” means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company.
     “ Periodic Offering ” means an offering of Securities of a series from time to time, the specific terms of which Securities, including, without limitation, the rate or rates of interest, if any, thereon, the stated maturity or maturities thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Company or its agents upon the issuance of such Securities.
     “ Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
     “ Place of Payment ,” when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 3.01.
     “ Predecessor Security ” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under
 6 

 

Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
     “ Principal Property ” means any manufacturing plant, research or engineering facility owned or leased by the Company or any Consolidated Subsidiary which is located within the United States of America or Puerto Rico, except any such plant or facility which, in the opinion of the Board of Directors, is not of material importance to the total business conducted by the Company and its Consolidated Subsidiaries as an entirety.
     “ Redemption Date ,” when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
     “ Redemption Price ,” when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
     “ Regular Record Date ” for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01.
     “ Responsible Officer ,” when used with respect to the Trustee, means any officer within the Corporate Trustee Administration Department, including any vice president, any assistant secretary, any trust officer or assistant trust officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
     “ Securities ” has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.
     “ Security Register ” and “ Security Registrar ” have the respective meanings specified in Section 3.05.
     “ Special Record Date ” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07.
     “ Stated Maturity ,” when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
     “ Subsidiary ” means any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (excluding in the computation of such percentage stock of any class or classes of such corporation which has or might have voting power by reason of the happening of any contingency) is at the time owned by the
 7 

 

Company, or by one or more Subsidiaries, or by the Company and one or more Subsidiaries.
     “ Trustee ” means the Person named as the “ Trustee ” in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, “Trustee” as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series.
     “ Trust Indenture Act ” means the Trust Indenture Act of 1939, as amended, as in force on the date on which this instrument was executed provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “Trust Indenture Act” means, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended.
     “ U.S. Government Obligations ” means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligations or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt for any amount received by the custodian with respect to the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation.
     “ Vice President ,” when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”
     “ Yield to Maturity ” means the yield to maturity on a series of Securities, calculated at the time of issuance of such series of Securities, or if applicable, at the most recent redetermination of interest on such series and calculated in accordance with accepted financial practice.
     Section 1.02. Compliance Certificates And Opinions.
     Unless otherwise provided herein, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all
 8 

 

such conditions precedent, if any, have been complied with and, unless otherwise provided herein, no additional certificate or opinion need be furnished.
     Every certificate or opinion, other than the Officers’ Certificate called for by Section 10.07, with respect to compliance with a condition or covenant provided for in this Indenture shall include
     (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
     (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
     (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
     (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
     Section 1.03. Form Of Documents Delivered To Trustee.
     In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
     Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
     Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
     Section 1.04. Acts Of Holders.
 9 

 

     (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. If any Securities are denominated in coin or currency other than that of the United States, then for the purposes of determining whether the Holders of the requisite principal amount of Securities have taken any action with respect to the Securities of more than one series as herein described, the principal amount of such Securities shall be deemed to be that amount of United States dollars that could be obtained for such principal amount on the basis of the spot rate of exchange into United States dollars for the currency in which such Securities are denominated (as evidenced to the Trustee by an Officers’ Certificate) as of the date the taking of such action by the Holders of such requisite principal amount is evidenced to the Trustee as provided in the immediately preceding sentence. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “ Act ” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
     (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
     (c) The ownership of Securities shall be proved by the Security Register.
     (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
     Section 1.05. Notices, Etc., To Trustee And Company.
     Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
 10 

 

     (a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or at any other address previously furnished in writing to the Company and the Holders by the Trustee; or
     (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at 21001 Van Born Road, Taylor, Michigan 48180 or at any other address previously furnished in writing to the Trustee by the Company.
     Section 1.06. Notice To Holders; Waiver.
     Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
     In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
     Section 1.07. Conflict With Trust Indenture Act.
     If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control.
     Section 1.08. Effect Of Headings And Table Of Contents.
     The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
     Section 1.09. Successors And Assigns.
     All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
 11 

 

     Section 1.10. Separability Clause.
     In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
     Section 1.11. Benefits Of Indenture.
     Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the Parties hereto, any Authenticating Agent, any Paying Agent, any Securities Registrar and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.
     Section 1.12. Governing Law.
     This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York without regard to any conflicts of laws principles therein.
     Section 1.13. Legal Holidays.
     In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then, unless otherwise specified in such Security, payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
     Section 1.14. Counterparts.
     This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
ARTICLE 2
Security Forms
     Section 2.01. Forms Generally.
     The Securities of each series shall be in substantially the form set forth in Exhibit A, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any law
 12 

 

or any rules or regulations pursuant thereto, or with the rules of any securities exchange or to conform to general usage, all as may consistently herewith be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities.
     The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
     Section 2.02. Securities In Permanent Global Form.
     If the Company shall establish pursuant to Section 3.01 that the Securities of a series are to be issued in whole or in part in permanent global form, then notwithstanding Section 3.01(g) and the provisions of Section 3.02, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced or increased to reflect exchanges. Any endorsement of a Security in permanent global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee or the Security Registrar in such manner and upon instructions given by such Person or Persons as shall be specified in such Security in permanent global form or in the Company Order to be delivered to the Trustee pursuant to Section 3.03 or . Subject to the provisions of Section 3.03 and, if applicable, Section 3.04, the Trustee or the Security Registrar shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified in such Security or in the applicable Company Order. If a Company Order pursuant to Section 3.03 or 3.04 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a global Security shall be in writing but need not comply with Section 1.02 and need not be accompanied by an Officers’ Certificate or an Opinion of Counsel, provided that the form of permanent global Security to be endorsed, delivered or redelivered has previously been covered by an Opinion of Counsel.
     The provisions of the last sentence of Section 3.03 shall only apply to any Security represented by a Security in permanent global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee or the Security Registrar the Security in permanent global form together with written instructions (which need not comply with Section 1.02 and need not be accompanied by an Officers’ Certificate or an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 3.03.
 13 

 

     Unless otherwise specified as contemplated by Section 3.01 for the Securities evidenced thereby, every Security in permanent global form authenticated and delivered hereunder shall bear a legend in substantially the following form:
     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF THE DEPOSITARY OR ITS NOMINEE AND ANY PAYMENT IS MADE TO THE DEPOSITARY OR ITS NOMINEE, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF HAS AN INTEREST HEREIN.
ARTICLE 3
The Securities
     Section 3.01. Amount Unlimited; Issuable In Series.
     The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. All Securities issued under this Indenture shall constitute unsecured and unsubordinated obligations of the Company and shall rank pari passu with all of the Company’s other unsecured and unsubordinated obligations.
     The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 3.03, set forth, or determined in the manner provided, in an Officers’ Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series
     (a) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);
     (b) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06 or 11.07 and except for any Securities which, pursuant to Section 3.03 of the Indenture, shall have not been issued and sold by the Company and are therefore deemed never to have been authenticated and delivered hereunder);
     (c) the date or dates on which the principal of the Securities of the series is payable;
     (d) the Person to whom any interest on any Security of the series shall be payable if other than as set forth in Section 3.07; the rate or rates at which any Securities of the series shall bear interest or the manner of calculation of such rate or rates, if any, the date or dates from which any such interest shall accrue, the Interest Payment Dates on
 14 

 

which any such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date;
     (e) the place or places where the principal of and any premium or interest on Securities of the series shall be payable;
     (f) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced;
     (g) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased in whole or in part, pursuant to such obligation;
     (h) if other than denominations of $1,000 and any multiple thereof, the denominations in which Securities of the series shall be issuable;
     (i) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02;
     (j) if applicable, that the Securities of the series, in whole or any specified part, shall be defeasible pursuant to Section 4.02 or Section 10.06 (and in the case of defeasance pursuant to Section 10.06, the negative or restrictive covenants that shall be subject to such defeasance) or both Sections and if other than by a Board Resolution, the manner in which any election by the Company to defease those securities shall be evidenced;
     (k) whether the Securities of the series are to be issuable in whole or in part in permanent global form, without coupons, and, if so, (i) the form of any legend or legends which shall be borne by any such permanent global Security in addition to or in lieu of that set forth in Section 2.02, (ii) any circumstances in addition to or in lieu of those set forth in Clause 3.05(a) in which such permanent global Security may be exchanged in whole or in part for Securities registered, and in which any transfer of such permanent global Security in whole or in part may be registered, in the name of Persons other than the Depositary for such permanent global Security or a nominee thereof and (iii) the Depositary with respect to any such permanent global Security or Securities;
     (l) the currency or currencies, including composite currencies, in which payment of the principal of, and any premium and interest on, the Securities of the series shall be payable if other than the currency of the United States of America;
     (m) if the principal of, or any premium or interest on, any Securities of the series is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than that or those in which such Securities are
 15 

 

stated to be payable, the currency, currencies or currency units in which the principal of or any premium or interest on such Securities as to which such election is made shall be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount shall be determined);
     (n) if the amount of payments of principal of, or any premium or interest on, the Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined;
     (o) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined);
     (p) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 5.01;
     (q) whether and under what circumstances the Company will pay additional amounts on the Securities of the series held by a person who is not a U.S. person in respect of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Company will have the option to redeem such Securities rather than pay such additional amounts;
     (r) any trustees, depositaries, authenticating or paying agents, transfer agents or registrars or any other agents with respect to the Securities of such series;
     (s) if the Securities of any series may be converted into or exchanged for stock or other securities or other property of the Company or other entities, the terms upon which such series may be converted or exchanged, any specific terms relating to the adjustment thereof and the period during which such Securities may be so converted or exchanged;
     (t) any addition to or change in the covenants set forth in Article 10 which applies to any Securities of the series; and
     (u) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 9.01(e)).
     All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 3.03) set forth in the Officers’
 16 

 

Certificate that established the form of the Securities of such series or in any such indenture supplemental hereto.
     All Securities of any one series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided in or pursuant to such Board Resolution, such Officers’ Certificate or in any such indenture supplemental hereto.
     If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers’ Certificate setting forth the terms of the series.
     Section 3.02. Denominations.
     The Securities of each series shall be issuable in registered form without coupons and, except for any Security issuable in permanent global form, in such denominations as shall be specified in accordance with . In the absence of such provisions with respect to the Securities of any series, the Securities of such series, other than a Security issuable in permanent global form, shall be issuable in denominations of $1,000 and any multiple thereof.
     Section 3.03. Execution, Authentication, Delivery And Dating.
     The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President, one of its Vice Presidents or its Treasurer, attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.
     Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
     At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with the applicable documents referred to below in this Section, and the Trustee shall thereupon authenticate and deliver such Securities to or upon the order of the Company (contained in the Company Order referred to below in this Section) or pursuant to such procedures acceptable to the Trustee and to such recipients as may be specified from time to time by a Company Order. The maturity date, original issue date, interest rate and any other terms of the Securities of such series shall be determined by or pursuant to such Company Order and procedures. If provided for in such procedures, such Company Order may authorize authentication and delivery pursuant to oral instructions from the Company or its duly authorized agent, which instructions shall be promptly confirmed in writing. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such
 17 

 

Securities, the Trustee shall be entitled to receive (in the case of subparagraphs 3.03(ii), 3.03(iii) and 3.03(iv) below, only at or before the time of the first request of the Company to the Trustee to authenticate Securities of such series) and (subject to Section 6.01) shall be fully protected in relying upon, unless and until such documents have been superseded or revoked:
     (i) a Company Order requesting such authentication and setting forth delivery instructions if the Securities are not to be delivered to the Company, provided that, with respect to Securities of a series subject to a Periodic Offering, (a) such Company Order may be delivered by the Company to the Trustee prior to the delivery to the Trustee of such Securities for authentication and delivery, (b) the Trustee shall authenticate and deliver Securities of such series for original issue from time to time, in an aggregate principal amount not exceeding the aggregate principal amount, if any, established for such series, pursuant to a Company Order or pursuant to procedures acceptable to the Trustee as may be specified from time to time by a Company Order, (c) the maturity date or dates, original issue date or dates, interest rate or rates and any other terms of Securities of such series shall be determined by a Company Order or pursuant to such procedures and (d) if provided for in such procedures, such Company Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Company or its duly authorized agent or agents, which oral instructions shall be promptly confirmed in writing;
     (ii) any Board Resolution, Officers’ Certificate and/or executed supplemental indenture referred to in Sections 2.01 and 3.01 by or pursuant to which the forms and terms of the Securities were established;
     (iii) an Officers’ Certificate setting forth the form or forms and (to the extent established) the terms of the Securities, stating that the form or forms and any such terms of the Securities have been established pursuant to Sections 2.01 and 3.01 and comply with this Indenture, and covering such other matters as the Trustee may reasonably request; and
     (iv) At the option of the Company, either an Opinion of Counsel, or a letter addressed to the Trustee permitting to it rely on an Opinion of Counsel, substantially to the effect that:
     (A) the forms of the Securities have been duly authorized and established in conformity with the provisions of this Indenture;
     (B) if all of the terms of the Securities of such series have been established, the terms of the Securities have been duly authorized by the Company and established in conformity with the provisions of this Indenture, and, in the case of all other offerings, certain terms of the Securities have been established pursuant to a Board Resolution, an Officers’ Certificate or a supplemental indenture in accordance with this Indenture, and when such other terms as are to be established pursuant to
 18 

 

procedures set forth in a Company Order shall have been established, all such terms will have been duly authorized by the Company and will have been established in conformity with the provisions of this Indenture;
     (C) when the Securities have been executed by the Company and authenticated by the Trustee in accordance with the provisions of this Indenture and delivered to and duly paid for by the purchasers thereof, they will have been duly issued under this Indenture and will be valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, and will be entitled to the benefits of this Indenture; and
     (D) the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Securities will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or, to the best of such counsel’s knowledge, any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, considered as one enterprise, or, to the best of such counsel’s knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval or authorization of any governmental body or agency is required for the performance by the Company of its obligations under the Securities, except such as are specified and have been obtained and such as may be required by the securities or blue sky laws of the various states in connection with the offer and sale of the Securities.
     In rendering such opinions, such counsel may qualify any opinions as to enforceability by stating that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium and other similar laws affecting the rights and remedies of creditors and is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Such counsel may rely upon opinions of other counsel (copies of which shall be delivered to the Trustee), who shall be counsel reasonably satisfactory to the Trustee, in which case the opinion shall state that such counsel believes he and the Trustee are entitled so to rely. Such counsel may also state that, insofar as such opinion involves factual matters, he has relied, to the extent he deems proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials.
     The Trustee shall have the right to decline to authenticate and deliver any Securities under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken by the Company or if the Trustee in good faith by its board of directors or board of trustees, executive committee, or a trust committee of directors or trustees or Responsible Officers shall determine that such action would expose the Trustee to personal liability to existing Holders or would affect the Trustee’s own rights, duties or immunities under the Securities, this Indenture or otherwise.
 19 

 

     Each Security shall be dated the date of its authentication. Unless otherwise specified as contemplated by Section 3.01 for any Security, interest on the each Security will accrue from the date of its authentication.
     No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture.
     Notwithstanding the foregoing and subject, in the case of a Security in permanent global form, to Section 2.02, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.09 together with a written statement (which need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel) directing such cancellation and stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
     Section 3.04. Temporary Securities.
     Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
     If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series and of like tenor of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
     Section 3.05. Registration, Registration Of Transfer And Exchange.
     The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the
 20 

 

Company in a Place of Payment being herein sometimes collectively referred to as the “ Security Register ”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and transfers of Securities. The Trustee is hereby appointed “ Security Registrar ” for the purpose of registering Securities and transfers of Securities as herein provided.
     Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees one or more new Securities of the same series of any authorized denominations and of a like aggregate principal amount and of like tenor.
     At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and of like tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
     All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
     Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
     No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
     The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.
     The provisions of Clauses (a) — (g) below shall apply only to permanent global Securities:
 21 

 

     (a) Each permanent global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such permanent global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such permanent global Security shall constitute a single Security for all purposes of this Indenture.
     (b) Notwithstanding any other provisions in this Indenture, no permanent global Security may be exchanged in whole or in part for Securities registered, and no transfer of a permanent global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such permanent global Security or a nominee thereof unless (i) the Depositary notifies the Company pursuant to Clause 3.05(c) of this Section that it is unwilling or unable to continue as Depositary for such permanent global Security or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, (ii) if the Company in its sole discretion determines pursuant to Clause 3.05(d) of this Section that such permanent global Security shall be so exchangeable or transferrable and executes and delivers to the Security Registrar a Company Order providing that such permanent global Security shall be so exchangeable or transferrable, (iii) any event shall have occurred and be continuing which, after notice or lapse of time, or both, would become an Event of Default with respect to the Securities of the series of which such permanent global Security is a part or (iv) there shall exist such circumstances, if any, in addition or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 3.01.
     (c) Subject to Clause 3.05(a) above, any exchange of a permanent global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a permanent global Security or any portion thereof shall be registered in such names as the Depositary for such permanent global Security shall direct. The Trustee shall deliver such Securities to or as directed by the Persons in whose names such Securities are so registered.
     (d) If at any time the Depositary for any Securities of a series represented by one or more global Securities notifies the Company that it is unwilling or unable to continue as Depositary for such Securities or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, the Company shall appoint a successor Depositary with respect to such Securities. If a successor Depositary for such Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility (and in any event before the Depositary surrenders such global Security for exchange), the Company’s election that such Securities be represented by one or more global Securities shall no longer be effective and the Company shall execute, and the Trustee, upon receipt of an Officers’ Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Securities of such series in definitive registered form without coupons, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the global Security or Securities representing such Securities in exchange for such global Security or Securities.
 22 

 

     (e) The Company may at any time and in its sole discretion determine that the Securities of any series issued in the form of one or more global Securities shall no longer be represented by a global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of an Officers’ Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver Securities of such series in definitive registered form, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the global Security or Securities representing such Securities, in exchange for such global Security or Securities.
     (f) Subject to Clause 3.05(a) above, with respect to Securities represented by a global Security, the Depositary for such global Security may surrender such global Security in exchange in whole or in part for Securities of the same series in definitive registered form on such terms as are acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee shall authenticate and deliver, without service charge,
     (i) to the Person specified by such Depositary a new Security or Securities of the same series, of any authorized denomination as requested by such Person, in an aggregate principal amount equal to and in exchange for such Person’s beneficial interest in the global Security; and
     (ii) to such Depositary a new global Security in a denomination equal to the difference, if any, between the principal amount of the surrendered global Security and the aggregate principal amount of Securities authenticated and delivered pursuant to clause 3.05(f)(i) above.
     Upon the exchange of a global Security for Securities in definitive registered form, in authorized denominations, such global Security shall be canceled by the Trustee.
     (g) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a permanent global Security or any portion thereof, whether pursuant to this Section, Section 3.04, 3.06, 9.06 or 11.07 or otherwise, shall be authenticated and delivered in the form of, and shall be, a permanent global Security, unless such Security is registered in the name of a Person other than the Depositary for such permanent global Security or a nominee thereof.
     Section 3.06. Mutilated, Destroyed, Lost And Stolen Securities.
     If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
     If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such
 23 

 

Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
     In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
     Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
     Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.
     The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
     Section 3.07. Payment Of Interest; Interest Rights Preserved.
     Unless otherwise provided as contemplated by Section 3.01 with respect to any Security, interest on such Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; provided that if that Security or its Predecessor Security was originally issued on a date after a Regular Record Date and before the following Interest Payment Date, the first payment of interest on such Security will be made on the Interest Payment Date following the next succeeding Regular Record Date. Unless otherwise specified as contemplated by Section 3.01 for any Security, interest payable at Maturity (other than on a date which is an Interest Payment Date) will be paid to the same Person to whom the principal amount of this Security is payable.
     Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “ Defaulted Interest ”) shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (a) or (b) below:
     (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the
 24 

 

payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause 3.07(b).
     (b) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
     Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
     Section 3.08. Persons Deemed Owners.
     Prior to due presentment of a 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 such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.07) interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
     Section 3.09. Cancellation.
 25 

 

     All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order.
     Section 3.10. Computation Of Interest.
     Except as otherwise specified as contemplated by Section 3.01 for any Security, interest on the Securities of each series shall be computed on the basis of a 360-day year consisting of 12 30-day months.
ARTICLE 4
Satisfaction and Discharge
     Section 4.01. Satisfaction And Discharge Of Indenture.
     This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when
     (a) either
     (i) all Securities theretofore authenticated and delivered (other than (x) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (y) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or
     (ii) all such Securities not theretofore delivered to the Trustee for cancellation
     (A) have become due and payable, or
     (B) will become due and payable at their Stated Maturity within one year, or
 26 

 

     (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (A), (B) or (C) above has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, and any premium or interest, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
     (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
     (c) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
     Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Sections 4.03(b) and 6.07, the obligations of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause 4.01(a)(ii), the obligations of the Trustee under Section 4.03 and the last paragraph of Section 10.03 shall survive.
     Section 4.02. Defeasance Of Securities Of Any Series.
     Unless otherwise specified pursuant to Section 3.01 with respect to any Security, then notwithstanding Section 4.01, the Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Securities of any series on the 91st day after the date of the deposit referred to in subparagraph 4.02(d) hereof, and the provisions of this Indenture, as it relates to such Outstanding Securities, shall no longer be in effect (and the Trustee, at the expense of the Company, shall at Company Request, execute proper instruments acknowledging the same) (hereinafter called “ Defeasance ”), except as to:
     (a) the rights of Holders of Securities to receive, from the trust funds described in subparagraph 4.02(d) hereof, (i) payment of the principal of and any premium or interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest and (ii) the benefit of any mandatory sinking fund payments or analogous payments applicable to Securities of such series on the day on which such payments are due and payable in accordance with the terms of the Indenture and such Securities;
     (b) the Company’s obligations with respect to such Securities under Sections 3.05, 3.06, 4.03, 10.02 and 10.03; and
 27 

 

     (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder;
     provided that the following conditions have been satisfied:
     (d) with reference to this provision, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of that series, (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment referred to in clause (A) or (B) of this subparagraph 4.02(d) money in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee for such purposes, (A) the principal of and any premium or interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest on the Redemption Date, as the case may be, and (B) any mandatory sinking fund payments or analogous payments applicable to Securities of such series on the day on which such payments are due and payable, each in accordance with the terms of this Indenture and of such Securities;
     (e) such Defeasance shall not cause the Trustee with respect to the Securities of that series to have a conflicting interest as defined in Section 6.08 and for purposes of the Trust Indenture Act with respect to the Securities of any series;
     (f) such Defeasance will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;
     (g) such Defeasance would not cause any Outstanding Security of such series then listed on any nationally recognized securities exchange to be then delisted as a result thereof;
     (h) no Event of Default or event which with notice or lapse of time would become an Event of Default with respect to Securities of the series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;
     (i) the Company has delivered to the Trustee an Opinion of Counsel based on the fact that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date hereof, there has been a change in the applicable Federal income tax law, in either case to the effect that, and such opinion shall confirm that, the Holders of the Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred;
 28 

 

     (j) the Company has delivered to the Trustee an Opinion of Counsel stating that (i) such deposit, defeasance and discharge would not cause any outstanding Security of such series then listed on any nationally recognized securities exchange to be delisted as a result thereof; and (ii) and that such Defeasance would not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended from time to time;
     (k) the Company has delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, except that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no opinion is given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the Trustee’s possession prior to such court ruling to the extent not paid to Holders of Securities, the Trustee will hold, for the benefit of such Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise, and (B) such Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used; and
     (l) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the Defeasance contemplated by this provision have been complied with.
     Section 4.03. Application Of Trust Funds; Indemnification.
     (a) Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 4.02 or Section 10.06 and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Section 4.02 or Section 10.06 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto of the principal (and premium, if any) and interest for whose payment such money has been deposited with or received by the Trustee or to make mandatory sinking fund payments or analogous payments as contemplated by Section 4.02 or Section 10.06, as the case may be.
     (b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against U.S. Government Obligations deposited pursuant to Section 4.02 or Section 10.06 or the interest and principal received in respect of such obligations other than any payable by or on behalf of Holders.
     (c) The Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 4.02 or 10.06 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to
 29 

 

the Trustee, are then in excess of the amount which then would have been required to be deposited for the purpose for which such money or U.S. Government Obligations were deposited or received.
     Section 4.04. Reinstatement.
     If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 4.02 or 10.06 with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application or upon the occurrence of an Event of Default, then the obligations under this Indenture and such Securities from which the Company has been discharged or released pursuant to Section 4.02 or 10.06 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 4.03 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust.
ARTICLE 5
Remedies
     Section 5.01. Events Of Default.
     “ Event of Default ,” wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
     (a) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
     (b) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
     (c) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or
     (d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period
 30 

 

of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of each series affected thereby a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “ Notice of Default ” hereunder; or
     (e) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or
     (f) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or
     (g) any events of default provided with respect to Securities of that series.
     Section 5.02. Acceleration Of Maturity; Rescission And Annulment.
     If an Event of Default described in clause 5.01(a), 5.01(b), 5.01(c), 5.01(d) or 5.01(g) with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of such series (each such series voting as a separate class in the case of an Event of Default under clause 5.01(a), 5.01(b), 5.01(c) or 5.01(g), and all such series voting as one class in the case of such an Event of Default under clause 5.01(d)) may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) of all of the Securities of such series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount)
 31 

 

shall become immediately due and payable. If any Event of Default described in clause 5.01(d) with respect to all series of Securities then Outstanding, or any Event of Default described in clause 5.01(e) or 5.01(f) occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Outstanding Securities (voting as one class) may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) of all the Securities then Outstanding to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable.
     At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if
     (a) the Company has paid or deposited with the Trustee a sum sufficient to pay
     (i) the overdue interest on all Securities of the series,
     (ii) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the interest rate or rates prescribed in such Securities,
     (iii) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed for overdue interest in such Securities, and
     (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustees, its agents and counsel and all other amounts due under Section 6.07;
     and
     (b) all Events of Default with respect to Securities of that series other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13.
     No such rescission shall affect any subsequent default or impair any right consequent thereon.
     Section 5.03. Collection Of Indebtedness And Suits For Enforcement By Trustee.
     The Company covenants that if
 32 

 

     (a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or
     (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof
     the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities, for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, other than those incurred due to the Trustee’s bad faith or negligence.
     If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
     If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy.
     Section 5.04. Trustee May File Proofs Of Claim.
     In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
     (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements
 33 

 

and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
     (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
     and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07.
     Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holders hereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
     Section 5.05. Trustee May Enforce Claims Without Possession Of Securities.
     All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
     Section 5.06. Application Of Money Collected.
     Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
     FIRST: To the payment of all amounts due the Trustee under this Indenture; and
     SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected ratably without preference or priority of any kind according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively.
 34 

 

     Section 5.07. Limitation On Suits.
     No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
     (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series;
     (b) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
     (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
     (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
     (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of all Outstanding Securities of that series;
     it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
     Section 5.08. Unconditional Right Of Holders To Receive Principal, Premium And Interest.
     Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
     Section 5.09. Restoration Of Rights And Remedies.
     If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former
 35 

 

positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
     Section 5.10. Rights And Remedies Cumulative.
     Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy..
     Section 5.11. Delay Or Omission Not Waiver.
     No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default which shall have occurred and shall be continuing shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
     Section 5.12. Control By Holders.
     The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that
     (a) such direction shall not be in conflict with any rule of law or with this Indenture,
     (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and
     (c) the Trustee shall have the right to decline any direction with respect to which a Responsible Officer reasonably determines such direction will cause the Trustee to incur any liability for which it shall not have been adequately indemnified pursuant to Section 5.07.
     Section 5.13. Waiver Of Past Defaults.
     The Holders of (i) not less than a majority in principal amount of the Outstanding Securities of any series (each such series voting as a separate class) may on behalf of the Holders of all Securities of such series waive any past default or Event of Default described in clause 5.01(d) which relates to less than all series of Outstanding Securities
 36 

 

or described in clause 5.01(g) with respect to such series and its consequences, or (ii) not less than a majority in principal amount of the Outstanding Securities affected thereby (voting as one class) may on behalf of the Holders of all the Outstanding Securities affected thereby waive any past default or Event of Default described in said clause 5.01(d) which relates to all such Outstanding Securities and its consequences, except in any such case a default
     (a) in the payment of the principal of, or any premium or interest on, any Security of such series, or
     (b) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.
     Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
     Section 5.14. Undertaking For Costs.
     All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 25% in principal amount of the Outstanding Securities of any series or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date).
     Section 5.15. Waiver Of Usury, Stay Or Extension Law.
     The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension of law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
 37 

 

ARTICLE 6
The Trustee
     Section 6.01. Certain Duties And Responsibilities.
     (a) Except during the continuance of an Event of Default,
     (i) the Trustee undertakes to perform such duties and only such duties as specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
     (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
     (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
     (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that
     (i) this Subsection shall not be construed to limit the effect of Subsection 6.01(a);
     (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
     (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series, determined as provided in Section 5.12, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and
     (iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
 38 

 

     (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
     Section 6.02. Notice Of Defaults.
     Within 90 days after receipt by the Trustee of written notice of the occurrence of any default hereunder with respect to the Securities of any series the Trustee shall transmit in the manner and to the extent provided in Section 7.03(d), notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided , however , that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund installment with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series; and provided , further , that in the case of any default of the character specified in Section 5.01(d) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term “default ,” means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.
     Section 6.03. Certain Rights Of Trustee.
     Subject to the provisions of Section 6.01:
     (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
     (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
     (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate;
     (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
 39 

 

     (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
     (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
     (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
     (h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and
     (i) The Trustee’s immunities and protections from liability and its rights to compensation and indemnification in connection with the performance of its duties under this Indenture shall extend to the Trustee’s officers, directors, agents and employees. Such immunities and protections and right to indemnification, together with the Trustee’s right to compensation, shall survive the Trustee’s resignation or removal and final payment of the Securities.
     Section 6.04. Not Responsible For Recitals Or Issuance Of Securities.
     The recitals contained herein and in the Securities, except the Trustee’s certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
     Section 6.05. May Hold Securities.
     The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.
 40 

 

     Section 6.06. Money Held In Trust.
     Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
     Section 6.07. Compensation And Reimbursement.
     The Company agrees
     (a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
     (b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expenses, disbursements or advances as may be attributable to its negligence or bad faith;
     (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder; and
     (d) The Trustee shall have, and is hereby granted, a first priority lien on all monies, securities and collateral (other than monies held in trust by the Trustee for the purpose of paying the principal, premium, if any, and interest on any specific Securities) held by or on behalf of the Trustee pursuant to this Indenture for payment or reimbursement to the Trustee of its fees, expenses and any other monies payable to it hereunder.
     Section 6.08. Disqualification; Conflicting Interest.
     (a) If the Trustee has or shall acquire any conflicting interest within the meaning of the Trust Indenture Act with respect to the Securities of any series, it shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign with respect to the Securities of that series in the manner and with the effect hereinafter specified in this Article.
     (b) In the event that the Trustee shall fail to comply with the provisions of Subsection 6.08(a) with respect to the Securities of any series, the Trustee shall, within 10 days after the expiration of such 90-day period, transmit by mail to all Holders of Securities of that series, as their names and addresses appear in the Security Register, notice of such failure.
 41 

 

     Section 6.09. Corporate Trustee Required; Eligibility.
     There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 subject to supervision or examination by Federal or State authority and having its Corporate Trust Office in any State in the United States of America or in the District of Columbia. If such corporation publishes or files reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published or filed. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
     Section 6.10. Resignation And Removal; Appointment Of Successor.
     (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11.
     (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
     (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company.
     (d) If at any time:
     (i) the Trustee shall fail to comply with Section 6.08(a) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
     (ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or
     (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
 42 

 

then, in any such case, (A) the Company, by a Board Resolution, may remove the Trustee with respect to the applicable series of Securities, or (B) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security of any series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to such series of Securities and the appointment of a successor Trustee or Trustees.
     (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of . If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
     (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.
     Section 6.11. Acceptance Of Appointment By Successor.
     (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring
 43 

 

to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
     (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.
     (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph 6.11(a) or 6.11(b), as the case may be.
     (d) No such successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
     Section 6.12. Merger, Conversion, Consolidation Or Succession To Business.
     Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of
 44 

 

the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
     Section 6.13. Preferential Collection Of Claims.
     If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any other obligor).
     Section 6.14. Appointment Of Authenticating Agent.
     At any time the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue, exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
     Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such
 45 

 

corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or such Authenticating Agent.
     An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
     The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.
     If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternate certificate of authentication in the following form:
     This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
 	 	 	 	 	 	 	
 	 	Bank One Trust Company, National Association, as Trustee,	
 	 	 	 	 	 	 	
 	 	By	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	as Authenticating Agent	 	 	
 	 	 	 	 	 	 	
 	 	By	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Authorized Officer	 	 	
 46 

 

ARTICLE 7
Holders’ List And Reports By Trustee And Company
     Section 7.01 . Company To Furnish Trustee Names And Addresses Of Holders.
     The Company will furnish or cause to be furnished to the Trustee
     (a) semi-annually a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of the date of such list, and
     (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar.
     Section 7.02 . Preservation Of Information; Communications To Holders.
     (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished.
     (b) If three or more Holders of Securities of any series (herein referred to as “ applicants ”) apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of such series or with Holders of all other series of Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five business days after the receipt of such application, at its election, either
     (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.02(a), or
     (ii) inform such applicants as to the approximate number of Holders of such series of Securities or Holders of all other series of Securities whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), and as to the approximate cost of mailing to the Holders of such series of Securities or the Holders of all series of Securities the form of proxy or other communication, if any, specified in such application.
     If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of such series of Securities or of all series of Securities or of all series of Securities whose name
 47 

 

and address appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a) a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the relevant Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
     (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 7.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 7.02(b).
Section 7.03 . Reports By Trustee.
     (a) If required under Section 313(a) of the Trust Indenture Act, within 60 days after May 15 of each year commencing with the year 2001, so long as any of the Securities are outstanding, the Trustee shall transmit by mail to all Holders, as provided in subsection 7.03(c), a brief report dated as of such May 15 with respect to any of the following events which may have occurred within the previous 12 months (but if no such event has occurred within such period no report need by transmitted):
     (i) any change to its eligibility under Section 6.09 or the creation of or any material change to its qualifications under Section 6.08;
     (ii) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than one-half of one percent of the principal amount of the Securities Outstanding of such series on the date of such report;
 48 

 

     (iii) any change to the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 6.13;
     (iv) any change to the property and funds, if any, physically in the possession of the Trustee as such on the date of such report;
     (v) any additional issue of Securities which the Trustee has not previously reported; and
     (vi) any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 6.02.
     (b) The Trustee shall transmit by mail to all Holders, as provided in subsection 7.03(c), a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection 7.03(a) (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on property or funds held or collected by it as Trustee and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities Outstanding of such series at such time, such report to be transmitted within 90 days after such time.
     (c) Reports pursuant to this Section shall be transmitted by mail:
     (i) to all Holders of Securities, as the names and addresses of such Holders appear in the Security Register as of a date not more than fifteen days prior to the mailing thereof;
     (ii) to such holders of Securities of any series as have, within two years preceding such transmission, filed their names and addresses with the Trustee for such series for that purpose; and
     (iii) except in the case of reports pursuant to subsection 7.03(b), to all Holders of Securities whose names and addresses have been received by the Trustee pursuant to Section 7.01.
     (d) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are
 49 

 

listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange.
     Section 7.04 . Reports By Company.
     The Company shall:
     (a) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;
     (b) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and
     (c) transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, to such Holders of Securities as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for that purpose and Holders of securities whose names and addresses have been furnished to or received by the Trustee pursuant to Section 7.02(a) such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs 7.04(a) and 7.04(b) as may be required by rules and regulations prescribed from time to time by the Commission.
ARTICLE 8
Consolidation, Merger, Conveyance, Transfer Or Lease
     Section 8.01. Company May Consolidate, Etc., Only On Certain Terms.
     Subject to the provisions of Section 8.03, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other corporation or corporations, or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties or shall prevent any sale or conveyance of all or substantially all of the property of the Company
 50 

 

to any other corporation authorized to acquire and operate the same; provided , that in any such case, (i) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) shall be a corporation organized and existing under the laws of the United States of America or a State thereof and such corporation shall expressly assume the due and punctual payment of the principal of, and premium, if any, and interest on all the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and (ii) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition and shall not immediately thereafter have outstanding any secured Debt (as defined in Section 10.04) not expressly permitted by the provisions of Section 10.04 unless the provisions of Section 8.03 shall previously have been complied with.
     Section 8.02 . Successor Corporation To Be Substituted For Company.
     In case of any such consolidation, merger, sale or conveyance (other than a conveyance by way of lease) and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the Company thereupon shall be relieved of any further liability or obligation hereunder or upon the Securities and may thereupon or at any time thereafter be dissolved, wound up or liquidated. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Masco Corporation, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee or the Authenticating Agent; and upon the order of such successor corporation (instead of the Company) and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee or the Authenticating Agent for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof.
     In the case of any such consolidation, merger, sale or conveyance, such change in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate.
Section 8.03 . Securities To Be Secured In Certain Events.
     If, upon any such consolidation or merger of the Company with or into any other corporation, or upon any sale or conveyance of the property of the Company as an entirety or substantially as an entirety to any other corporation, any Principal Property or
 51 

 

any shares of stock or indebtedness of any Consolidated Subsidiary owning any Principal Property owned immediately prior thereto would thereupon become subject to any mortgage (as defined in Section 10.04), unless the Company could create such mortgage pursuant to Section 10.04 without equally and ratably securing the Securities, the Company, prior to or simultaneously with such consolidation, merger, sale or conveyance, will secure the Securities outstanding hereunder, equally and ratably with any other obligation of the Company or any such Subsidiary then entitled thereto, prior to the Debt (as defined in Section 10.04) secured by such mortgage.
     Section 8.04 . Evidence To Be Furnished To The Trustee.
     The Trustee, subject to the provisions of Sections 6.01 and 6.03, may receive and rely upon an Officers’ Certificate and an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale or conveyance, and any such assumption complies with the provisions of this Article 8.
ARTICLE 9
Supplemental Indentures
     Section 9.01 . Supplemental Indentures Without Consent Of Holders.
     Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
     (a) to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or
     (b) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
     (c) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of the relevant series) or to surrender any right or power herein conferred upon the Company; or
     (d) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or permit or facilitate the issuance of Securities in uncertificated form; or
 52 

 

     (e) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to Securities of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of such Securities with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or
     (f) to secure the Securities pursuant to the requirements of Sections 8.03 or otherwise; or
     (g) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; or
     (h) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for and facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or
     (i) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided such action shall not adversely affect the interests of the Holders of Securities of any series in any material respect.
     Section 9.02 . Supplemental Indentures With Consent Of Holders.
     With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture voting as one class, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under the Indenture; provided, however , that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,
     (a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or
 53 

 

     (b) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or
     (c) modify any of the provisions of this Section or Section 5.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however , that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to “the Trustee” and concomitant changes in this Section, or the deletion of this proviso, in accordance with the requirements of Sections 6.11(b) and 9.01(h).
     A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
     It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
     Section 9.03 . Execution Of Supplemental Indentures.
     In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.
     Section 9.04 . Effect Of Supplemental Indentures.
     Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
     Section 9.05 . Conformity With Trust Indenture Act.
     Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.
     Section 9.06 . Reference In Securities To Supplemental Indentures.
 54 

 

     Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
ARTICLE 10
Covenants
     Section 10.01 . Payment Of Principal, Premium And Interest.
     The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of (and premium, if any) and any interest on each of the Securities of that series in accordance with the terms of the Securities and this Indenture.
     Section 10.02 . Maintenance Of Office Or Agency.
     The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee and the Holders of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations and surrenders of Securities of that series and notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
     The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee and the Holders of any such designation or rescission and of any change in the location of any such other office or agency.
     Section 10.03 . Money For Securities Payments To Be Held In Trust.
     (a) If the Company shall appoint a paying agent other than the Trustee with respect to the Securities of any series, it will cause such paying agent to execute and
 55 

 

deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 10.03:
     (i) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest, if any, on the Securities of such series (whether such sums have been paid to it by the Company or by any other obligor on the Securities of such series) in trust for the benefit of the holders of the Securities of such series;
     (ii) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall be due and payable; and
     (iii) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
     (b) If the Company shall at any time act as its own Paying Agent it will, on or before each due date of the principal of (and premium, if any) or interest, if any, on the Securities of any series, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay such principal (and premium, if any) or interest so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or by any other obligor under the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall become due and payable.
     The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
     Any money deposited with the Trustee (except pursuant to Section 4.02 or 10.06) or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however , that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business
 56 

 

Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
     Section 10.04 . Limitations On Liens.
     (a) The Company will not, nor will it permit any Consolidated Subsidiary to, issue, assume or guarantee any debt for money borrowed or any Funded Debt (hereinafter in this Article 10 referred to as “ Debt ”), secured by a mortgage, security interest, pledge, lien or other encumbrance (mortgages, security interests, pledges, liens and other encumbrances being hereinafter called a " mortgage ” or “ mortgages ”) upon any Principal Property or upon any shares of stock or indebtedness of any Consolidated Subsidiary which owns or leases a Principal Property (whether such Principal Property, shares of stock or indebtedness are now owned or hereafter acquired) without in any such case effectively providing concurrently with the issuance, assumption or guaranty of any such Debt that the Securities (together with, if the Company shall so determine, any other indebtedness of or guaranteed by the Company or such Consolidated Subsidiary ranking equally with the Securities and then existing or thereafter created) shall be secured equally and ratably with such Debt; provided , however , that the foregoing restrictions shall not apply to Debt secured by
     (i) mortgages on property, shares of stock or indebtedness of any corporation existing at the time such corporation becomes a Consolidated Subsidiary;
     (ii) mortgages on property existing at the time of acquisition of such property by the Company or a Consolidated Subsidiary, or mortgages to secure the payment of all or any part of the purchase price of such property upon the acquisition of such property by the Company or a Consolidated Subsidiary or to secure any Debt incurred by the Company or Consolidated Subsidiary prior to, at the time of, or within 120 days after the later of the acquisition, the completion of construction (including any improvements on an existing property) or the commencement of commercial operation of such property, which Debt is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; provided , however , that in the case of any such acquisition, construction or improvement, the mortgage shall not apply to any property theretofore owned by the Company or a Consolidated Subsidiary, other than any property on which the property so constructed or the improvement is located or to which the property so constructed or the improvement is appurtenant;
     (iii) mortgages securing Debt of a Consolidated Subsidiary owing to the Company or to another Consolidated Subsidiary;
     (iv) mortgages on property of a corporation existing at the time such corporation is merged or consolidated with the Company or a Consolidated
 57 

 

Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation or firm as an entirety or substantially as an entirety to the Company or a Consolidated Subsidiary; provided , however , that no such mortgage shall extend to any other Principal Property of the Company or any Consolidated Subsidiary or to any shares of capital stock or any indebtedness of any Consolidated Subsidiary which owns or leases a Principal Property;
     (v) mortgages on property of the Company or a Consolidated Subsidiary in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country, or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute (including Debt of the pollution control or industrial revenue bond type) or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of construction of the property subject to such mortgages; or
     (vi) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of mortgages existing at the date of this Indenture, or any mortgage referred to in the foregoing clauses (i) through (v), inclusive, provided , however , that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the property which secured the mortgage so extended, renewed or replaced (plus improvements on such property).
     (b) Notwithstanding the foregoing provisions of this Section 10.04, the Company may, and may permit any Consolidated Subsidiary to, issue, assume or guarantee Debt secured by a mortgage not excepted by clauses (i) through (vi) of paragraph (a) above without equally and ratably securing the Securities, provided , however , that the aggregate principal amount of all such Debt then outstanding, plus the aggregate principal amount of the Debt then being issued, assumed, or guaranteed, and the aggregate amount of the Attributable Debt in respect of sale and lease-back arrangements, shall not exceed 5% of Consolidated Net Tangible Assets, determined as of a date not more than 90 days prior thereto.
     Section 10.05 . Limitation On Sale And Leaseback.
     The Company will not, nor will it permit any Consolidated Subsidiary to, enter into any arrangement with any person providing for the leasing by the Company or any Consolidated Subsidiary of any Principal Property (whether such Principal Property is now owned or hereafter acquired) (except for leases for a term of not more than three years and except for leases between the Company and a Consolidated Subsidiary or between Consolidated Subsidiaries), which property has been or is to be sold or transferred by the Company or such Consolidated Subsidiary to such person, unless (a) the Company or such Subsidiary would be entitled, pursuant to the provisions of Section
 58 

 

10.04, to issue, assume or guarantee Debt secured by a mortgage upon such property at least equal in amount to the Attributable Debt in respect of such arrangement without equally and ratably securing the Securities or (b) the Company or a Consolidated Subsidiary, within 120 days of the effective date of any such arrangement, applies an amount equal to the greater of the net proceeds of the sale of the Principal Property leased pursuant to such arrangement or the fair market value of the Principal Property so leased at the time of entering into such arrangement (as determined by the Board of Directors of the Company) to the retirement (other than any mandatory retirement or by way of payment at maturity) of Funded Debt of the Company or any Consolidated Subsidiary (other than Funded Debt owned by the Company or any Consolidated Subsidiary and other than Funded Debt subordinated in the payment of principal or interest to the Securities and except that no Security shall be retired if such retirement of Securities pursuant to this provision would be prohibited by the resolutions or supplemental indentures referred to in Section 3.01), provided , however , that in lieu of applying all or any part of such net proceeds or fair market value to such retirement, the Company may at its option (i) deliver to the Trustee Securities theretofore purchased or otherwise acquired by the Company, or (ii) receive credit for Securities theretofore redeemed pursuant to the resolutions or supplemental indentures referred to in Section 3.01 hereof, which Securities have not theretofore been made the basis for the reduction of a sinking fund payment pursuant to Article 12 or applied in lieu of retiring Funded Debt pursuant hereto. If the Company shall so deliver Securities to the Trustee (or receive credit for Securities so delivered), the amount of cash which the Company shall be required to apply to the retirement of Funded Debt pursuant to this Section 10.05 shall be reduced by an amount equal to the aggregate principal amount of such Securities.
     Section 10.06 . Defeasance Of Certain Obligations.
     The Company may omit to comply, on or after the date the conditions set forth in subsections (a) to (f) of this Section 10.06 are satisfied, with any term, provision or condition set forth in any negative or restrictive covenant of the Company applicable to the Securities of such series (hereafter called “ Covenant Defeasance ”) that is specified pursuant to Section 3.01(j), if
     (a) With reference to this Section 10.06, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of that series, (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment referred to in clause (A) or (B) of this subparagraph 10.06(a) money in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee for such purposes, (A) the principal of and any premium or interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest or the Redemption Date, as the case may be, and (B) any mandatory sinking fund payments or analogous payments applicable to
 59 

 

Securities of such series on the day on which such payments are due and payable, each in accordance with the terms of this Indenture and of such Securities;
     (b) Such Covenant Defeasance shall not cause the Trustee with respect to the Securities of that series to have a conflicting interest as defined in Section 6.08 and for purposes of the Trust Indenture Act with respect to the Securities of any series;
     (c) Such Covenant Defeasance will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;
     (d) Such Defeasance would not cause any Outstanding Security of such series then listed on any nationally recognized securities exchange to be then delisted as a result thereof;
     (e) No Event of Default or event which with notice or lapse of time would become an Event of Default with respect to Securities of that series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;
     (f) The Company has delivered to the Trustee an Opinion of Counsel stating that (i) Holders of the Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit and Covenant Defeasance had not occurred; (ii) such Covenant Defeasance would not cause any outstanding Security of such series then listed on any nationally recognized securities exchange to be delisted as a result thereof; and (iii) such deposit would not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended from time to time;
     (g) The Company has delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, except that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no opinion is given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the Trustee’s possession prior to such court ruling to the extent not paid to Holders of Securities, the Trustee will hold, for the benefit of such Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise, and (B) such Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used; and
     (h) The Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the defeasance contemplated by this Section have been complied with.
     Section 10.07 . Certificate Of Officers Of The Company.
 60 

 

     On or before April 1 of each year beginning with the year 2001, so long as Securities of any series are Outstanding hereunder, the Company will file with the Trustee an Officers’ Certificate, one of the signers of which shall be the principal financial officer, the principal accounting officer or the principal executive officer of the Company, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture, and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. For purposes of this paragraph, any such default shall be determined without regard to any period of grace or requirement of notice provided in this Indenture.
ARTICLE 11  
Redemption of Securities
     Section 11.01 . Applicability Of Article.
     Any Securities that are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 3.01 for any Securities) in accordance with this Article.
     Section 11.02 . Election To Redeem; Notice To Trustee.
     The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the tenor, if applicable, of the Securities to be redeemed, and of the principal amount of Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers’ Certificate evidencing compliance with such restriction.
     Section 11.03 . Selection By Trustee Of Securities To Be Redeemed.
     If less than all the Securities of any series are to be redeemed (unless all of the Securities of a specified tenor are to be redeemed), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If less than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the
 61 

 

Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence.
     The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.
     For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.
     Section 11.04 . Notice Of Redemption.
     Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Securities to be redeemed, at this address appearing in the Security Register.
     All notices of redemption shall state:
     (a) the Redemption Date,
     (b) the Redemption Price,
     (c) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed,
     (d) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date,
     (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price, and
     (f) that the redemption is for a sinking fund, if such is the case.
     Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. The notice of redemption mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security shall not affect the validity of the proceeding for the redemption of any other Security.
     Section 11.05 . Deposit Of Redemption Price.
 62 

 

     Prior to 10:00 a.m., New York City time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date.
     Section 11.06 . Securities Payable On Redemption Date.
     Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest), such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07.
     If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.
     Section 11.07 . Securities Redeemed In Part.
     Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Security in permanent global form is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the Depositary for such Security in permanent global form, without service charge to the Holder, a new Security in permanent global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the Security in permanent global form so surrendered.
ARTICLE 12
Sinking Funds
     Section 12.01 . Applicability Of Article.
 63 

 

     The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 3.01 for Securities of such series.
     The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “ mandatory sinking fund payment ,” and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an “ optional sinking fund payment .” If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.
     Section 12.02 . Satisfaction Of Sinking Fund Payments With Securities.
     The Company (a) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (b) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such Series; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the Redemption Price, as specified in the Securities to be so redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.
     Section 12.03 . Redemption Of Securities For Sinking Fund.
     Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers’ Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 12.02 stating that such Securities have not been previously used as a credit against any sinking fund payment and will also deliver to the Trustee any Securities to be so delivered. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.05, 11.06 and 11.07.
* * *
 64 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and attested, all as of the day and year first above written.
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	MASCO CORPORATION	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	By	 	/s/Richard G. Mosteller	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Title:	 	Senior Vice President — Finance	 	 	
Attest:	 	/s/John R. Leekley	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	Senior Vice President —	 	 	 	 	 	 	 	 	
 	 	General Counsel	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	BANK ONE TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	By	 	/s/Benita A. Pointer	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Title:	 	Account Executive	 	 	
 65 

 

Exhibit A
FORM OF FACE OF SECURITY
     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK (THE “ U.S. 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 U.S. DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. 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.
     [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF THE DEPOSITARY OR ITS NOMINEE AND ANY PAYMENT IS MADE TO THE DEPOSITARY OR ITS NOMINEE, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF HAS AN INTEREST HEREIN.]
      [If the Security is an original issue discount security for tax purposes and is not “publicly offered” within the meaning of Treasury Regulation 1.1275- 1(h) , insert — For purposes of Sections 1271-1275 of the United States Internal Revenue Code of 1986, as amended, the issue price of this Security is ...................., the amount of original issue discount is ...................., the issue date is ...................., 20.. and the yield to maturity is ....................]
MASCO CORPORATION
[Title of Security]
				
No....................	 	$...............	 	
CUSIP No.                     

 

     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 ................., or registered assigns, the principal sum of ..................., Dollars on .................... [If the Security is to bear interest prior to Maturity, insert— , and to pay interest thereon from .................... or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ... and ... in each year, commencing...................., at the rate of.....................% per annum, until the principal hereof is paid or made available for payment [If applicable, insert — , and (to the extent that the payment of such interest shall be legally enforceable) at the rate of ..% per annum on any overdue principal and premium and on any overdue installment of interest]. 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 or (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 12 30-day months.]
      [If the Security is not to bear interest prior to Maturity, insert— The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of ..% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal that is not so paid on demand shall bear interest at the rate of ...% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.]
     Payment of the principal of (and premium, if any) and [if applicable insert, — any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, 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 [ if applicable, insert—; 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].
 A-2 

 

     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.
 A-3 

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
 	 	 	 	 	
Dated:	 	 	 	 	
 	 	 	 	 	
 	 	MASCO CORPORATION	 	 	
 	 	 	 	 	
 	 	By

Attest:                                                                 	 	 	 	 	
 	 	 	 	 	
 A-4 

 

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:
 	 	 	 	 	 	 	
 	 	Bank One Trust Company, National Association,
as Trustee	 	 	
 	 	 	 	 	 	 	
 	 	By	 	 
Authorized Officer	 	 	
 A-5 

 

FORM OF 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                      (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 [, limited in aggregate principal amount to $.....................].
      [If applicable, insert— The Securities of this series are subject to redemption upon not less than 30 days’ notice by mail, [ if applicable, insert — (1) on ........................ in any year commencing with the year ...................... and ending with the year ....................... through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [ on or after......................., 20.....................], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [on or before .......................,..................... %, and if redeemed] during the 12-month period beginning ........................ of the years indicated,
 	 	 	 	 	 	 	
	 	Redemption	 	 	 	Redemption	
Year	 	Price	 	Year	 	Price	
and thereafter at a Redemption Price equal to.....................% of the principal amount, together in the case of any such redemption [ if applicable, insert— (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.]
     [ If applicable, insert— The Securities of this series are subject to redemption upon not less than 30 days’ notice by mail, (1) on ....................... in any year commencing with the year ....................... and ending with the year ....................... through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [on or after .......................], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12 month period beginning..................... of the years indicated,
 A-6 

 

 	 	 	 	 	
 	 	 	 	Redemption Price For Redemption	
 	 	Redemption Price For Redemption	 	Otherwise Than Through	
 	 	Through Operation of the	 	Operation of the	
Year	 	Sinking Fund	 	Sinking Fund	
and thereafter at a Redemption Price equal to.....................% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.]
     [Notwithstanding the foregoing, the Company may not, prior to..................... .. redeem any Securities of this series as contemplated by [clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than .....................% per annum.]
     [The sinking fund for this series provides for the redemption on ....................... in each year beginning with the year ....................... and ending with the year ...................... of [not less than] $...................... [(“ mandatory sinking fund ”) and not more than $.....................] aggregate principal amount of Securities of this series. [Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made — in the inverse order in which they become due.]
     [In the event of redemption of this Security in part only, a new Security or Securities of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.]
     [The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of this Security and (b) certain restrictive covenants, in each case upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security.]
     [If the Security is not an Original Issue Discount Security, — If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.]
     [ If the Security is an Original Issue Discount Security, — If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to —insert formula for determining the amount . Upon payment (i) of the amount of principal so
 A-7 

 

declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company’s obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.]
     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
 A-8 

 

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 $ and any 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.
 A-9 

Exhibit 4.b.i (vi)
RESOLUTIONS OF THE PRICING COMMITTEE OF
THE BOARD OF DIRECTORS
OF MASCO CORPORATION
SEPTEMBER 28, 2006
     In lieu of a meeting, the undersigned, being all of the members of the Pricing Committee of the Board of Directors of Masco Corporation, a Delaware corporation, (the “Company”) adopt the resolutions attached on Exhibit A hereto.
Dated: September 28, 2006

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

 

 	 	 	 	 	
RESOLUTIONS OF THE PRICING COMMITTEE
OF THE BOARD OF DIRECTORS OF
MASCO CORPORATION
September 28, 2006
     WHEREAS, Masco Corporation, a Delaware corporation (the “Company”) the Company has filed and amended a Registration Statement (No. 333-100641) on Form S-3 with the Securities and Exchange Commission, which is in effect;
     WHEREAS, the Company desires to create a series of securities under the indenture dated as of February 12, 2001 (the “Indenture”), with The Bank of New York Trust Company, N. A. (as successor to Bank One Trust Company, National Association, effective October 1, 2006) (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 one series shall be designated as the “6.125% Notes Due 2016.”
     2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to One Billion Dollars ($1,000,000,000), 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 October 3, 2016.
     4. The Securities of such series shall bear interest from October 3, 2006 at the rate of 6.125% per annum, payable semi-annually on April 3 and October 3 of each year commencing on April 3, 2007 until the principal thereof is paid or made available for payment. The March 15 or September 15 (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 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 Nine Hundred Eighty Eight Million Four Hundred Ten Thousand Dollars ($988,410,000) after an underwriting discount of Six Million Five Hundred Thousand Dollars ($6,500,000).
     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.
     11. The Securities shall be subject to the following change of control repurchase event:
          If a Change of Control Repurchase Event occurs, unless the Company has exercised its right to redeem the Securities as described above, the Company will make an offer to each holder of Securities to repurchase all or any part (in integral multiples of $1,000) of that holders’ Securities at a repurchase price in cash equal to 101% of the aggregate principal amount of Securities repurchased plus any accrued and unpaid interest on the Securities repurchased to the date of purchase. Within 30 days following any Change of Control Repurchase Event or, at the Company’s option, prior to any Change of Control, but after the

 

public announcement of the Change of Control, the Company will mail a notice to each holder, with a copy to the Trustee, describing the transaction or transactions that constitute or may constitute the Change of Control Repurchase Event and offering to repurchase Securities on the payment date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed. The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Repurchase Event occurring on or prior to the payment date specified in the notice. The Company will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Securities as a result of a Change of Control Repurchase Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control Repurchase Event provisions of the Securities, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control Repurchase Event provisions of the Securities by virtue of such conflict.
     On the Change of Control Repurchase Event payment date, the Company will, to the extent lawful:

 	1.	 	accept for payment all Securities or portions of Securities properly tendered pursuant to the Company’s offer;	
 		
 	2.	 	deposit with the paying agent an amount equal to the aggregate purchase price in respect of all Securities or portions of Securities properly tendered; and	
 		
 	3.	 	deliver or cause to be delivered to the Trustee the Securities properly accepted, together with an officers’ certificate stating the aggregate principal amount of Securities being purchased by the Company.	
The paying agent will promptly mail to each holder of Securities properly tendered the purchase price for the Securities, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Security equal in principal amount to any unpurchased portion of any Securities surrendered; provided that each new Security will be in a principal amount of $1,000 or an integral multiple of $1,000.
     The Company will not be required to make an offer to repurchase the Securities upon a Change of Control Repurchase Event if a third party makes an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by the Company and such third party purchases all Securities properly tendered and not withdrawn under it offer.

 

     “Below Investment Grade Rating Event” means the Securities are rated below investment grade by both Rating Agencies on any date from the date of the public notice of an arrangement that could result in a Change of Control until the end of the 60-day period following public notice of the occurrence of a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by either of the Rating Agencies); provided that a Below Investment Grade Rating Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Rating Event for purposes of the definition of Change of Control Repurchase Event hereunder) if the rating agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Below Investment Grade rating Event).
     “Change of Control” means the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as that term is used in Section 13(d)(3) of the Exchange Act), becomes the beneficial owner, directly or indirectly, of more than 50% of the Company’s voting stock, measured by voting power rather than number of shares.
     “Change of Control Repurchase Event” means the occurrence of both a Change of Control and a Below Investment Grade Rating Event.
     “Investment Grade” means a rating of Baa3 or better by Moody’s (or its equivalent under any successor rating categories of Moody’s); a rating of BBB- or better by S&P (or its equivalent under any successor rating categories of S&P); and the equivalent investment grade credit rating from any additional rating agency or rating agencies selected by the Company.
     “Moody’s” means Moody’s Investor Services Inc.
     “Rating Agency” means (1) each of Moody’s and S&P; and (2) if either of Moody’s or S&P ceases to rate the Securities or fails to make a rating of the Securities publicly available for reasons outside of its control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, selected by the Company (as certified by a resolution of the Board of Directors) as a replacement agency for Moody’s or S&P, or both, as the case may be.
     “S&P” means Standard & Poor’s Ratings Services, a division of McGraw-Hill, Inc.

 

     “Voting Stock” of any specified person (as that term is used in Section 13(d)(3) of the Exchange Act) as of any date means the capital stock of such person that is at the time entitled to vote generally in the election of the board of directors of such person.
     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), $1,000,000,000 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, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., are appointed joint book-running managers of the 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 the 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 The Bank of New York Trust Company, N. A. (as successor in interest to J.P. Morgan Trust Company), 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 The Bank of New York Trust Company, N. A., 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 The Bank of New York Trust Company, N. A. (as successor in interest to J.P. Morgan Trust Company), 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 The Bank of New York Trust Company, N. A., 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
6.125% Securities Due 2016

CUSIP No. 574599BD7		
No. 1	 	$500,000,000	
     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 October 3, 2016, and to pay interest thereon from October 3, 2006 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on April 3 and October 3 in each year, commencing April 3, 2007, at the rate of 6.125% 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 March 15 or September 15 (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.
 2 

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated: October 3, 2006
 	 	 	 	 	
 	MASCO CORPORATION
 	 	
 	By:  	/s/ Timothy Wadhams  	 	
 	 	Timothy Wadhams 	 	
 	 	Senior Vice President and
Chief Financial Officer 	 	
 	 	 	 	
Attest:	 	/s/ Eugene A. Gargaro, Jr.  	 	
 	 	Eugene A. Gargaro, Jr. 	 	
 	 	Secretary 	 	
 3 

 

 	 	 	 	 	
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: October 3, 2006
 	 	 	 	 	
 	The Bank of New York Trust Company,
N.A., as successor in interest to
J.P. Morgan Trust Company, N.A., as
Trustee
 	 	
 	By:  	/s/ Benita A. Vaughn  	 	
 	 	Authorized Officer 	 	
 	 	 	 	
 4 

 

 	 	 	 	 	
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 The Bank of New York Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, N.A.), 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 $1,000,000,000.
     The Securities 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 Securities 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 Securities 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 Securities registered as such at the close of business on the relevant record date according to their terms and the provisions of the Indenture.
     If a Change of Control Repurchase Event occurs, unless the Company has exercised its right to redeem the Securities, the Company will make an offer to the Holders of Securities to repurchase all or any part (in integral multiples of $1,000) of that Holders’ Securities at a repurchase price in cash equal to 101% of the aggregate principal amount of Securities repurchased plus any accrued and unpaid interest on the Securities repurchased to the date of purchase. Within 30 days following any Change of Control Repurchase Event or, at the Company’s option, prior to any Change of Control, but after the public announcement of the Change of Control, the Company will mail a notice to each Holder, with a copy to the Trustee, describing the transaction or transactions that constitute or may constitute the Change of Control Repurchase Event and offering to repurchase Securities on
 5 

 

the Payment Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed. The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Repurchase Event occurring on or prior to the Payment Date specified in the notice. The Company will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Securities as a result of a Change of Control Repurchase Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control Repurchase Event provisions of the Securities, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control Repurchase Event provisions of the Securities by virtue of such conflict.
     On the Change of Control Repurchase Event Payment Date, the Company will, to the extent lawful:

 	1.	 	accept for payment all Securities or portions of Securities properly tendered pursuant to the Company’s offer;	
 		
 	2.	 	deposit with the Paying Agent an amount equal to the aggregate purchase price in respect of all Securities or portions of Securities properly tendered; and	
 		
 	3.	 	deliver or cause to be delivered to the Trustee the Securities properly accepted, together with an officers’ certificate stating the aggregate principal amount of Securities being purchased by the Company.	
     The Paying Agent will promptly mail to each Holder of Securities properly tendered the purchase price for the Securities, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Security equal in principal amount to any unpurchased portion of any Securities surrendered; provided that each new Security will be in a principal amount of $1,000 or an integral multiple of $1,000.
     The Company will not be required to make an offer to repurchase the Securities upon a Change of Control Repurchase Event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by the Company and such third party purchases all Securities properly tendered and not withdrawn under its offer.
 6 

 

     “ Below Investment Grade Rating Event ” means the Securities are rated below investment grade by both Rating Agencies on any date from the date of the public notice of an arrangement that could result in a Change of Control until the end of the 60-day period following public notice of the occurrence of a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by either of the Rating Agencies); provided that a Below Investment Grade Rating Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Rating Event for purposes of the definition of Change of Control Repurchase Event hereunder) if the rating agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Below Investment Grade Rating Event).
     “ Change of Control ” means the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as that term is used in Section 13(d)(3) of the Exchange Act), becomes the beneficial owner, directly or indirectly, of more than 50% of the Company’s voting stock, measured by voting power rather than number of shares.
     “ Change of Control Repurchase Event ” means the occurrence of both a Change of Control and a Below Investment Grade Rating Event.
     “ 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 Securities 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 Securities 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.
 7 

 

     “ Investment Grade ” means a rating of Baa3 or better by Moody’s (or its equivalent under any successor rating categories of Moody’s); a rating of BBB- or better by S&P (or its equivalent under any successor rating categories of S&P); and the equivalent investment grade credit rating from any additional Rating Agency or Rating Agencies selected by the Company.
     “ Moody’s ” means Moody’s Investor Services Inc.
     “ Paying Agent ” means the The Bank of New York Trust Company, N.A.
     “ Rating Agency ” means (1) each of Moody’s and S&P; and (2) if either of Moody’s or S&P ceases to rate the Securities or fails to make a rating of the Securities publicly available for reasons outside of the Company’s control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, selected by the Company (as certified by a resolution of the Company’s board of directors) as a replacement agency for Moody’s or S&P, or both, as the case may be.
     “ Reference Treasury Dealer ” means (a) each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets 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 Securities, 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.
     “ S&P ” means Standard & Poor’s Ratings Services, a division of McGraw-Hill, Inc.
     “ 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.
 8 

 

     “ Voting Stock ” of any specified “person” (as that term is used in Section 13(d)(3) of the Exchange Act) as of any date means the capital stock of such person that is at the time entitled to vote generally in the election of the board of directors of such person.
     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
 9 

 

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.
 10 

 

     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
6.125% Securities Due 2016

CUSIP No. 574599BD7		
Note 2	 	$500,000,000	
     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 October 3, 2016, and to pay interest thereon from October 3, 2006 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on April 3 and October 3 in each year, commencing April 3, 2007, at the rate of 6.125% 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 March 15 or September 15 (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.
 2 

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated: October 3, 2006
 	 	 	 	 	
 	MASCO CORPORATION
 	 	
 	By:  	/s/ Timothy Wadhams  	 	
 	 	Timothy Wadhams 	 	
 	 	Senior Vice President and
Chief Financial Officer 	 	
 	 	 	 	
Attest:	 	/s/ Eugene A. Gargaro, Jr.  	 	
 	 	Eugene A. Gargaro, Jr. 	 	
 	 	Secretary 	 	
 3 

 

 	 	 	 	 	
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: October 3, 2006
 	 	 	 	 	
 	The Bank of New York Trust Company,
N.A., as successor in interest to
J.P. Morgan Trust Company, N.A., as
Trustee
 	 	
 	By:  	/s/ Benita A. Vaughn  	 	
 	 	Authorized Officer 	 	
 	 	 	 	
 4 

 

 	 	 	 	 	
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 The Bank of New York Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, N.A.), 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 $1,000,000,000.
     The Securities 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 Securities 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 Securities 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 Securities registered as such at the close of business on the relevant record date according to their terms and the provisions of the Indenture.
     If a Change of Control Repurchase Event occurs, unless the Company has exercised its right to redeem the Securities, the Company will make an offer to the Holders of Securities to repurchase all or any part (in integral multiples of $1,000) of that Holders’ Securities at a repurchase price in cash equal to 101% of the aggregate principal amount of Securities repurchased plus any accrued and unpaid interest on the Securities repurchased to the date of purchase. Within 30 days following any Change of Control Repurchase Event or, at the Company’s option, prior to any Change of Control, but after the public announcement of the Change of Control, the Company will mail a notice to each Holder, with a copy to the Trustee, describing the transaction or transactions that constitute or may constitute the Change of Control Repurchase Event and offering to repurchase Securities on
 5 

 

the Payment Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed. The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Repurchase Event occurring on or prior to the Payment Date specified in the notice. The Company will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Securities as a result of a Change of Control Repurchase Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control Repurchase Event provisions of the Securities, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control Repurchase Event provisions of the Securities by virtue of such conflict.
     On the Change of Control Repurchase Event Payment Date, the Company will, to the extent lawful:

 	1.	 	accept for payment all Securities or portions of Securities properly tendered pursuant to the Company’s offer;	
 		
 	2.	 	deposit with the Paying Agent an amount equal to the aggregate purchase price in respect of all Securities or portions of Securities properly tendered; and	
 		
 	3.	 	deliver or cause to be delivered to the Trustee the Securities properly accepted, together with an officers’ certificate stating the aggregate principal amount of Securities being purchased by the Company.	
     The Paying Agent will promptly mail to each Holder of Securities properly tendered the purchase price for the Securities, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Security equal in principal amount to any unpurchased portion of any Securities surrendered; provided that each new Security will be in a principal amount of $1,000 or an integral multiple of $1,000.
     The Company will not be required to make an offer to repurchase the Securities upon a Change of Control Repurchase Event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by the Company and such third party purchases all Securities properly tendered and not withdrawn under its offer.
 6 

 

     “ Below Investment Grade Rating Event ” means the Securities are rated below investment grade by both Rating Agencies on any date from the date of the public notice of an arrangement that could result in a Change of Control until the end of the 60-day period following public notice of the occurrence of a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by either of the Rating Agencies); provided that a Below Investment Grade Rating Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Rating Event for purposes of the definition of Change of Control Repurchase Event hereunder) if the rating agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Below Investment Grade Rating Event).
     “ Change of Control ” means the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as that term is used in Section 13(d)(3) of the Exchange Act), becomes the beneficial owner, directly or indirectly, of more than 50% of the Company’s voting stock, measured by voting power rather than number of shares.
     “ Change of Control Repurchase Event ” means the occurrence of both a Change of Control and a Below Investment Grade Rating Event.
     “ 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 Securities 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 Securities 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.
 7 

 

     “ Investment Grade ” means a rating of Baa3 or better by Moody’s (or its equivalent under any successor rating categories of Moody’s); a rating of BBB- or better by S&P (or its equivalent under any successor rating categories of S&P); and the equivalent investment grade credit rating from any additional Rating Agency or Rating Agencies selected by the Company.
     “ Moody’s ” means Moody’s Investor Services Inc.
     “ Paying Agent ” means the The Bank of New York Trust Company, N.A.
     “ Rating Agency ” means (1) each of Moody’s and S&P; and (2) if either of Moody’s or S&P ceases to rate the Securities or fails to make a rating of the Securities publicly available for reasons outside of the Company’s control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, selected by the Company (as certified by a resolution of the Company’s board of directors) as a replacement agency for Moody’s or S&P, or both, as the case may be.
     “ Reference Treasury Dealer ” means (a) each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets 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 Securities, 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.
     “ S&P ” means Standard & Poor’s Ratings Services, a division of McGraw-Hill, Inc.
     “ 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.
 8 

 

     “ Voting Stock ” of any specified “person” (as that term is used in Section 13(d)(3) of the Exchange Act) as of any date means the capital stock of such person that is at the time entitled to vote generally in the election of the board of directors of such person.
     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
 9 

 

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.
 10 

Exhibit 4.b.ii
 
MASCO CORPORATION
Zero Coupon Convertible Senior Notes Due 2031
 
First Supplemental Indenture
Dated as of July 20, 2001
 
BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION
Trustee

 

ARTICLE ONE
Scope of Supplemental Indenture; General
ARTICLE TWO
Certain Definitions
ARTICLE THREE
Covenants
 	 	 	 	 	 	 	 	 	
Section 3.01.	 	Reports to Holders of Notes	 	 	11	 	
 	 	 	 	 	 	 	 	 	
ARTICLE FOUR	
 	 	 	 	 	 	 	 	 	
REDEMPTION AND CONVERSIONS	
 	 	 	 	 	 	 	 	 	
Section 4.01.	 	Optional Redemption by the Company	 	 	11	 	
Section 4.02.	 	Purchase at Option of the Holder upon a Fundamental Change	 	 	13	 	
Section 4.03.	 	Purchase of Notes at the Option of the Holder; Payment of Purchase Price or Fundamental Change Purchase Price in Stock	 	 	14	 	
Section 4.04.	 	Further Conditions for Purchase at the Option of Holders upon a Fundamental Change and Purchase of Notes at the Option of the Holder	 	 	22	 	
Section 4.05.	 	Conversion of Notes	 	 	25	 	
Section 4.06.	 	Adjustments to Conversion Rate	 	 	27	 	
Section 4.07.	 	Miscellaneous Provisions Relating to Conversion	 	 	32	 	
Section 4.08.	 	Optional Conversion to Semi-Annual Cash Pay Note upon Tax Event	 	 	36	 	
Section 4.09.	 	Calculation of Original Issue Discount for U.S. Federal Income Tax Purposes	 	 	36	 	
Section 4.10.	 	Payment of Interest	 	 	37	 	
 -i- 

 

 	 	 	 	 	 	 	 	 	
ARTICLE FIVE	
 		
Miscellaneous	
 	
Section 5.01.	 	No Adverse Interpretation of Other Agreements	 	 	39	 	
Section 5.02.	 	No Recourse Against Others	 	 	39	 	
Section 5.03.	 	Successors and Assigns	 	 	39	 	
Section 5.04.	 	Duplicate Originals	 	 	39	 	
Section 5.05.	 	Severability	 	 	40	 	
 	 	 	 	 	 	 	 	 	
Exhibit A	 	Form of Note	 	 	 	 	
Projected Payment Schedule
 -ii- 

 

          FIRST SUPPLEMENTAL INDENTURE dated as of July 20, 2001 (“ Supplemental Indenture ”), to the Indenture dated as of February 12, 2001 (as amended, modified or supplemented from time to time in accordance therewith, the “ Indenture ”), by and among MASCO CORPORATION., a Delaware corporation (the “ Company ”) and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION as trustee (the “ Trustee ”).
          Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of Notes (as defined herein):
          WHEREAS, the Company and the Trustee have duly authorized the execution and delivery of the Indenture to provide for the issuance from time to time of senior debt securities (the “ Securities ”) to be issued in one or more series as in the Indenture provided;
          WHEREAS, the Company desires and has requested the Trustee to join it in the execution and delivery of this Supplemental Indenture in order to establish and provide for the issuance by the Company of a series of Securities designated as its Zero Coupon Convertible Senior Notes Due 2031 in the aggregate principal amount at maturity of up to $1,901,360,000, substantially in the form attached hereto as Exhibit A (the “ Notes ”), on the terms set forth herein;
          WHEREAS, Section 2.01 of the Indenture provides that a supplemental indenture may be entered into by the Company and the Trustee for such purpose provided certain conditions are met;
          WHEREAS, the conditions set forth in the Indenture for the execution and delivery of this Supplemental Indenture have been complied with; and
          WHEREAS, all things necessary to make this Supplemental Indenture a valid agreement of the Company and the Trustee, in accordance with its terms, and a valid amendment of, and supplement to, the Indenture have been done;
          NOW, THEREFORE:
          In consideration of the premises and the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee, for the equal and ratable benefit of the holders, that the Indenture is supplemented and amended, to the extent expressed herein, as follows:

 

 -2-
ARTICLE ONE
Scope of Supplemental Indenture; General
          The changes, modifications and supplements to the Indenture effected by this Supplemental Indenture shall be applicable only with respect to, and govern the terms of, the Notes, which shall be limited in aggregate principal amount to $1,654,183,000 (or up to $1,901,360,000 if the over-allotment option is exercised pursuant to the Underwriting Agreement) in one series, and shall not apply to any other Securities that may be issued under the Indenture unless a supplemental indenture with respect to such other Securities specifically incorporates such changes, modifications and supplements. Pursuant to this Supplemental Indenture, there is hereby created and designated a series of Securities under the Indenture entitled “Zero Coupon Convertible Senior Notes Due 2031.” The Notes shall be in the form of Exhibit A hereto.
          The aggregate Principal Amount of the Notes shall be payable on the Final Maturity Date unless the Accreted Value or the Restated Principal Amount has been earlier repaid or the Notes have been converted in accordance with this Supplemental Indenture.
          The Notes shall be issued at an Issue Price of $394.45 per $1,000 Principal Amount. Except as provided for in Sections 4.08 and 4.10 and paragraphs 1, 5 and 10 of the Notes, there shall be no periodic payments of interest on the Notes. The calculation of the Accreted Value in the period during which each Note remains outstanding shall be on a semi-annual bond equivalent basis using a 360-day year composed of twelve 30-day months, and such accrual shall commence on the Issue Date of the Notes. In the event of the maturity, conversion, purchase by the Company at the option of a Holder or redemption of a Note, Accreted Value, if any, shall cease to accrue on such Note, under the terms and subject to the conditions of this Supplemental Indenture.
          The Notes shall be payable and may be presented for payment, purchase, conversion, registration of transfer and exchange, without service charge, at the office of the Company maintained for such purpose in New York, New York, which shall initially be the office or agency of the Trustee.
ARTICLE TWO
Certain Definitions
          The following terms have the meanings set forth below in this Supplemental Indenture. Capitalized terms used but not defined herein have the meanings ascribed to such

 

 -3- 
terms in the Indenture. To the extent terms defined herein differ from the Indenture, the terms defined herein will govern.
          “ Accreted Conversion Price ” as of any date means the price determined by dividing (x) the Accreted Value at such date, by (y) the Conversion Rate at such date.
          “ Accreted Value ” means, at any date of determination, (1) prior to such time as the Notes are converted to Cash Pay Notes, the sum of (x) the Issue Price of the Notes and (y) the portion of the excess of the Principal Amount of the Notes over the Issue Price which shall have been amortized by the Company in accordance with GAAP through such date, such amount to be so amortized on a daily basis and compounded semi-annually on each July 20 and January 20 at the rate of 3.125% per annum from the Issue Date through the date of determination computed on the basis of a 360-day year of twelve 30-day months and (2) at or after such time as the Notes are converted to Cash Pay Notes, the Restated Principal Amount.
          “ Affiliate ” means, when used with reference to a specified Person, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Person specified.
          “ Bid Agent ” means a bid solicitation agent appointed by the Company to act in such capacity pursuant to paragraph 3 of the Notes.
          “ Capital Stock ” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of or in such Person’s capital stock or other equity interests, and options, rights or warrants to purchase such capital stock or other equity interests, whether now outstanding or issued after the Issue Date, including, without limitation, all Preferred Stock.
          “ Cash ” has the meaning provided in Section 4.03.
          “ Cash Dividends ” has the meaning assigned thereto in Exhibit A hereto.
          “ Cash Pay Notes ” means the Notes, after they have been converted to semi-annual cash pay Notes following the occurrence of a Tax Event.
          “ Common Equity ” of any Person means Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person.
          “ Common Stock ” means the common stock of the Company, par value $1.00 per share, as it exists on the Issue Date and any shares of any class or classes of capital stock

 

 -4- 
of the Company resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided , however , that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable on conversion of Notes shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.
          “ Common Stock Record Date ” means, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).
          “ Company Notice ” has the meaning provided in Section 4.03.
          “ Company Notice Date ” has the meaning provided in Section 4.03.
          “ Continuing Director ” means a director who either was a member of the Board of Directors of the Company on the date of this Supplemental Indenture or who became a director of the Company subsequent to such date and whose election, or nomination for election by the Company’s stockholders, was duly approved by a majority of the Continuing Directors on the Board of Directors of the Company at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the entire Board of Directors of the Company in which such individual is named as nominee for director.
          “ control ”, when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling ” and “ controlled ” have meanings correlative to the foregoing.
          “ Conversion Agent ” means the office or agency designated by the Company where Notes may be presented for conversion.
          “ Conversion Date ” has the meaning provided in Section 4.05.
          “ Conversion Rate ” has the meaning provided in Section 4.05.

 

 -5- 
          “ Default ” means any event, act or condition that is, or after notice or the passage of time or both would be, an Event of Default.
          “ Defaulted Interest ” has the meaning specified in Section 4.10.
          “ Distributed Securities ” has the meaning provided in Section 4.06.
          “ Dollars ” and “ $ ” mean United States Dollars.
          “ Exchange Act ” means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder.
          “ Expiration Time ” has the meaning provided in Section 4.06.
          “ Fair Market Value ” means, with respect to any asset, the price (after taking into account any liabilities relating to such assets) that would be negotiated in an arm’s-length transaction for cash between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction, as such price is determined in good faith by the Board of Directors of the Company or a duly authorized committee thereof, as evidenced by a resolution of such Board or committee.
          “ Final Maturity ” or “ Final Maturity Date ” means July 20, 2031.
          “ Five-Day Period ” has the meaning assigned thereto in Exhibit A hereto.
          “ Fundamental Change ” shall be deemed to have occurred at such time after the Issue Date as:
     (1) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Company and its Subsidiaries to any Person (other than a Subsidiary); provided , however , that a transaction where the Holders of all classes of Common Equity of the Company immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Equity of such Person immediately after such transaction shall not be a Fundamental Change;
     (2) a “person” or “group” (within the meaning of Section 13(d) of the Exchange Act (other than the Company)) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Common Equity of the Company representing more than 50% of the voting power of the Common Equity of the Company;

 

 -6- 
     (3) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Company; or
     (4) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; provided , however , that a liquidation or dissolution of the Company which is part of a transaction that does not constitute a Fundamental Change under the proviso contained in clause (1) above shall not constitute a Fundamental Change.
A Fundamental Change will not be deemed to have occurred, however, if either:
     (I) the Sale Price for (a) any 10 Trading Days within the 20 consecutive Trading Days ending immediately before the Fundamental Change, and (b) at least five Trading Days within the 10 consecutive Trading Days ending immediately before the Fundamental Change shall equal or exceed 105% of the Accreted Value divided by the Conversion Rate, or
     (II) both
     (a) at least 90% of the consideration (excluding cash payments for fractional shares) in the transaction or transactions constituting the Fundamental Change consists of shares of Common Equity with full voting rights traded on a national securities exchange or quoted on the Nasdaq Stock Market (or which will be so traded or quoted when issued or exchanged in connection with such Fundamental Change) (such securities being referred to as “ Publicly Traded Securities ”) and as a result of such transaction or transactions the Notes become convertible solely into such Publicly Traded Securities and
     (b) the consideration in the transaction or transactions constituting the Fundamental Change consists of cash, Publicly Traded Securities or a combination of cash and Publicly Traded Securities with an aggregate fair market value (which, in the case of Publicly Traded Securities, shall be equal to the average closing price of such Publicly Traded Securities during the five consecutive Trading Days commencing with the Trading Day following consummation of the transaction or transactions constituting the Fundamental Change) of at least 105% of the Accreted Conversion Price.
          “ Fundamental Change Purchase Date ” has the meaning provided in Section 4.02(a).
          “ Fundamental Change Purchase Notice ” has the meaning provided in Section 4.02(b).

 

 -7- 
          “ Fundamental Change Purchase Price ” has the meaning provided in Section 4.02(a).
          “ GAAP ” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the date of this Supplemental Indenture.
          “ Holder ” means the Person in whose name a Note is registered in the books of the Registrar for the Notes.
          “ Indenture ” has the meaning provided in the Recitals.
          “ Interest Payment Date ” has the meaning specified in Section 4.08.
          “ Investment Grade ” shall mean BBB - or higher by S&P or Baa3 or higher by Moody’s or the successor or other equivalent of such ratings by S&P or Moody’s.
          “ Issue Date ” means the date on which the Notes that constitute the Firm Securities (as defined in the Underwriting Agreement) are originally issued under this Supplemental Indenture. The Issue Date of the Additional Securities (as defined in the Underwriting Agreement) shall be deemed to be the same as the Issue Date of the Firm Securities.
          “ Issue Price ” of the Notes means, in connection with the original issuance of the Notes, the initial issue price at which the Notes were issued as set forth on the face of the Notes.
          “ Market Price ” means, on any date, the average of the Sale Prices of the Common Stock for the 20 Trading Day period ending on the third Business Day (if the third Business Day prior to the applicable Purchase Date is a Trading Day, or if not, then on the last Trading Day prior to such third Business Day) prior to such date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such Trading Days during such 20 Trading Day period and ending on such date, of certain events with respect to the Common Stock that would result in an adjustment of the Conversion Rate under this Supplemental Indenture.
          “ Marketable Securities ” means (a) equity securities that are listed on the New York Stock Exchange, the American Stock Exchange or The Nasdaq National Market and (b) debt securities that are rated by a nationally recognized rating agency, listed on the New

 

 -8- 
York Stock Exchange or the American Stock Exchange or covered by at least two reputable market makers.
          “ Moody’s ” means Moody’s Investors Service, Inc. or any successor to its debt rating business.
          “ Note Price ” has the meaning assigned thereto in Exhibit A hereto.
          “ Notes ” has the meaning provided in the Recitals.
          “ Notice ” shall mean, except where expressly otherwise noted herein or otherwise required by applicable law, the publication of relevant information on www.bloomberg.com or the Company’s web site or by any other electronic means of publication reasonably calculated by the Company to constitute notice, except that in the case of delivery of information to the Trustee, “Notice” shall mean written notice delivered by first class mail or facsimile.
          “ Option Exercise Date ” has the meaning specified in Section 4.08.
          “ Paying Agent ” means the Trustee or any successor paying agent.
          “ Preferred Stock ” of any Person means all Capital Stock of such Person which has a preference in liquidation or with respect to the payment of dividends.
          “ Principal Amount ” of a Note means the principal amount of such Note at Final Maturity.
          “ Publicly Traded Securities ” has the meaning provided in the definition of “Fundamental Change.”
          “ Purchase Date ” has the meaning provided in Section 4.03.
          “ Purchase Notice ” has the meaning provided in Section 4.03.
          “ Purchase Price ” has the meaning provided in Section 4.03.
          “ Purchased Shares ” has the meaning provided in Section 4.06.
          “ Rating Agencies ” shall mean (1) S&P and (2) Moody’s.
          “ Redemption Date ” when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Supplemental Indenture.

 

 -9- 
          “ Redemption Notice ” has the meaning provided in Section 4.01(c).
          “ Redemption Price ” when used with respect to any Note to be redeemed, means, in the case of Notes converted to Cash Pay Notes, the Restated Principal Amount plus accrued and unpaid interest from the date of such conversion through the Redemption Date, and otherwise means the Accreted Value plus accrued and unpaid contingent interest, if any.
          “ Registrar ” means Bank One Trust Company, National Association or any successor registrar of the Notes.
          “ Regular Record Date ” has the meaning specified in Section 4.08.
          “ Restated Principal Amount ” has the meaning specified in Section 4.08.
          “ S&P ” means Standard and Poor’s Ratings Group or any successor to its debt rating business.
          “ Sale Price ” of the Common Stock on any date means the closing sale price per share (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and average ask prices) on such date as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq Stock Market.
          “ Special Record Date ” has the meaning specified in Section 4.10.
          “ Stated Maturity ”, when used with respect to any Note or any installment of semi-annual or contingent interest thereon, means the date specified in such Note as the fixed date on which an amount equal to the Principal Amount of such Note or such installment of semi-annual or contingent interest is due and payable.
          “ Supplemental Indenture ” has the meaning provided in the Preamble.
          “ Tax Event ” means that the Company shall have received an opinion from independent tax counsel experienced in such matters to the effect that, on or after July 13, 2001, as a result of:
          (a) any amendment to, or change (including any announced prospective change) in, the laws, rules or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein or

 

 -10- 
          (b) any amendment to, or change in, an interpretation or application of such laws, rules or regulations by any legislative body, court, governmental agency or regulatory authority,
          in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after July 13, 2001, there is more than an insubstantial risk that interest (including original issue discount or contingent interest, if any) payable on the Notes either (i) would not be deductible on a current accrual basis or (ii) would not be deductible under any other method, in either case in whole or in part, by the Company (by reason of deferral, disallowance, or otherwise) for United States Federal income tax purposes.
          “ Tax Event Date ” has the meaning specified in Section 4.08.
          “ Trading Day ” means (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or other national security exchange is open for business or (y) if the applicable security is quoted on the NASDAQ National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
          “ Trustee ” means the party named as such above until a successor replaces such party in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
          “ Twenty-Day Average Price ” means the average of the Sale Prices of the Common Stock for each Trading Day in the 20 Trading Day period ending on the last Trading Day prior to the applicable Conversion Date, appropriately adjusted to take into account the occurrence, during such 20 Trading Day period, of any event requiring adjustment of the Conversion Rate under this Supplemental Indenture.
          “ Underwriting Agreement ” means that certain underwriting agreement relating to the Notes by and among Masco Corporation and Salomon Smith Barney Inc. dated as of July 12, 2001.

 

 -11- 
ARTICLE THREE
Covenants
Section 3.01. Reports to Holders of Notes .
          The Company will file with the Commission the annual reports and the information, documents and other reports required to be filed pursuant to Section 13 or 15(d) of the Exchange Act. The Company will file with the Trustee and mail to each Holder of record of Notes such annual and other regular and periodic reports within 15 days after it files them with the Commission. In the event that the Company is no longer subject to these periodic requirements of the Exchange Act, it will nonetheless continue to file reports with the Commission and the Trustee and mail such reports to each Holder of Notes as if it were subject to such reporting requirements. Regardless of whether the Company is required to furnish such reports to its stockholders pursuant to the Exchange Act, the Company will cause its consolidated financial statements and a “Management’s Discussion and Analysis of Results of Operations and Financial Condition” written report, similar to those that would have been required to appear in annual or quarterly reports, to be delivered to Holders of Notes.
ARTICLE FOUR
REDEMPTION AND CONVERSIONS
Section 4.01. Optional Redemption by the Company .
          (a) Right to Redeem; Notice to Trustee . The Company, at its option, may redeem the Notes in accordance with the provisions of paragraphs 6 and 8 of the Notes. If the Company elects to redeem Notes pursuant to paragraph 6 of the Notes, it shall notify the Trustee in writing of the Redemption Date, the Principal Amount of Notes to be redeemed, the Redemption Price and the amount of contingent interest, if any, payable on the Redemption Date. The Company shall give the Notice to the Trustee provided for in this Section 4.01(a) at least 30 days but not more than 60 days before the Redemption Date.
          (b) Selection of Notes to Be Redeemed . If any Note selected for partial redemption is thereafter surrendered for conversion in part before termination of the conversion right with respect to the portion of the Note so selected, the converted portion of such Note shall be deemed (so far as may be), solely for purposes of determining the aggregate Principal Amount of Notes to be redeemed by the Company, to be the portion selected for redemption. Notes which have been converted during a selection of Notes to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection. Nothing in this Section 4.01(b) shall affect the right of any Holder to convert any Note

 

 -12- 
pursuant to Sections 4.05, 4.06 and 4.07 before the termination of the conversion right with respect thereto.
          (c) Notice of Redemption . At least 30 days but not more than 60 days before a Redemption Date, the Company shall provide Notice of redemption (“Redemption Notice”) to the Trustee and to each Holder of Notes to be redeemed.
          The Notice shall identify the Notes to be redeemed and shall state:
     (i) the Redemption Date;
     (ii) the Redemption Price and, to the extent known at the time of such Notice, the amount of contingent interest, if any, payable on the Redemption Date;
     (iii) the then current Conversion Rate;
     (iv) the name and address of the Paying Agent and the Conversion Agent;
     (v) that Notes called for redemption must be presented and surrendered to the Paying Agent to collect the Redemption Price and contingent interest, if any;
     (vi) that the Notes called for redemption may be converted at any time before the close of business on the Business Day prior to the Redemption Date;
     (vii) that Holders who wish to convert Notes must comply with the procedures in paragraph 9 of the Notes;
     (viii) that, unless the Company defaults in making payment of such Redemption Price and contingent interest, if any, Accreted Value and interest (including contingent interest), if any, on the Notes called for redemption will cease to accrue on and after the Redemption Date and the only remaining right of the Holder will be to receive payment of the Redemption Price upon presentation and surrender to the Paying Agent of the Notes;
     (ix) if fewer than all the outstanding Notes are to be redeemed, the certificate number and Principal Amounts at Final Maturity of the particular Notes to be redeemed; and
     (x) the CUSIP number or numbers for the Notes called for redemption.
          At the Company’s request, the Trustee shall give the Notice of redemption in the Company’s name and at the Company’s expense.

 

 -13- 
          (d) Effect of Notice of Redemption . Once Notice of redemption is given, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price (together with accrued and unpaid contingent interest, if any) stated in the Notice, except for Notes that are converted in accordance with the provisions of Sections 4.05, 4.06 and 4.07. Upon presentation and surrender to the Paying Agent, Notes called for redemption shall be paid at the Redemption Price (together with accrued contingent interest, if any).
          (e) Sinking Fund . There shall be no sinking fund provided for the Notes.
          (f) Deposit of Redemption Price . On or before 11:00 a.m. (New York City time) on the Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or an Affiliate of the Company is acting as the Paying Agent, shall segregate and hold in trust) an amount of money sufficient to pay the aggregate Redemption Price of, and any accrued and unpaid contingent interest with respect to, all the Notes to be redeemed on that date other than the Notes or portions thereof called for redemption which on or prior thereto have been delivered by the Company to the Trustee for cancellation or have been converted in accordance with the provisions hereof. The Trustee and the Paying Agent shall, as promptly as practicable, return to the Company any money not required for that purpose because of conversion of the Notes in accordance with the provisions of Sections 4.05, 4.06 and 4.07. If such money is then held by the Company or a Subsidiary in trust and is not required for such purpose, it shall be discharged from such trust.
Section 4.02. Purchase at Option of the Holder upon a Fundamental Change .
          (a) If a Fundamental Change shall occur at any time prior to July 20, 2002, each Holder of Notes shall have the right, at such Holder’s option, to require the Company to purchase such Holder’s Notes on the date (the “ Fundamental Change Purchase Date ”) (or if such date is not a Business Day, the next succeeding Business Day) that is 95 days after the date of the Fundamental Change. The Notes shall be purchased in integral multiples of $1,000 of Principal Amount. The Company shall purchase such Notes for Cash at a price (the “ Fundamental Change Purchase Price ”) equal to the Accreted Value on the Fundamental Change Purchase Date or for shares of Common Stock as set forth in Section 4.03. No Notes may be purchased at the option of the Holders due to a Fundamental Change if there has occurred and is continuing an Event of Default other than an Event of Default that is cured by the payment of the Purchase Price of all such Notes.
          (b) The Company, or at its request (which must be received by the Trustee at least three Business Days (or such lesser period as agreed to by the Trustee) prior to the date the Trustee is requested to give such Notice as described below) the Trustee in the name of and at the expense of the Company, shall mail to all Holders of record of the Notes a Notice (a

 

 -14- 
“ Fundamental Change Purchase Notice ”) of the occurrence of a Fundamental Change and of the purchase right arising as a result thereof, including the information required by Section 4.03(f), on or before the 30th day after the occurrence of such Fundamental Change. The Company shall promptly furnish to the Trustee a copy of such Notice.
          (c) For a Note to be so purchased at the option of the Holder, the Paying Agent must receive such Note with the form entitled “Fundamental Change Purchase Notice” on the reverse thereof duly completed, together with such Note duly endorsed for transfer, on or before the 60th day after the Fundamental Change Purchase Notice is delivered; provided , however , if the Notes are in book-entry form such transfer shall be made in accordance with the customary practices of the depository. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for redemption shall be determined by the Company, whose determination shall be final and binding.

Section 4.03.	 	Purchase of Notes at the Option of the Holder; Payment of Purchase Price or Fundamental Change Purchase Price in Stock.	
          (a) Purchase of Notes at the Option of the Holder . On each of July 20, 2002, January 20, 2005, January 20, 2007, July 20, 2011, July 20, 2016, July 20, 2021 and July 20, 2026 (each, a “ Purchase Date ”), at the purchase price specified in paragraph 7 of the Notes (each, a “ Purchase Price ”), a Holder of Notes shall have the option to require the Company to purchase any outstanding Notes, upon:
     (i) delivery to the Paying Agent by the Holder of a written Notice of purchase (a “ Purchase Notice ”) at any time from the opening of business on the date that is 30 Business Days prior to a Purchase Date until the close of business on such Purchase Date, stating:
     (A) if certificated, the certificate numbers of the Notes which the Holder shall deliver to be purchased;
     (B) the portion of the Principal Amount of the Notes which the Holder shall deliver to be purchased, which portion must be $1,000 in Principal Amount or a multiple thereof;
     (C) that such Notes shall be purchased as of the Purchase Date pursuant to the terms and conditions specified in paragraph 7 of the Notes and in this Supplemental Indenture; and
     (D) if the Company elects, pursuant to a Company Notice, to pay the Purchase Price to be paid as of such Purchase Date, in whole or in part, in

 

 -15- 
Common Stock but such portion of the Purchase Price shall ultimately be payable to such Holder in Cash because any of the conditions to the payment of the Purchase Price in Common Stock are not satisfied prior to or on the Purchase Date, as set forth in Section 4.03(e), whether such Holder elects (x) to withdraw such Purchase Notice as to some or all of the Notes to which such Purchase Notice relates (stating the Principal Amount and certificate numbers, if the Notes are in certificated form, of the Notes as to which such withdrawal shall relate), or (y) to receive Cash in respect of the entire Purchase Price for all Notes (or portions thereof) to which such Purchase Notice relates; and
     (ii) delivery or book-entry transfer of such Note to the Paying Agent prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery or transfer being a condition to receipt by the Holder of the Purchase Price therefor; provided , however , that such Purchase Price shall be so paid pursuant to this Section 4.03 only if the Note so delivered or transferred to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice.
          (b) Procedures . If a Holder, in such Holder’s Purchase Notice or Fundamental Change Purchase Notice (and in any written notice of withdrawal of a portion of a Holder’s Notes previously submitted for purchase pursuant to a Purchase Notice or Fundamental Change Purchase Notice, the portion that remains subject to the Purchase Notice or Fundamental Change Purchase Notice), fails to indicate such Holder’s choice with respect to the election regarding a conditional withdrawal pursuant to the terms of clause (D) of Section 4.03(a)(i) or paragraph II of the Fundamental Change Purchase Notice such Holder shall be deemed to have elected to receive Cash in respect of all Notes subject to such Purchase Notice or Fundamental Change Purchase Notice in the circumstances set forth in such clause (D) and paragraph II of the Fundamental Change Purchase Notice.
          The Company shall purchase from the Holder thereof, pursuant to this Section 4.03, a portion of a Note if the Principal Amount of such portion is $1,000 or a multiple of $1,000 if so requested by the Holder. Provisions of this Supplemental Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note.
          Any purchase by the Company contemplated pursuant to the provisions of Section 4.02 or this Section 4.03 shall be consummated by the delivery of the consideration to be received by the Holder (together with accrued and unpaid contingent interest, if any) promptly following the later of the Purchase Date and the time of delivery or book-entry transfer of the Note.

 

 -16- 
          Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice or Fundamental Change Purchase Notice contemplated by Section 4.02 or this Section 4.03(a) shall have the right at any time prior to the close of business on the Purchase Date or Fundamental Change Purchase Date to withdraw such Purchase Notice or Fundamental Change Purchase Notice (in whole or in part) by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 4.04(a).
          The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or Fundamental Change Purchase Notice or written notice of withdrawal thereof.
          (c) Company’s Right to Elect Manner of Payment of Purchase Price . The Company may elect with respect to any Purchase Date or Fundamental Change Purchase Date to pay the Purchase Price or Fundamental Change Purchase Price in respect of the Notes to be purchased pursuant to Section 4.02 or Section 4.03(a) as of such Purchase Date or Fundamental Change Purchase Date, in U.S. legal tender (“ Cash ”) or Common Stock, or in any combination of Cash and Common Stock, subject to the conditions set forth in Sections 4.03(d) and (e); provided , however , that any Purchase Price paid on July 20, 2002 pursuant to Section 4.03(a) must be paid fully in Cash. The Company shall designate, in the Company Notice delivered pursuant to Section 4.03(f), whether the Company shall purchase the Notes for Cash or Common Stock, or, if a combination thereof, the percentages of the Purchase Price or Fundamental Change Purchase Price of Notes in respect of which it shall pay in Cash and/or Common Stock; provided that the Company shall pay Cash for fractional interests in Common Stock. For purposes of determining the existence of potential fractional interests, all Notes subject to purchase by the Company held by a Holder shall be considered together (no matter how many separate certificates are to be presented). Each Holder whose Notes are purchased pursuant to this Section 4.03 shall receive the same percentage of Cash and/or Common Stock in payment of the Purchase Price or Fundamental Change Purchase Price for such Notes, except (i) as provided in Section 4.03(e) with regard to the payment of Cash in lieu of fractional interests in Common Stock and (ii) in the event that the Company is unable to purchase the Notes of a Holder or Holders for Common Stock because any necessary qualifications or registrations of the Common Stock under applicable federal or state securities laws cannot be obtained, the Company may purchase the Notes of such Holder or Holders for Cash. Once the Company has given its Company Notice to Holders, the Company may not change its election with respect to the consideration (or components or percentages of components thereof) to be paid except pursuant to this Section 4.03(c) or Section 4.03(e).
          At least five Business Days before the Company Notice Date, the Company shall deliver an Officers’ Certificate to the Trustee specifying:
     (i) the manner of payment selected by the Company;

 

 -17- 
     (ii) the information required by Section 4.03(f);
     (iii) if the Company elects to pay the Purchase Price or Fundamental Change Purchase Price, or a specified percentage thereof, in Common Stock, that the conditions to such manner of payment set forth in Section 4.03(e) have been or shall be complied with; and
     (iv) whether the Company desires the Trustee to give the Company Notice required by Section 4.03(f).
          (d) Purchase with Cash . At the option of the Company, the Purchase Price or Fundamental Change Purchase Price of Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice pursuant to Section 4.02 or Section 4.03(a) has been given, or a specified percentage thereof, may be paid by the Company with Cash equal to the aggregate Purchase Price or Fundamental Change Repurchase Price, or such specified percentage thereof, as the case may be, of such Notes.
          (e) Payment by Issuance of Common Stock . At the option of the Company, subject to Section 4.03(c), the Purchase Price of Notes in respect of which a Purchase Notice pursuant to Section 4.03(a) or Fundamental Change Purchase Notice has been given, or a specified percentage thereof, may be paid by the Company by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (x) the amount of Cash to which the Holders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price or Fundamental Change Purchase Price of such Notes in Cash by (y) the Market Price of a share of Common Stock, subject to the next succeeding paragraph.
          The Company shall not issue a fractional share of Common Stock in payment of the Purchase Price or Fundamental Change Purchase Price. Instead the Company shall pay Cash for the current market value of the fractional share. The current market value of a fraction of a share shall be determined by multiplying the Market Price by such fraction and rounding the product to the nearest whole cent. It is understood that if a Holder elects to have more than one Note purchased, the number of shares of Common Stock shall be based on the aggregate amount of Notes to be purchased.
          The Company’s right to exercise its election to purchase the Notes pursuant to Section 4.02 or Section 4.03 through the issuance of shares of Common Stock shall be conditioned upon:

 

 -18- 
     (i) the Company having given timely Notice in accordance with Section 4.03(f) of its election to purchase all or a specified percentage of the Notes with Common Stock as provided herein;
     (ii) (A) (1) the registration of the shares of Common Stock to be issued in respect of the payment of the specified percentage of the Purchase Price or Fundamental Change Purchase Price under the Securities Act of 1933 or (2) the issuance of the shares of Common Stock in an action which is exempt from the registration requirements of the Securities Act of 1933 and which will not result in such shares of Common Stock being deemed “restricted securities” under the Securities Act of 1933 or otherwise, and (B) the registration of the             shares of Common Stock under the Exchange Act, to the extent required thereby;
     (iii) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and
     (iv) the receipt by the Trustee of an Officers’ Certificate and an Opinion of Counsel each stating that (A) the terms of the issuance of the Common Stock are in conformity with this Supplemental Indenture and (B) the shares of Common Stock to be issued by the Company in payment of the specified percentage of the Purchase Price or Fundamental Change Purchase Price in respect of Notes have been duly authorized and, when issued and delivered pursuant to the terms of this Supplemental Indenture in payment of the specified percentage of the Purchase Price or Fundamental Change Purchase Price in respect of Notes, shall be validly issued, fully paid and nonassessable, and, to the best of such counsel’s knowledge, free from preemptive rights, and in the case of such Officers’ Certificate, stating that conditions (i), (ii) and (iii) above have been satisfied and, in the case of such Opinion of Counsel, stating that condition (ii) has been satisfied.
          Such Officers’ Certificate shall also set forth the number of shares of Common Stock to be issued for each $1,000 Principal Amount of Notes and the Sale Price of a share of Common Stock on each Trading Day during the period during which the Market Price is calculated and ending on the Purchase Date or Fundamental Change Purchase Date. The Company may elect to pay the Purchase Price or Fundamental Change Purchase Price (or any portion thereof) in Common Stock only if the information necessary to calculate the Market Price is publicly reported and the Common Stock is then listed on a national securities exchange or traded on the Nasdaq Stock Market (or any successor). If any of the conditions set forth in this Section 4.03(e) are not satisfied with respect to a Holder or Holders prior to or on the Purchase Date or Fundamental Change Repurchase Date and the Company elected to purchase the Notes to be purchased as of such Purchase Date or Fundamental Change

 

 -19- 
Repurchase Date pursuant to Section 4.02 or this Section 4.03 through the issuance of shares of Common Stock, the Company shall pay the entire Purchase Price or Fundamental Change Purchase Price in respect of such Notes of such Holder or Holders in Cash.
          Upon determination of the actual number of shares of Common Stock which the Holder of each $1,000 Principal Amount of the Notes shall receive, the Company shall provide Notice of such determination.
          (f) Notice of Election . The Company’s Notices of election to purchase with Cash or Common Stock, or any combination thereof (each a “ Company Notice ”), shall be sent to the Holders (and to beneficial owners if required by applicable law) at their addresses shown in the Note register maintained by the Registrar, and delivered to the Trustee, not less than 30 Business Days prior to the Purchase Date (the “ Company Notice Date ”) or on or before the 30th day after the occurrence of the Fundamental Change, as the case may be. Such Company Notices shall state the manner of payment elected and shall contain the following information.
          In the event the Company has elected to pay a Purchase Price or Fundamental Change Purchase Price (or a specified percentage thereof) with Common Stock, the Company Notice shall:
     (i) state that each Holder shall receive Common Stock in respect of the specified percentage of the Purchase Price or Fundamental Change Purchase Price of the Notes held by such Holder (except any Cash amount to be paid in lieu of fractional             shares);
     (ii) state that the total number of shares of Common Stock to be issued to Holders will be equal to the quotient obtained by dividing (x) the amount of cash to which the Holders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price or Fundamental Change Purchase Price of such Notes in cash by (y) the Market Price of a share of Common Stock;
     (iii) set forth the method of calculating the Market Price of the Common Stock; and
     (iv) state that because the Market Price of Common Stock will be determined prior to the Purchase Date or Fundamental Change Purchase Date, Holders will bear the market risk with respect to the value of the Common Stock to be received from the date such Market Price is determined to the Purchase Date.

 

 -20- 
          In any case, each Company Notice shall include a form of Purchase Notice or Fundamental Change Repurchase Notice to be completed by a Holder and shall state:
     (i) the Purchase Price, the Fundamental Change Purchase Price, the Conversion Rate and, to the extent known at the time of such Notice, the amount of contingent interest, if any, that will be payable with respect to the Notes on the Purchase Date;
     (ii) the name and address of the Paying Agent and the Conversion Agent;
     (iii) that Notes as to which a Purchase Notice or Fundamental Change Purchase Notice has been given may be converted only if the applicable Purchase Notice has been withdrawn in accordance with the terms of this Supplemental Indenture;
     (iv) that Notes must be surrendered to the Paying Agent to collect payment of the Purchase Price or Fundamental Change Purchase Price and contingent interest, if any;
     (v) that the Purchase Price or Fundamental Change Purchase Price for any Note as to which a Purchase Notice has been given and not withdrawn, together with any accrued contingent interest payable with respect thereto, shall be paid promptly following the later of the Purchase Date or Fundamental Change Purchase Date and the time of surrender of such Note as described in (iv);
     (vi) the procedures the Holder must follow under Section 4.02 and Section 4.03;
     (vii) briefly, the conversion rights of the Notes;
     (viii) that, unless the Company defaults in making payment of such Purchase Price or Fundamental Change Purchase Price and contingent interest, if any, Accreted Value and interest (including contingent interest), if any, on Notes covered by any Purchase Notice or Fundamental Change Purchase Notice (or interest, if the Notes have been converted into Cash Pay Notes pursuant to Section 4.08 of this Supplemental Indenture, if any) will cease to accrue on and after the Purchase Date or the Fundamental Change Purchase Date, as the case may be;
     (ix) the CUSIP or ISIN number of the Notes; and
     (x) the procedures for withdrawing a Purchase Notice or Fundamental Change Purchase Notice (including, without limitation, for a conditional withdrawal

 

 -21- 
pursuant to the terms of Section 4.03(a)(i)(D) or paragraph II of the Fundamental Change Purchase Notice).
          At the Company’s request and at the Company’s expense, the Trustee shall give the Company Notice in the Company’s name; provided , however , that, in all cases, the text of the Company Notice shall be prepared by the Company.
          (g) Covenants of the Company . All shares of Common Stock delivered upon conversion or purchase of the Notes shall be newly issued shares or treasury shares, shall be fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.
          The Company shall cause to have listed or quoted all such shares of Common Stock on each United States national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted.
          (h) Procedure upon Purchase . On or before 11:00 a.m. (New York City time) on the Business Day immediately following the Purchase Date or Fundamental Change Purchase Date, the Company shall deposit with the Paying Agent Cash (in respect of a Cash purchase under Section 4.03(d) or for fractional interests or contingent interest, as applicable), or shares of Common Stock, or a combination thereof, as applicable, sufficient to pay the aggregate Purchase Price or Fundamental Change Purchase Price of, and any accrued and unpaid contingent interest with respect to, the Notes to be purchased pursuant to this Section 4.03. If the Company is delivering Common Stock, the Company shall deliver to each Holder entitled to receive Common Stock, through the Paying Agent, a certificate for the number of full shares of Common Stock, as applicable, issuable in payment of such Purchase Price or Fundamental Change Purchase Price and Cash in lieu of any fractional interests. The Person in whose name the certificate for Common Stock is registered shall be treated as a holder of record following the Purchase Date or Fundamental Change Purchase Date. Subject to Section 4.03(e), no payment or adjustment shall be made for dividends on the Common Stock the Common Stock Record Date for which occurred on or prior to the Purchase Date or Fundamental Change Purchase Date. If the Paying Agent holds, in accordance with the terms of the Indenture, money or securities sufficient to pay the Purchase Price or Fundamental Change Purchase Price of such Note on the Business Day following the Purchase Date or Fundamental Change Purchase Date, then, on and after such date, such Note shall cease to be outstanding and Accreted Value on such Note shall cease to accrue, whether or not book-entry transfer of such Note is made or such Note is delivered to the Paying Agent, and all other rights of the Holder shall terminate (other than the right to receive the Purchase Price or Fundamental Change Purchase Price upon delivery or transfer of the Note).

 

 -22- 
          (i) Taxes . If a Holder of a Note is paid in Common Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of shares of Common Stock. However, the Holder shall pay any such tax which is due because the Holder requests the shares of Common Stock to be issued in a name other than the Holder’s name. The Paying Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder’s name until the Paying Agent receives a sum sufficient to pay any tax which shall be due because the shares of Common Stock are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any income tax withholding required by law or regulations.

Section 4.04.	 	Further Conditions for Purchase at the Option of Holders upon a Fundamental Change and Purchase of Notes at the Option of the Holder.	
          (a) Effect of Purchase Notice or Fundamental Change Purchase Notice . Upon receipt by the Company of the Purchase Notice or Fundamental Change Purchase Notice specified in Section 4.03(a) or Section 4.02(c), as applicable, the Holder of the Note in respect of which such Purchase Notice or Fundamental Change Purchase Notice, as the case may be, was given shall (unless such Purchase Notice or Fundamental Change Purchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest, if any, with respect to such Note. Such Purchase Price or Fundamental Change Purchase Price and contingent interest, if any, shall be paid to such Holder promptly following the later of (x) the Purchase Date or the Fundamental Change Purchase Date, as the case may be, with respect to such Note (provided the conditions in Section 4.03(a) or Section 4.02(c), as applicable, have been satisfied) and (y) the time of delivery or book-entry transfer of such Note to the Paying Agent by the Holder thereof in the manner required by Section 4.03(a) or Section 4.02(c), as applicable. Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has been given by the Holder thereof may not be converted for shares of Common Stock on or after the date of the delivery of such Purchase Notice (or Fundamental Change Purchase Notice, as the case may be), unless such Purchase Notice (or Fundamental Change Purchase Notice, as the case may be) has first been validly withdrawn as specified in the following two paragraphs.
          A Purchase Notice or Fundamental Change Purchase Notice, as the case may be, may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent at any time prior to the close of business on the Purchase Date or the Fundamental Change Purchase Date, as the case may be, to which it relates specifying:
          (i) if certificated, the certificate number of the Notes in respect of which such notice of withdrawal is being submitted;

 

 -23- 
          (ii) the Principal Amount of the Notes with respect to which such notice of withdrawal is being submitted; and
          (iii) the Principal Amount, if any, of the Notes which remain subject to the original Purchase Notice or Company Fundamental Change Notice, as the case may be, and which has been or shall be delivered for purchase by the Company.
          A written notice of withdrawal of a Purchase Notice or Fundamental Change Purchase Notice may be in the form of (i) a conditional withdrawal contained in a Purchase Notice pursuant to the terms of Section 4.03(a)(i)(D) or a Fundamental Change Purchase Notice pursuant to paragraph II thereof or (ii) a conditional withdrawal containing the information set forth in the preceding paragraph and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph.
          There shall be no purchase of any Notes pursuant to Section 4.02 or Section 4.03 (other than through the issuance of Common Stock in payment of the Purchase Price or Fundamental Purchase Price, including Cash in lieu of any fractional shares) or redemption pursuant to Section 4.01 if there has occurred prior to, on or after, as the case may be, the giving, by the Holders of such Notes, of the required Purchase Notice or Fundamental Change Purchase Notice, as the case may be, or the giving by the Company of the required Redemption Notice, and is continuing an Event of Default (other than an Event of Default that is cured by the payment of the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest with respect to all such Notes). The Paying Agent will promptly return to the respective Holders thereof any Notes (x) with respect to which a Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has been withdrawn in compliance with this Supplemental Indenture, or (y) held by it during the continuance of an Event of Default (other than an Event of Default that is cured by the payment of the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest with respect to all such Notes) in which case, upon such return, the Purchase Notice or Fundamental Change Purchase Notice with respect thereto shall be deemed to have been withdrawn.
          (b) Deposit of Purchase Price or Fundamental Change Purchase Price . On or before 11:00 a.m. (New York City time) on the Business Day immediately following a Purchase Date or a Fundamental Change Purchase Date, as the case may be, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or an Affiliate of the Company is acting as the Paying Agent, shall segregate and hold in trust) an amount of money and/or Common Stock, if permitted hereunder, sufficient to pay the aggregate Purchase

 

 -24- 
Price or Fundamental Change Purchase Price, as the case may be, of, and any accrued and unpaid contingent interest, with respect to, all the Notes or portions thereof which are to be purchased as of such Purchase Date or Fundamental Change Redemption Date, as the case may be.
          (c) Notes Purchased in Part . Any Note that is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Note, without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder in aggregate Principal Amount equal to, and in exchange for, the portion of the Principal Amount of the Note so surrendered which is not purchased or redeemed.
          (d) Covenant to Comply with Securities Laws upon Purchase of Notes . In connection with any offer to purchase Notes under Section 4.02 or 4.03, the Company shall (i) comply with Rules 13e-4 and 14e-1 (which terms, as used herein, include any successor provision thereto) under the Exchange Act, if applicable; (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, if applicable; and (iii) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under Sections 4.02 and 4.03 to be exercised in the time and in the manner specified in Sections 4.02 and 4.03.
          (e) Repayment to the Company . The Trustee and the Paying Agent shall return to the Company any Cash or shares of Common Stock that remain unclaimed as provided in paragraph 14 of the Notes, together with interest that the Trustee has agreed to pay, if any, or dividends, if any, paid thereon while such shares are held by the Trustee or the Paying Agent, held by them for the payment of a Purchase Price or Fundamental Change Purchase Price, as the case may be, or contingent interest, if any; provided , however , that to the extent that the aggregate amount of Cash or shares of Common Stock deposited by the Company pursuant to Section 4.04(b) exceeds the aggregate Purchase Price or Fundamental Change Purchase Price, as the case may be, of, and any accrued and unpaid contingent interest with respect to, the Notes or portions thereof which the Company is obligated to purchase as of the Purchase Date or Fundamental Change Purchase Date, as the case may be, then promptly after the Business Day following the Purchase Date or Fundamental Change Purchase Date, as the case may be, the Trustee and the Paying Agent shall return any such excess to the Company together with interest that the Trustee has agreed to pay, if any, or dividends, if any, paid thereon while such Cash or shares are held by the Trustee or the Paying Agent.

 

 -25- 

Section 4.05.	 	Conversion of Notes .	
          (a) Right to Convert . A Holder of a Note may convert such Note for Common Stock at any time during which the conditions stated in paragraph 9 of the Notes are met. The number of shares of Common Stock issuable upon conversion of a Note per $1,000 of Principal Amount (the “ Conversion Rate ”) shall be that set forth in paragraph 9 in the Notes, subject to adjustment as herein set forth.
          A Holder may convert a portion of the Principal Amount of a Note if the portion is $1,000 or a multiple of $1,000. Provisions of this Supplemental Indenture that apply to conversion of all of a Note also apply to conversion of a portion of a Note.
          (b) Conversion Procedures . To convert a Note a Holder must satisfy the requirements in paragraph 9 of the Notes. The date on which the Holder of Notes satisfies all those requirements is the conversion date (the “ Conversion Date ”). As soon as practicable, but in no event later than the fifth Business Day following the Conversion Date the Company shall deliver to the Holder, through the Conversion Agent, a certificate for the number of full shares of Common Stock issuable upon the conversion and Cash in lieu of any fractional share determined pursuant to Section 4.05(c). The Person in whose name the certificate is registered shall be treated as a stockholder of record on and after the Conversion Date; provided , however , that no surrender of a Note on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the Person or Persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; such conversion shall be at the Conversion Rate in effect on the date that such Note shall have been surrendered for conversion, as if the stock transfer books of the Company had not been closed. Upon conversion of a Note, such Person shall no longer be a Holder of such Note.
          No payment or adjustment shall be made for dividends on or other distributions with respect to any Common Stock except as provided in Section 4.06. On conversion of a Note, that portion of Accreted Value (or interest, if the Company has exercised its option to convert the Notes to Cash Pay Notes pursuant to Section 4.08) attributable to the period from the Issue Date of the Note to the Conversion Date and accrued contingent interest with respect to the converted Note shall not be canceled, extinguished or forfeited, but rather shall be deemed to be paid in full (except as contemplated in paragraph 10 of the Notes) to the Holder thereof through delivery of the Common Stock (together with the Cash payment, if any, in lieu of fractional shares) in exchange for the Note being converted.

 

 -26- 
          If a Holder converts more than one Note at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the total Principal Amount of the Notes converted.
          Upon surrender of a Note that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Note in an authorized denomination equal in Principal Amount (or the Restated Principal Amount, if applicable) to the unconverted portion of the Note surrendered.
          If the last day on which a Note may be converted is a legal holiday in a place where a Conversion Agent is located, the Note may be surrendered to that Conversion Agent on the next succeeding day that it is not a legal holiday.
          (c) Cash Payments in Lieu of Fractional Shares . The Company shall not issue a fractional share of Common Stock upon conversion of a Note. Instead the Company shall deliver Cash for the current market value of the fractional share. The current market value of a fractional share shall be determined to the nearest 1/10,000th of a share by multiplying the Sale Price of a full share of Common Stock on the Trading Day immediately preceding the Conversion Date by the fractional amount and rounding the product to the nearest whole cent.
          (d) Taxes on Conversion . If a Holder converts a Note, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder’s name. The Conversion Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder’s name until the Conversion Agent receives a sum sufficient to pay any tax which shall be due because the shares are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any tax withholding required by law or regulations.
          (e) Company to Provide Stock . The Company shall, prior to issuance of any Notes hereunder, and from time to time as may be necessary, reserve out of its authorized but unissued Common Stock a sufficient number of shares of Common Stock to permit the conversion of the Notes.
          All shares of Common Stock delivered upon conversion of the Notes shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.

 

 -27- 
          The Company shall endeavor promptly to comply with all federal and state securities laws regulating the order and delivery of shares of Common Stock upon the conversion of Notes, if any, and shall cause to have listed or quoted all such shares of Common Stock on each United States national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted.

Section 4.06.	 	Adjustments to Conversion Rate .	
          The Conversion Rate shall be adjusted from time to time by the Company as follows:
     (a)  In case the Company shall (i) pay a dividend, or make a distribution, in shares of Common Stock or other capital stock, on Common Stock; (ii) subdivide its outstanding Common Stock into a greater number of shares; or (iii) combine its outstanding Common Stock into a smaller number of shares, the Conversion Rate in effect immediately prior thereto shall be adjusted so that the holder of any Note thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which such holder would have owned or have been entitled to receive after the happening of any of the events described above had such Note been converted immediately prior to the happening of such event. If any dividend or distribution of the type described in clause (i) above is not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. An adjustment made pursuant to this Section 4.06 shall become effective immediately after the Common Stock Record Date in the case of a dividend and shall become effective immediately after the effective date in the case of subdivision or combination.
     (b)  In case the Company shall issue rights or warrants to all holders of any class or series of its Common Stock entitling them (for a period expiring within 60 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase Common Stock at a price per share less than the Sale Price per share of Common Stock on the day preceding the date of announcement of the Common Stock Record Date for the determination of stockholders entitled to receive such rights or warrants, the Conversion Rate in effect immediately prior thereto shall be adjusted so that the same shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the date of the issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants

 

 - 28 - 
plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Sale Price. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the Common Stock Record Date for the determination of the stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such Common Stock Record Date for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Sale Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors.
     (c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock (excluding any distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary) any evidences of its indebtedness or assets (other than Cash dividends or other Cash distributions from the Company’s current or retained earnings) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in Section 4.06(b)) (any of the foregoing hereinafter in this Section 4.06(c) called the “ Distributed Securities ”), then, the Conversion Rate shall be adjusted so that the same shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the Market Price per share of the Common Stock on the Common Stock Record Date mentioned below, and the denominator shall be the Sale Price per share of the Common Stock on such Common Stock Record Date less the fair market value on such Common Stock Record Date (as determined by the Board of Directors, whose determination shall be conclusive, and described in a certificate filed with the Trustee) of the Distributed Securities so distributed applicable to one share of Common Stock. Such adjustment shall become effective immediately after the Common Stock Record Date for the determination of stockholders entitled to receive such distribution. Notwithstanding the foregoing, in the event (a) the then fair market value (as so determined) of the portion of the Distributed Securities so distributed

 

 - 29 - 
applicable to one share of Common Stock is equal to or greater than the Market Price of the Common Stock on the Common Stock Record Date or (b) such Market Price exceeds the fair market value of such Distributed Securities by less than $1.00, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of Distributed Securities such Holder would have received had such Holder converted each Note on such Common Stock Record Date. In the event that such distribution is not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 4.06(c) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market on the same day used in computing the Sale Price of the Common Stock.
     Notwithstanding the foregoing provisions of this Section 4.06(c), no adjustment shall be made thereunder for any distribution of Distributed Securities if the Company makes proper provision so that each Holder of a Note who converts such Note (or any portion thereof) after the Common Stock Record Date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the amount and kind of Distributed Securities that such Holder would have been entitled to receive if such Holder had, immediately prior to such Common Stock Record Date, converted such Note for Common Stock; provided that, with respect to any Distributed Securities that are convertible, exchangeable or exercisable, the foregoing provision shall only apply to the extent (and so long as) the Distributed Securities receivable upon conversion of such Note would be convertible, exchangeable or exercisable, as applicable, without any loss of rights or privileges for a period of at least 60 days following conversion of such Note.
     (d) In case the Company shall, by dividend or otherwise, distribute to all holders of any class of its Common Stock Cash (excluding any Cash that is distributed upon a merger or consolidation to which Section 4.07(f) applies) in an aggregate amount that, combined together with (i) the aggregate amount of any other such distributions to all holders of any class of its Common Stock made exclusively in Cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 4.06(d) has been made, and (ii) the aggregate of any Cash plus the fair market value of other consideration (as so determined by the Board of Directors, whose determination shall be conclusive, and described in a certificate filed with the Trustee) payable in respect of any tender offer by the Company for all or any portion of any class of its Common Stock concluded within the 12 months preceding the date of payment of such distribution, and in

 

 - 30 - 
respect of which no adjustment pursuant to Section 4.06(e) has been made, exceeds 10% of the product of the Sale Price on the day preceding the date of declaration of such dividend or distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, the Conversion Rate shall be increased so that the same shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the Common Stock Record Date by a fraction of which the numerator shall be such Sale Price of the Common Stock and the denominator shall be such Sale Price of the Common Stock less the amount of Cash and the fair market value (as so determined) of such other consideration so distributed (and not excluded as provided above) applicable to one share of Common Stock, such increase to be effective immediately prior to the opening of business on the day following the Common Stock Record Date; provided , however , that no adjustment will be made in respect of any such dividends and distributions that are paid during any period for which the Company is paying contingent interest to Holders; provided , further , that, if the portion of the cash so distributed applicable to one share of Common Stock is (i) equal to or greater than the Market Price of the Common Stock on the day preceding the date of declaration of such dividend or distribution or (ii) the Market Price of the Common Stock on the day preceding the date of declaration of such dividend or distribution is greater than the fair market value of the consideration distributed pursuant to Section 4.06(e) by less than $1.00, then, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion, in addition to the shares of Common Stock, Cash and other consideration the Holder would have received had such Holder converted such Note immediately prior to such Common Stock Record Date. If such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 4.06(d) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 4.06(d) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution.
     (e) In case a tender offer made by the Company or any of its subsidiaries for all or any portion of any class of its Common Stock expires and such tender offer (as amended upon the expiration thereof) requires the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares) for an aggregate consideration having a fair market value (as

 

 - 31 - 
determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that, combined together with (a) the aggregate of the Cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers, by the Company or any of its subsidiaries for all or any portion of any class of its Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 4.06(e) has been made, and (b) the aggregate amount of any distributions to all holders of the Common Stock made exclusively in Cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 4.06(d) has been made (except as excluded by the first parenthetical phrase thereof), exceeds 10% of the product of the Market Price (determined as provided herein) as of the last time (the “ Expiration Time ”) tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be increased so that the same shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to an maximum specified in the terms of the tender or exchanged offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the “ Purchased Shares ”) and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such increase (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Company is obligated to purchase             shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such tender offer had not been made.
     (f) For purposes of this Section 4.06, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the

 

 - 32 - 
Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.
Section 4.07. Miscellaneous Provisions Relating to Conversion .
          (a) When Adjustment May be Deferred . No adjustment in the Conversion Rate need be made unless the adjustment would require an increase or decrease of at least 1% in the Conversion Rate then in effect; provided that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. Except as stated in Section 4.06, the Conversion Rate will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. Any adjustments that are made shall be carried forward and taken into account any subsequent adjustment. All calculations under Sections 4.05, 4.06 and 4.07 shall be made to the nearest cent or to the nearest 1/10,000th of a share, as the case may be.
          (b) When No Adjustment Required . No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Notes become convertible into cash, assets or property (other than securities of the Company or another Person), no adjustment need be made thereafter as to the cash, assets or property. Interest shall not accrue on the Cash.
          No adjustment need be made for a transaction referred to in Section 4.06(a), (b), (c), (d) or (e) if Holders participate in the transaction (without converting their Notes) by receiving the same Cash, assets, property or securities that they would have received had they converted their Notes immediately prior to the Common Stock Record Date or the effective date of the transaction as the case may be.
          (c) Notice of Adjustment . Whenever the Conversion Rate is adjusted, the Company shall promptly provide to Holders a Notice of the adjustment. The Company shall file with the Trustee and the Conversion Agent such Notice. The certificate shall, absent manifest error, be conclusive evidence that the adjustment is correct. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any Holder desiring inspection thereof.
          (d) Voluntary Increase . The Company may make such increases in the Conversion Rate, in addition to those required by Section 4.06, as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock

 

 - 33 - 
or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company may from time to time increase the Conversion Rate by any amount for any period of time if the period is at least 20 days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Rate is so increased, the Company shall provide to Holders and file with the Trustee and the Conversion Agent a Notice of such increase. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any holder desiring inspection thereof. The Company shall provide the Notice at least 15 days before the date the increased Conversion Rate takes affect. The Notice shall state the increased Conversion Rate and the period it shall be in effect.
          (e) Notice to Holders Prior to Certain Actions . In case:
     (i) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Rate pursuant to Section 4.06;
     (ii) the Company shall authorize the granting to all or substantially all the Holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants to purchase Common Stock;
     (iii) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or
     (iv) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company,
the Company shall cause to be filed with the Trustee and to be provided to Holders of Notes, as promptly as possible but in any event at least 20 days prior to the applicable date hereinafter specified, a Notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, or rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up

 

 - 34 - 
is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such Notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
          (f) Effect of Reclassification, Consolidation, Merger or Sale . If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash) with respect to or in exchange for such Common Stock; or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture, providing that each Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including Cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.07(f).
          The Company shall cause Notice of the execution of such supplemental indenture to be provided to Holders of Notes, within 20 days after execution thereof. Failure to deliver such Notice shall not affect the legality or validity of such supplemental indenture.
          The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances.
          If this Section 4.07(f) applies to any event or occurrence, Section 4.06 shall not apply.
          (g) Responsibility of Trustee . The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Notes to either calculate the Conversion Rate or determine whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent or calculation of any

 

 - 35 - 
such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same and shall be protected in relying upon an Officer’s Certificate with respect to the same. The Trustee and any other Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note and the Trustee and any other Conversion Agent make no representations with respect thereto. Subject to the provisions of Article Six of the Indenture, neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or Cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Section. Without limiting the generality of the foregoing, neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 4.07(f) relating either to the kind or amount of shares of stock or securities or property (including Cash) receivable by Holders upon the conversion of their Notes after any event referred to in such Section 4.07(f) or to any adjustment to be made with respect thereto, but, subject to the provisions of Article Six of the Indenture, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officer’s Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto.
          (h) Simultaneous Adjustments . In the event that Sections 4.05, 4.06 or 4.07 require adjustments to the Conversion Rate under more than one of Section 4.06(a), (b), (c) or (d), and the Common Stock Record Dates for the distributions giving rise to such adjustments shall occur on the same date, then such adjustments shall be made by applying, first, the provisions of Section 4.06(c), second, the provisions of Section 4.06(d), third, the provisions of Section 4.06(a), and fourth, the provisions of Section 4.06(b).
          (i) Successive Adjustments . After an adjustment to the Conversion Rate under Sections 4.05, 4.06 or 4.07, any subsequent event requiring an adjustment under Sections 4.05, 4.06 or 4.07 shall cause an adjustment to the Conversion Rate as so adjusted.
          (j) General Considerations . Whenever successive adjustments to the Conversion Rate are called for pursuant to Sections 4.05, 4.06 or 4.07, such adjustments shall be made to the Sale Price or Market Price as may be necessary or appropriate to effectuate the intent of Sections 4.05, 4.06 or 4.07 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.
          (k) Stockholder Rights Plans . Upon conversion of the Notes the Holders shall receive, in addition to the Common Stock issuable upon such conversion, any rights

 

 - 36 - 
issued under any stockholder rights plan the Company shall have implemented (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion).

Section 4.08.	 	Optional Conversion to Semi-Annual Cash Pay Note upon Tax Event.	
          From and after (i) the date (the “ Tax Event Date ”) of the occurrence of a Tax Event and (ii) the date the Company exercises its option set forth in this 4.08, whichever is later (the “ Option Exercise Date ”), at the option of the Company, cash interest in lieu of future Accreted Value shall accrue at the rate of 3.125% per annum on a restated principal amount per $1,000 original Principal Amount (the “ Restated Principal Amount ”) equal to its Accreted Value on the Option Exercise Date and shall be payable semi-annually on July 20 and January 20 of each year (each an “ Interest Payment Date ”) to holders of record at the close of business on July 1 and January 1 (each a “ Regular Record Date ”) immediately preceding such Interest Payment Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the Option Exercise Date. Within 15 days of the occurrence of a Tax Event, the Company shall deliver a written Notice of such Tax Event by facsimile and first-class mail to the Trustee and within 15 days of their exercise of such option the Company shall deliver a written Notice of the Option Exercise Date by facsimile and first-class mail to the Trustee and provide Notice to the Holders of the Notes. From and after the Option Exercise Date, (i) the Company shall be obligated to pay at Maturity or upon a Redemption Date, Purchase Date or Fundamental Change Purchase Date, in lieu of the Principal Amount or Accreted Value, as applicable, of a Note, the Restated Principal Amount thereof plus accrued and unpaid interest and (ii) contingent interest shall cease to accrue on the Notes. Notes authenticated and delivered after the Option Exercise Date may, and shall if required by the Trustee, bear a notation in a form approved by the Trustee as to the conversion of the Notes to Cash Pay Notes.

Section 4.09.	 	Calculation of Original Issue Discount for U.S. Federal Income Tax Purposes.	
     The Company agrees, and each Holder and any beneficial holder of a Note by its purchase thereof shall be deemed to agree, to treat (in the absence of an administrative determination or judicial ruling to the contrary), for United States federal income tax purposes, the Notes as contingent payment debt instruments subject to Section 1.1275-4 of the Treasury Regulations. For United States federal income tax purposes, interest will accrue on the Notes as original issue discount according to the “noncontingent bond method,” set forth

 

 - 37 - 
in Section 1.1275-4(b) of the Treasury Regulations, based on a comparable yield of 8.125% compounded semi-annually and the projected payment schedule attached hereto as Exhibit B.
     The Company acknowledges and agrees, and each Holder and any beneficial holder of a Note by its purchase thereof shall be deemed to acknowledge and agree, that (i) the comparable yield means the annual yield the Company would pay, as of the Issue Date, on a fixed-rate cash pay nonconvertible debt security with no contingent payments, but with terms and conditions otherwise comparable to those of the Notes; (ii) the schedule of projected payments attached hereto as Exhibit B is determined on the basis of the comparable yield and an assumption of linear growth of the stock price and a constant dividend yield; (iii) the comparable yield and the schedule of projected payments are not determined for any purpose other than for the determination of interest accruals and adjustments thereof in respect of the Notes for United States federal income tax purposes; and (iv) the comparable yield and the schedule of projected payments do not constitute a projection or representation regarding the future stock price or the amounts payable on the Notes.
Section 4.10. Payment of Interest .
          (a) Paying Agent To Hold Money in Trust . Prior to 11:00 a.m. (New York City time) on any applicable Interest Payment Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay semi-annual or contingent interest when due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal or interest on the Notes and shall notify the Trustee of any default by the Company in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee.
          (b) Holder Lists . The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at least five Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders.
          (c) Payment of Interest; Interest Rights Preserved . (i) Semi-annual or contingent interest on any Note that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Note is registered at

 

 - 38 - 
the close of business on the Regular Record Date or accrual date, as the case may be, for such interest at the office or agency of the Company maintained for such purpose. Each installment of semi-annual or contingent interest on any Note shall be paid in same-day funds by transfer to an account maintained by the payee located inside the United States. In the case of a Global Note, semi-annual or contingent interest payable on any applicable payment date will be paid to the depository, with respect to that portion of such Global Note held for its account by Cede & Co. for the purpose of permitting such party to credit the interest received by it in respect of such Global Note to the accounts of the beneficial owners thereof.
          (ii) Except as otherwise specified with respect to the Notes, any semi-annual or contingent interest on any Note that is payable, but is not punctually paid or duly provided for, within 30 days following any applicable payment date (herein called “ Defaulted Interest ”, which term shall include any accrued and unpaid interest that has accrued on such defaulted amount in accordance with paragraph 1 of the Notes), shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date or accrual date, as the case may be, by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (A) or (B) below.
     (A) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes are registered at the close of business on a date for the payment of such Defaulted Interest (the “ Special Record Date ”), which shall be fixed in the following manner: The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment (which shall not be less than 20 days after such Notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the Notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Notes at his address as it appears on the list of Holders maintained pursuant to this Supplemental Indenture not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Notes are registered

 

 - 39 - 
at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (B).
     (B) Alternatively, the Company may make payment of any Defaulted Interest on the Notes in any other lawful manner not inconsistent with the requirements of any Notes exchange on which such Notes may be listed, and upon such Notice as may be required by such exchange, if, after Notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.
          Subject to the foregoing provisions of this Section 4.10, each Note delivered under this Supplemental Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to semi-annual or contingent interest accrued and unpaid to, and to accrue, which were carried by such other Note.
ARTICLE FIVE
Miscellaneous
Section 5.01. No Adverse Interpretation of Other Agreements .
          This Supplemental Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Supplemental Indenture.
Section 5.02. No Recourse Against Others .
          All liability described in paragraph 18 of the Notes of any director, officer, employee or stockholder, as such, of the Company is waived and released.
Section 5.03. Successors and Assigns .
          All covenants and agreements of the Company in this Supplemental Indenture and the Notes shall bind its successors and assigns. All agreements of the Trustee in this Supplemental Indenture shall bind its successors and assigns.
Section 5.04. Duplicate Originals .
          The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

 

Section 5.05. Severability .
          In case any one or more of the provisions contained in this Supplemental Indenture or in the Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Supplemental Indenture or of the Notes.

 

SIGNATURES
          IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
 	 	 	 	 	
 	MASCO CORPORATION
 	 	
 	By:  	/s/ John R. Leekley  	 	
 	 	Name:  	John R. Leekley 	 	
 	 	Title:  	Senior Vice President and General Counsel 	 	

 

 - 41 - 
BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee
 	 	 	 	 	
By:	 	/s/ Benita A. Pointer	 	 	
 	 	 	 	 	
 	 	Name: Benita A. Pointer	 	 	
 	 	Title: Account Executive	 	 	

 

EXHIBIT A
[FORM OF FACE OF GLOBAL SECURITY]
           This security is a global security within the meaning of the Indenture hereinafter referred to and is registered in the name of a depository or a nominee of a depository or a successor depository. This security is not exchangeable for securities registered in the name of a person other than the depository or its nominee except in the limited circumstances described in the Indenture, and no transfer of this security (other than a transfer of this security as a whole by the depository to a nominee of the depository or by a nominee of the depository to the depository or another nominee of the depository) may be registered except in the limited circumstances described in the Indenture.
           Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York Corporation (“DTC”), to the issuer 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 DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), 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.

 

 - 2 - 
MASCO CORPORATION
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2031
 	 	 	
No.                                          	 	CUSIP:	
Issue Date: July 20, 2001	 	ISIN:	
Issue Price: $394.45	 	 	
(for each $1,000 Principal	 	 	
Amount at Final Maturity)	 	 	
          Masco Corporation, a Delaware corporation, promises to pay to ___or registered assigns, on July 20, 2031 the Principal Amount of ___Dollars ($___).
          This Note shall not bear periodic interest except as specified on the other side of this instrument. This Note shall accrete as specified on the other side of this Note. This Note is convertible as specified on the other side of this Note.
          Additional provisions of this Note are set forth on the other side of this Note.

 

 - 3 - 
          IN WITNESS WHEREOF, Masco Corporation has caused this instrument to be duly executed.
 	 	 	 	 	
 	MASCO CORPORATION
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Attest:

 	By:  	 	 	 	
 	Name:  	 	 	 		
 	Title:  	 	 	 		
 		
Dated:
Bank One Trust Company, National Association
as Trustee, certifies that this is one of the
Securities referred to in the within mentioned
Indenture
Date:

 	By:  	 	 	 	
 	Name:  	 	 	 		
 	Title:  	 	 	 		

 

 - 4 - 
[FORM OF REVERSE SIDE OF GLOBAL SECURITY]
MASCO CORPORATION
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2031
          1. INTEREST
          This Note shall not bear periodic interest, except as specified in this paragraph and in paragraphs 5 and 10 hereof. If the Principal hereof or any portion of such Principal is not paid when due (whether upon acceleration pursuant to the Indenture, upon the date set for payment of the Redemption Price pursuant to paragraph 6 hereof, upon the date set for payment of a Purchase Price or Fundamental Change Purchase Price pursuant to paragraph 7 hereof or upon the Final Maturity of this Note) or if interest (including contingent interest, if any) due hereon or any portion of such interest is not paid when due in accordance with paragraph 5 or 10 hereof, then in each such case the overdue amount shall bear interest at the rate of 3.125% per annum, compounded semiannually (to the extent that the payment of such interest shall be legally enforceable), which interest shall accrue from the date such overdue amount was due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. The accrual of such interest on overdue amounts shall be in lieu of, and not in addition to, the continued accretion.
          The Notes shall increase in Accreted Value commencing on the Issue Date.
          “Accreted Value” means, at any date of determination, (1) prior to such time as this Note is converted to a Cash Pay Note, the sum of (x) the Issue Price of this Note and (y) the portion of the excess of the Principal Amount of this Note over the Issue Price which shall have been amortized by the Company in accordance with GAAP through such date, such amount to be so amortized on a daily basis and compounded semi-annually on each July 20 and January 20 at the rate of 3.125% per annum from the Issue Date through the date of determination compounded on the basis of a 360-day year and twelve 30-day months and (2) at or after such time as this Note is converted to a Cash Pay Note, its Restated Principal Amount.
          2. METHOD OF PAYMENT
          Subject to the terms and conditions of the Indenture, the Company shall make payments in respect of the Notes to the Persons who are registered Holders of Notes at the close of business on the Business Day preceding the Redemption Date or Final Maturity, as the case may be, or at the close of business on a Purchase Date or Fundamental Change Purchase Date, as the case may be. Holders must surrender Notes to a Paying Agent to collect

 

 - 5 - 
such payments in respect of the Notes. The Company shall pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make such cash payments by check payable in such money.
          3. PAYING AGENT, CONVERSION AGENT, BID AGENT AND REGISTRAR
          Initially, Bank One Trust Company, National Association (the “Trustee”), shall act as Paying Agent, Conversion Agent, Bid Agent and Registrar. The Company may appoint and change any Paying Agent, Conversion Agent, Bid Agent, Registrar or co-registrar without Notice, other than Notice to the Trustee except that the Company will maintain at least one Paying Agent in the State of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency of the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent, Bid Agent, Registrar or co-registrar.
          4. INDENTURE
          The Company issued the Notes under an Indenture dated as of February 12, 2001 between the Company and Trustee, as supplemented by a Supplemental Indenture relating to the Notes between the Company and Trustee dated July 20, 2001 (together, the “Indenture”). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (“TIA”) as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Act for a statement of them. Capitalized terms not defined herein have the meanings given to those terms in the Indenture.
          The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and the applicable Authorizing Resolution or supplemental indenture. Requests may be made to: Masco Corporation, 21001 Van Born Road, Taylor Michigan, 48180, Attention: Samuel Cypert.
          5. CONTINGENT INTEREST
          Subject to the accrual and Common Stock Record Date provisions specified in this paragraph 5, the Company shall pay contingent interest to the Holders during any six-month period (a “Contingent Interest Period”) from January 20 to July 19 and from July 20 to January 19, commencing January 20, 2007, if the average Note Price for the Five-Day Period with respect to such Contingent Interest Period equals 120% or more of the Accreted Value of

 

 - 6 - 
such Note to the Trading Day immediately preceding the first day of the relevant Contingent Interest Period.
          The amount of contingent interest payable per $1,000 Principal Amount hereof in respect of any Contingent Interest Period shall equal the greater of (x) Cash Dividends paid by the Company per share of Common Stock during that Contingent Interest Period multiplied by the number of shares of Common Stock into which $1,000 Principal Amount hereof is convertible pursuant to paragraph 9 hereof as of the accrual date for such contingent interest and (y) 0.125% of the average Note Price for the Five-Day Period with respect to such Contingent Interest Period.
          Contingent interest, if any, will accrue and be payable to Holders as of the Common Stock Record Date for the related Cash Dividend or, if no Cash Dividend is paid by the Company during a Contingent Interest Period, to Holders as of the 15th day preceding the last day of the relevant Contingent Interest Period. Such payments shall be paid on the payment date of the related Cash Dividend or, if no Cash Dividend is paid by the Company during a Contingent Interest Period, on the last day of the relevant Contingent Interest Period. In addition, on any Purchase Date or Redemption Date that occurs during a Contingent Interest Period for which a Holder is entitled to contingent interest pursuant to clause (y) of the preceding paragraph, contingent interest will be payable to such Holder in an amount equal to the amount that would have been otherwise payable to such Holder on the last day of such Contingent Interest Period divided by the actual number of days from the first day of such Contingent Interest Date to the Purchase Date or Redemption Date, as the case may be, using a 360-day year composed of twelve 30-day months.
          “Five-Day Period” means, with respect to any Contingent Interest Period, the five Trading Days ending on the second Trading Day immediately preceding the first day of such Contingent Interest Period; provided, however, if the Company shall have declared a Cash Dividend on its Common Stock that is payable during such Contingent Interest Period but for which the Common Stock Record Date for determining stockholders entitled thereto precedes the first day of such Contingent Interest Period, then “Five-Day Period” means, with respect to such Contingent Interest Period, the five Trading Days ending on the second Trading Day immediately preceding such Common Stock Record Date.
          “Cash Dividends” means all cash dividends on the Common Stock (whether regular, periodic, extraordinary, special, nonrecurring or otherwise) as declared by the Company’s Board of Directors as part of its cash dividend payment practices.
          “Note Price” means, as of any date of determination, the average of the secondary market bid quotations per Note obtained by the Bid Agent for $10 million Principal Amount of Notes at approximately 4:00 p.m. (New York City time) on such determination

 

 - 7 - 
date from three recognized securities dealers in The City of New York (none of which shall be an Affiliate of the Company) selected by the Company; provided, however, if (a) at least three such bids are not obtained by the Bid Agent or (b) in the Company’s reasonable judgment, the bid quotations are not indicative of the secondary market value of the Notes as of such determination date, then the Note Price for such determination date shall equal (i) the Conversion Rate in effect as of such determination date multiplied by (ii) the average Sale Price of Common Stock for the five Trading Days ending on such determination date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such Trading Days during such five Trading Day period and ending on such determination date, of any event described in Section 4.06(a), 4.06(b) or 4.06(c) (subject to the conditions set forth in Sections 4.07(a) and 4.07(b)) of the Supplemental Indenture.
          Upon determination that Holders will be entitled to receive contingent interest which may become payable during a Contingent Interest Period, on or prior to the first day of such Contingent Interest Period, the Company shall issue a press release and publish such information on its web site at www.masco.com, if such web site exists.
          6. REDEMPTION AT THE OPTION OF THE COMPANY
          No sinking fund is provided for the Notes. Between July 20, 2002 and January 25, 2007 the Company may only redeem the Notes for cash, in whole but not in part, if the Sale Price of Common Stock is equal to or greater than the below specified percentage of the conversion price in effect for at least 20 Trading Days in any consecutive 30-Trading Day period, where “ conversion price ” means the Redemption Price divided by the Conversion Rate. The Company will give holders not less than 30-days’ nor more than 60-days’ Notice of redemption. The table below shows ranges of dates between July 20, 2002 and January 25, 2007 and the percentage of the conversion price Common Stock must attain within the specified date range before the Company may redeem the Notes.
 	 	 	 	 	
 	 	Percentage of Conversion Price that	
 	 	Common Stock Price Must Attain for	
Redemption Date Range	 	20 of 30 Trading Days	
July 20, 2002 through July 19, 2003	 	 	150	%	
 	 	 	 	 	
July 20, 2003 through July 19, 2004	 	 	140	%	
 	 	 	 	 	
July 20, 2004 through January 24, 2007	 	 	130	%	
          Beginning on January 25, 2007, the Company may, at its option, redeem the Notes for cash at any time as a whole, or from time to time in part, at their Redemption Price.

 

 - 8 - 
          The table below shows what the Accreted Value of a Note would be on July 20, 2002, and at specified dates thereafter prior to maturity and at Final Maturity. The Accreted Value, in dollars, of a Note per $1,000 Principal Amount redeemed between such dates shall include an additional amount reflecting the increase in Accreted Value since the next preceding date in the table to but excluding the actual Redemption Date.
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Increase in Accreted	 	Redemption	
Redemption Date	 	Issue Price(1)	 	Value at 3.125% (2)	 	Price (1+2)	
July 20, 2002	 	$	394.45	 	 	$	12.42	 	 	$	406.88	 	
July 20, 2003	 	$	394.45	 	 	$	25.24	 	 	$	419.69	 	
July 20, 2004	 	$	394.45	 	 	$	38.46	 	 	$	432.91	 	
January 20, 2005	 	$	394.45	 	 	$	45.22	 	 	$	439.67	 	
July 20, 2005	 	$	394.45	 	 	$	52.09	 	 	$	446.54	 	
July 20, 2006	 	$	394.45	 	 	$	66.15	 	 	$	460.61	 	
January 20, 2007	 	$	394.45	 	 	$	73.35	 	 	$	467.80	 	
July 20, 2007	 	$	394.45	 	 	$	80.66	 	 	$	475.11	 	
July 20, 2008	 	$	394.45	 	 	$	95.62	 	 	$	490.08	 	
July 20, 2009	 	$	394.45	 	 	$	111.06	 	 	$	505.51	 	
July 20, 2010	 	$	394.45	 	 	$	126.98	 	 	$	521.43	 	
July 20, 2011	 	$	394.45	 	 	$	143.40	 	 	$	537.85	 	
July 20, 2012	 	$	394.45	 	 	$	160.34	 	 	$	554.79	 	
July 20, 2013	 	$	394.45	 	 	$	177.81	 	 	$	572.27	 	
July 20, 2014	 	$	394.45	 	 	$	195.83	 	 	$	590.29	 	
July 20, 2015	 	$	394.45	 	 	$	214.43	 	 	$	608.88	 	
July 20, 2016	 	$	394.45	 	 	$	233.60	 	 	$	628.06	 	
July 20, 2017	 	$	394.45	 	 	$	253.38	 	 	$	647.84	 	
July 20, 2018	 	$	394.45	 	 	$	273.78	 	 	$	668.24	 	
July 20, 2019	 	$	394.45	 	 	$	294.83	 	 	$	689.28	 	
July 20, 2020	 	$	394.45	 	 	$	316.54	 	 	$	710.99	 	
July 20, 2021	 	$	394.45	 	 	$	338.93	 	 	$	733.39	 	
July 20, 2022	 	$	394.45	 	 	$	362.03	 	 	$	756.48	 	
July 20, 2023	 	$	394.45	 	 	$	385.85	 	 	$	780.31	 	
July 20, 2024	 	$	394.45	 	 	$	410.43	 	 	$	804.88	 	
July 20, 2025	 	$	394.45	 	 	$	435.78	 	 	$	830.23	 	
July 20, 2026	 	$	394.45	 	 	$	461.92	 	 	$	856.38	 	
July 20, 2027	 	$	394.45	 	 	$	488.90	 	 	$	883.35	 	
July 20, 2028	 	$	394.45	 	 	$	516.72	 	 	$	911.17	 	
July 20, 2029	 	$	394.45	 	 	$	545.41	 	 	$	939.87	 	
July 20, 2030	 	$	394.45	 	 	$	575.01	 	 	$	969.47	 	
July 20, 2031	 	$	394.45	 	 	$	605.55	 	 	$	1,000.00	 	
          If this Note has been converted to Cash Pay Notes, the Redemption Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of such conversion to the Redemption Date; but in no event will this Note be redeemable before July 20, 2002.
          In addition to the Redemption Price payable with respect to all Notes or portions thereof to be redeemed as of a Redemption Date, the Holders of such Notes (or portions thereof) shall be entitled to receive accrued and unpaid contingent interest, if any, with respect thereto, which contingent interest shall be paid in cash on the Redemption Date.

 

 - 9 - 
          7. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER; PURCHASE AT THE OPTION OF THE HOLDER
              UPON A FUNDAMENTAL CHANGE
          Subject to the terms and conditions of the Indenture, a Holder of Notes shall have the option to require the Company to purchase the Notes held by such Holder on the following Purchase Dates and at the following Purchase Prices per $1,000 Principal Amount, plus, in the case of purchases after July 20, 2007, accrued and unpaid contingent interest, if any, upon delivery of a Purchase Notice containing the information set forth in the Indenture, from the opening of business on the date that is 30 Business Days prior to such Purchase Date until the close of business on such Purchase Date and upon delivery of the Notes to the Paying Agent by the Holder as set forth in the Indenture. For any Purchase Date after July 20, 2002, such Purchase Prices may be paid, at the option of the Company, in cash or by the issuance and delivery of shares of Common Stock, or in any combination thereof. The Company will pay the Purchase Price for any purchase on July 20, 2002 only in cash.
The purchase price of a Note will be:

 	•	 	$406.88 per Note on July 20, 2002;	
 		
 	•	 	$439.67 per Note on January 20, 2005;	
 		
 	•	 	$467.80 per Note on January 20, 2007;	
 		
 	•	 	$537.85 per Note on July 20, 2011, plus accrued and unpaid contingent interest, if any;	
 		
 	•	 	$628.06 per Note on July 20, 2016, plus accrued and unpaid contingent interest, if any;	
 		
 	•	 	$733.39 per Note on July 20, 2021, plus accrued and unpaid contingent interest, if any; and	
 		
 	•	 	$856.38 per Note on July 20, 2026, plus accrued and unpaid contingent interest, if any.	
          Notes in denominations larger than $1,000 of Principal Amount may be purchased in part, but only in multiples of $1,000 of Principal Amount.
          If prior to a Purchase Date this Note has been converted to a Cash Pay Note, the Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of conversion to the Purchase Date.
          If a Fundamental Change shall occur at any time prior to July 20, 2002, each Holder shall have the right, at such Holder’s option and subject to the terms and conditions of the Indenture, to require the Company to purchase such Holder’s Notes on the Business Day that is 95 days after the date of the Fundamental Change for a Fundamental Change Purchase Price equal to Accreted Value to the Fundamental Change Purchase Date. If, prior to the Fundamental Change Purchase Date, the Notes were converted to Cash Pay Notes, the Fundamental Change Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of conversion to the Fundamental Change Purchase Date, which Fundamental Change Purchase

 

 - 10 - 
Price shall be paid at the option of the Company in cash or by the issuance and delivery of shares of Common Stock or in any combination thereof. Notes in denominations larger than $1,000 of Principal Amount may be redeemed in part in connection with a Fundamental Change, but only in multiples of $1,000 of Principal Amount.
          In addition to the Purchase Price payable with respect to all Notes or portions thereof to be purchased as of the Purchase Date, the Holders of such Notes (or portions thereof) shall be entitled to receive accrued and unpaid contingent interest, if any, with respect thereto, which contingent interest shall be paid in cash promptly following the later of the Purchase Date and the time of delivery of such Notes to the Paying Agent pursuant to the Indenture.
          Holders have the right to withdraw any Purchase Notice or Fundamental Change Purchase Notice, as the case may be, by delivery to the Paying Agent of a written notice of withdrawal in accordance with the provisions of the Indenture.
          If cash (and/or Common Stock if permitted under the Indenture) sufficient to pay a Fundamental Change Purchase Price or, cash (and/or Common Stock if permitted under the Indenture) sufficient to pay a Purchase Price (together with any accrued and unpaid contingent interest), with respect to all Notes or portions thereof to be purchased as of the Purchase Date or the Fundamental Change Purchase Date, as the case may be, is deposited with the Paying Agent on the Business Day immediately following the Purchase Date or the Fundamental Change Purchase Date, as the case may be, such Notes will cease to accrete and interest (including, where applicable, contingent interest), if any, will cease to accrue on such Notes (or portions thereof) on and after such date, and the Holder thereof shall have no other rights as such (other than the right to receive the Purchase Price or Fundamental Change Purchase Price, as the case may be, and, where applicable, accrued and unpaid contingent interest, if any, upon surrender or such Note).
          8. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY
          Notice of redemption at the option of the Company shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at the Holder’s registered address. If money sufficient to pay the Redemption Price of, together with any accrued and unpaid contingent interest with respect to, all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent

 

 - 11 - 
prior to or on the Redemption Date, on and after such date Accreted Value and interest (including contingent interest), if any, ceases to accrue on such Notes or portions thereof. Notes in denominations larger than $1,000 Principal Amount may be redeemed in part but only in multiples of $1,000 or Principal Amount.
          9. CONVERSION
          A Holder of a Note may convert this Note for Common Stock at any time on or before the close of business on July 20, 2031 if at least one of the following conditions is satisfied:
     (a) the Twenty-Day Average Price on the Conversion Date is at least a specified percentage of the Accreted Conversion Price, such percentage beginning at 120% for the first year and declining 1/3% on July 20 each year thereafter, reaching 110-1/3% for the year beginning July 20, 2030 and declining to 110% at Final Maturity;
     (b) the credit rating assigned to the Notes by either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services is reduced to below Investment Grade;
     (c) the Notes have been called for redemption by the Company, at any time prior to the close of business on the Business Day prior to the Redemption Date; or
     (d) (i) the Company elects to distribute to all holders of Common Stock rights entitling them to purchase, for a period expiring within 60 days after the date of such distribution, Common Stock at less than the Sale Price at the time of such distribution, (ii) the Company elects to distribute to all holders of Common Stock assets, debt, securities or rights to purchase securities of the Company, which distribution has a per share value as determined by the Company’s Board of Directors exceeding 15% of the Sale Price of the Common Stock on the day preceding the declaration date for such distribution, or (iii) in the event the Company is a party to a consolidation, merger or binding share exchange pursuant to which the Common Stock would be converted into cash, securities or other property, at any time from and after the date which is 15 days prior to the date the Company announces as the anticipated effective time until 15 days after the actual effective date of such transaction.
          In the case of the foregoing clauses (d)(i) and (ii), the Company must notify the Holders of Notes at least 20 days prior to the Ex-Dividend Date for such distribution. Once the Company has given such Notice, Holders may surrender their Notes for conversion at any

 

 - 12 - 
time thereafter until the earlier of the close of business on the Business Day prior to the Ex-Dividend Date or the Company’s announcement that such distribution will not take place.
          If this Note is called for redemption, the Holder may convert it at any time before the close of business on the last Business Day prior to the Redemption Date. A Note in respect of which a Holder has delivered a notice of exercise of the option to require the Company to purchase such Note or to purchase such Note in the event of a Fundamental Change may be converted only if the notice of exercise is withdrawn in accordance with the terms of the Indenture.
          The initial Conversion Rate is 12.7243 shares of Common Stock per Note with a $1,000 Principal Amount, subject to adjustment in certain events described in the Indenture. The Company shall deliver cash or a check in lieu of any fractional share of Common Stock.
          In the event the Company exercises its option pursuant to Section 4.08 of the Supplemental Indenture to convert the Notes to Cash Pay Notes, the Holder will be entitled on conversion to receive the same number of shares of Common Stock such Holder would have received if the Company had not exercised such option. If the Company exercises such option, Notes surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business of such Interest Payment Date (except Notes with respect to which the Company has provided a Notice of redemption) must be accompanied by payment of an amount equal to the interest thereon that the registered Holder is to receive. Except where Notes surrendered for conversion are so surrendered after a Regular Record Date but prior to the opening of business on the corresponding Interest Payment Date (in which case such converting Holder shall receive a final interest payment on such Interest Payment Date, which interest payment may be repayable to the Company upon conversion as described in this paragraph), no interest on converted Notes will be payable by the Company on any Interest Payment Date subsequent to the date of conversion.
          Notes surrendered for conversion during the period from the close of business on any date on which contingent interest accrues to the opening of business on the date on which such contingent interest is payable (except Notes with respect to which the Company has provided a Notice of redemption) must be accompanied by payment of an amount equal to the contingent interest with respect thereto that the registered Holder is to receive. Except where Notes surrendered for conversion are so surrendered during the period from the close of business on any date on which contingent interest accrues to the opening of business on the date on which such contingent interest is payable (in which case such converting Holder shall receive a final contingent interest payment on the date such contingent interest is payable, which contingent interest payment may be repayable to the Company upon conversion as

 

 - 13 - 
described in this paragraph), no contingent interest on converted Notes will accrue after the date of conversion.
          To convert this Note a Holder must (1) complete and manually sign the conversion notice on the back of this Note (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent at the office maintained by the Conversion Agent for such purpose, (2) surrender this Note to the Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Conversion Agent, the Company or the Trustee, (4) pay any transfer or similar tax, if required and (5) if required, pay any interest on the Note such Holder is to receive on the next Interest Payment Date by virtue of having been a Holder on the relevant Regular Record Date.
          A Holder may convert a portion of this Note only if the Principal Amount of such portion is $1,000 or a multiple of $1,000. No payment or adjustment shall be made for dividends on the Common Stock except as provided in the Indenture. On conversion of this Note, that portion of Accreted Value (or, interest, if the Company has exercised its option provided for in paragraph 10 hereof) attributable to the period from the Issue Date (or, if the Company has exercised the option referred to in paragraph 10 hereof, the later of (x) the date of such exercise and (y) the date on which interest was last paid) to the Conversion Date and (except as provided above) accrued contingent interest with respect to the converted portion of this Note shall not be canceled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Common Stock (together with any cash payment in lieu of fractional shares) in exchange for the portion of this Note being converted pursuant to the terms hereof; and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as issued, to the extent thereof, first in exchange for Accreted Value (or interest, if the Company has exercised its option provided for in paragraph 10 hereof) accrued through the Conversion Date and accrued contingent interest, and the balance, if any, of such fair market value of such Common Stock (and any such cash payment) shall be treated as issued in exchange for the Issue Price of the Note being converted pursuant to the provisions hereof.
          10. TAX EVENT
          (a) From and after (i) the date (the “Tax Event Date”) of the occurrence of a Tax Event and (ii) the date the Company exercises such option, whichever is later (the “Option Exercise Date”), at the option of the Company, all of the Notes will cease to accrete, and cash interest shall accrue at the rate of 3.125% per annum on the restated principal amount (the “Restated Principal Amount”), equal to the Accreted Value on the Option Exercise Date, and shall be payable semiannually on July 20 and January 20 of each year (each an “Interest Payment Date”) to holders of record at the close of business on July 1 or January 1 (each a “Regular Record Date”) immediately preceding such Interest Payment Date.

 

 - 14 - 
Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Option Exercise Date.
          (b) Interest on any Note that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Note is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose. Each installment of interest on any Note shall be paid in same-day funds by transfer to an account maintained by the payee located inside the United States.
          (c) From and after the Option Exercise Date, contingent interest provided for in paragraph 5 hereof shall cease to accrue on this Note.
          11. DEFAULTED INTEREST
          Except as otherwise specified with respect to the Notes, any Defaulted Interest on any Note shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date or accrual date, as the case may be, by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company as provided for in Section 4.10(c)(ii) of the Supplemental Indenture.
          12. DENOMINATIONS; TRANSFER; EXCHANGE
          The Notes are in registered form, without coupons, in denominations of $1,000 of Principal Amount and multiples of $1,000. A Holder may transfer or convert Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice has been given and not withdrawn (except, in the case of a Note to be purchased in part, the portion of the Note not to be purchased) or any Notes for a period of 15 days before any selection of Notes to be redeemed.
          13. PERSONS DEEMED OWNERS
          The registered Holder of this Note may be treated as the owner of this Note for all purposes.

 

 - 15 - 
          14. UNCLAIMED MONEY OR PROPERTY
          If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment unless an abandoned property law designates another person.
          15. AMENDMENT; SUPPLEMENT; WAIVER
          Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in Principal Amount of the outstanding Notes and any past default or compliance with any provision relating to the Notes may be waived in a particular instance with the consent of the Holders of a majority in Principal Amount of the outstanding Notes. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to create a Series and establish its terms, or to make any other change, provided such action does not adversely affect the rights of any Holder.
          16. SUCCESSOR CORPORATION
          When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor corporation will be released from those obligations.
          17. TRUSTEE DEALINGS WITH THE COMPANY
          Bank One Trust Company, National Association, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee.
          18. NO RECOURSE AGAINST OTHERS
          A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes.
          19. AUTHENTICATION
          This Note shall not be valid until the Trustee signs the certificate of authentication on the other side of this Note.
          20. ABBREVIATIONS
          Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors Act).

 

 - 16 - 
FORM OF CONVERSION NOTICE
To: Masco Corporation
          The undersigned registered holder of this Note hereby exercises the option to convert this Note, or portion hereof (which is $1,000 Principal Amount or a multiple thereof) designated below, for shares of Common Stock of Masco Corporation in accordance with the terms of the Indenture referred to in this Note, and directs that the shares, if any, issuable and deliverable upon such conversion, together with any check for cash deliverable upon such conversion, and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto.
          This notice shall be deemed to be an irrevocable exercise of the option to convert this Note.
Dated:

 	 	 	
 	 	 	
 	 	Signature(s)	
 	 	 	
Fill in for registration of shares if to be delivered, and Notes if to be issued other than to and in the name of registered holder:	 	 	
 	 	 	
 	 	Principal Amount	
 	 	to be converted (if less than all):	

 

 - 17 - 

 	 	 	
(Name)	 	 	
 	 	 	
 	 	$___,000	
 	 	 	
(Street Address)	 	 	
 	 	 	
 	 	Social Security or Other	
 	 	 	
(City, state and zip code)	 	Taxpayer Number	
 	 	 	
Please print name and address	 	 	

 

 - 18 - 
FORM OF FUNDAMENTAL CHANGE PURCHASE NOTICE
To: Masco Corporation
          ( I ) The undersigned registered holder of this Note hereby acknowledges receipt of a Notice from Masco Corporation (the “Company”) as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to purchase this Note, or the portion hereof (which is $1,000 Principal Amount or a multiple thereof) designated below, in accordance with the terms of the Indenture referred to in this Note and directs that the check in payment for this Note or the portion thereof (or, if the Company elects in accordance with Section 4.03(c) of the Supplemental Indenture, Common Stock) and any Notes representing any unrepurchased principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If any portion of this Note not repurchased is to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto.
 	 	 	 	 	
Dated:	 	 	 	 	

 	 	Signature(s)	 	 	
 	 	 	 	 	
Fill in for registration of shares if to be delivered, and Notes if to be issued other than to and in the name of registered holder:	 	 	 	 	

(Name)	 	 	 	 	

(Street Address)	 	 	 	 	

(City, state and zip code)	 	 	 	 	
 	 	 	 	 	
Please print name and address	 	 	 	 	
 	 	 	 	 	
 	 	Principal Amount to be purchased (if less than all): $___,000	 	 	

 

 - 19 - 
          ( II ) If the Company has elected to pay the Fundamental Change Purchase Price, in whole or in part, in Common Stock but such portion of the Fundamental Change Purchase Price shall ultimately be payable in Cash because any of the conditions to the payment of the Fundamental Change Purchase Price in Common Stock are not satisfied I elect [check one]:
     ___to withdraw such Purchase Notice as to the Notes to which such Fundamental Change Purchase Notice relates in the Principal Amount of $___,000, with certificate numbers ___, or
     ___to receive Cash in respect of the entire Fundamental Change Purchase Price for all Notes (or portions thereof) to which such Purchase Notice relates.

 

 - 20 - 
ASSIGNMENT FORM
          If you the Holder want to assign this Note, fill in the form below:
          I or we assign and transfer this Note to

(Insert assignee’s social security or tax ID number)

 
(Print or type assignee’s name, address, and zip code)
and irrevocably appoint
 
agent to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:                                          	 	Your signature:                                                               	
 	 	(Sign exactly as your name appears on the other side of this Note)	
 	 	 	
Signature Guarantee:	 	 	
 	 	 	
 	 	Signature must be guaranteed by participant in a recognized Signature
Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee)	

 
   
EXHIBIT B
PROJECTED PAYMENT SCHEDULE *
 	 	 	 	 	
Semi-annual Period Ending	 	Projected Payment Per Note	
July 20, 2001	 	$	0.00	 	
January 20, 2002	 	$	0.00	 	
July 20, 2002	 	$	0.00	 	
January 20, 2003	 	$	0.00	 	
July 20, 2003	 	$	0.00	 	
January 20, 2004	 	$	0.00	 	
July 20, 2004	 	$	0.00	 	
January 20, 2005	 	$	0.00	 	
July 20, 2005	 	$	0.00	 	
January 20, 2006	 	$	0.00	 	
July 20, 2006	 	$	0.00	 	
January 20, 2007	 	$	0.00	 	
July 20, 2007	 	$	0.00	 	
January 20, 2008	 	$	0.00	 	
July 20, 2008	 	$	0.00	 	
January 20, 2009	 	$	3.31	 	
July 20, 2009	 	$	3.31	 	
January 20, 2010	 	$	3.31	 	
July 20, 2010	 	$	3.31	 	
January 20, 2011	 	$	3.31	 	
July 20, 2011	 	$	3.31	 	
January 20, 2012	 	$	3.31	 	
July 20, 2012	 	$	3.31	 	
January 20, 2013	 	$	3.31	 	
July 20, 2013	 	$	3.31	 	
January 20, 2014	 	$	3.31	 	
July 20, 2014	 	$	3.31	 	
January 20, 2015	 	$	3.31	 	
July 20, 2015	 	$	3.31	 	
January 20, 2016	 	$	3.31	 	
July 20, 2016	 	$	3.31	 	
January 20, 2017	 	$	3.31	 	
July 20, 2017	 	$	3.31	 	
January 20, 2018	 	$	3.31	 	
July 20, 2018	 	$	3.31	 	
January 20, 2019	 	$	3.31	 	
July 20, 2019	 	$	3.31	 	
January 20, 2020	 	$	3.31	 	

 

 	 	 	 	 	
Semi-annual Period Ending	 	Projected Payment Per Note	
July 20, 2020	 	$	3.31	 	
January 20, 2021	 	$	3.31	 	
July 20, 2021	 	$	3.31	 	
January 20, 2022	 	$	3.31	 	
July 20, 2022	 	$	3.31	 	
January 20, 2023	 	$	3.31	 	
July 20, 2024	 	$	3.31	 	
January 20, 2025	 	$	3.31	 	
July 20, 2025	 	$	3.31	 	
January 20, 2026	 	$	3.31	 	
July 20, 2026	 	$	3.31	 	
January 20, 2027	 	$	3.33	 	
July 20, 2027	 	$	3.47	 	
January 20, 2028	 	$	3.62	 	
July 20, 2028	 	$	3.77	 	
January 20, 2029	 	$	3.93	 	
July 20, 2029	 	$	4.10	 	
January 20, 2030	 	$	4.27	 	
July 20, 2030	 	$	4.45	 	
January 20, 2031	 	$	4.64	 	
July 20, 2031	 	$	3,871.34	 	

*	 	The comparable yield means the annual yield the Company would pay, as of the Issue Date, on a fixed-rate cash-pay nonconvertible debt security with no contingent payments but with terms and conditions otherwise comparable to those of the Notes. The schedule of projected payments is determined on the basis of the comparable yield and an assumption of linear growth of the Company’s stock price and a constant dividend yield. The comparable yield and the schedule of projected payments are not determined for any purpose other than for the determination of interest accruals and adjustment thereof in respect of the Notes for United States federal income tax purposes. The comparable yield and the schedule of projected payments do not constitute a projection or representation regarding the future stock price or the amounts payable on the Notes.	

 

Exhibit 4.b.iii
SUPPLEMENTAL INDENTURE
     THIS SUPPLEMENTAL INDENTURE, dated as of November 30, 2006, between Masco Corporation, a Delaware corporation (the “Company”), N. A. and the Bank of New York Trust Company, N. A. (“BNY”).
     WHEREAS, the Company entered into an Indenture dated as of February 12, 2001 with Bank One Trust Company, N. A. (the “Indenture”), under which J. P. Morgan Trust Company, N. A. (“J. P. Morgan”) became the successor trustee;
     WHEREAS, through its acquisition of J. P. Morgan (the “Transaction”), effective October 1, 2006, BNY has become the successor trustee under the Indenture;
     WHEREAS, Section 9.01(i) the Indenture provides for supplemental indentures to make changes, provided such action does not adversely affect the interests of the holders of the Securities.
     NOW, THEREFORE, the parties agree as follows:
     1. Section 6.10 of the Indenture shall be amended by inserting the following as a new subparagraph (g):
     “(g) Notwithstanding the provisions of Section 6.12, in connection with any sale or proposed sale of all or any portion of the corporate trust business of any Trustee hereunder or any other transaction that would result in a change of control of such corporate trust business, and provided that no Event of Default exists, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. Any removal of the Trustee and appointment of a successor trustee pursuant to the foregoing shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.11 and payment of any outstanding fees or expenses due to the Trustee.”
     2. BNY agrees that the amendment described in Paragraph 1 above will apply to the Transaction and consents to the Company soliciting proposals for a successor trustee under the Indenture for any or all of the securities issued and outstanding thereunder.
     3. Except as hereinabove expressly set forth, all other terms and provisions set forth in the Indenture shall remain in full force and effect and without any change whatsoever being made hereby.

 

     IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be executed and acknowledged as of the date first written above.
 	 	 	 	 	
 	 	MASCO CORPORATION	
 	 	 	 	 	
 	 	By:	 	/s/ John G. Sznewajs	
 	 	 	 	 	
 	 	Name:	 	John G. Sznewajs	
 	 	Title:	 	Vice President-Corporate	
 	 	 	 	      Development and Treasurer	
[Seal]
Attest:
 	 	 	
/s/ Eugene A. Gargaro, Jr.
 	 	 	
Eugene A. Gargaro, Jr.	 	 	
Secretary	 	 	
State of Michigan      )
                                   ) ss
County of Wayne       )
     On the 30th day of November, 2006, before me personally came John G. Sznewajs, to me known, who, being by me duly sworn, did depose and say that he is a Vice President of Masco Corporation, the corporation described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority.
 	 	 	
 	 	/s/ Cynthia A. Peters	
 	 	 	
 	 	Cynthia A. Peters	
 	 	Notary Public	
 	 	Wayne County, Michigan	
 	 	My Comm. Exp.: May 24, 2013	
[NOTARIAL SEAL]
 -2- 

 

 	 	 	 	 	
 	 	THE BANK OF NEW YORK	
 	 	TRUST	 	COMPANY, N. A.	
 	 	 	 	 	
 	 	By:	 	/s/ Benita A. Vaughn
 	
 	 	Name:	 	Benita A. Vaughn	
 	 	Title:	 	Vice President	
[Seal]
Attest:
 	 	 	
/s/ George Reaves
 	 	 	
Name: George Reaves
Title Vice President	 	 	
State of Illinois       )
                                ) ss
County of Cook      )
     On the 30th day of November, 2006, before me personally came _____, to me known, who, being by me duly sworn, did depose and say that he is a Vice President of The Bank of New York Trust Company, N. A., the corporation described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority.
 	 	 	
 	 	/s/ Diane Mary Wuertz	

 	 	 	
 	 	Notary Public	
 	 	                      County,                     	
 	 	My Comm. Exp.:	
[NOTARIAL SEAL]
 -3- 

Exhibit 10.a
MASCO CORPORATION
1991 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated October 26, 2006)
Section 1. Purposes
     The purposes of the 1991 Long Term Stock Incentive Plan (the “Plan”) are to encourage selected employees of and consultants to Masco Corporation (the “Company”) and its Affiliates to acquire a proprietary interest in the Company in order to create an increased incentive to contribute to the Company’s future success and prosperity, and enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom the sustained progress, growth and profitability of the Company depend, thus enhancing the value of the Company for the benefit of its stockholders.
Section 2. Definitions
     As used in the Plan, the following terms shall have the meanings set forth below:
     (a) “Affiliate” shall mean any entity in which the Company’s direct or indirect equity interest is at least twenty percent, and any other entity in which the Company has a significant direct or indirect equity interest, whether more or less than twenty percent, as determined by the Committee.
     (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan.
     (c) “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan.
     (d) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
     (e) “Committee” shall mean a committee of the Company’s directors designated by the Board of Directors to administer the Plan and composed of not less than two directors, each of whom is a “non-employee director” within the meaning of Rule 16b-3.
     (f) “Dividend Equivalent” shall mean any right granted under Section 6(e) of the Plan.
     (g) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
     (h) “Incentive Stock Option” shall mean an Option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto.
     (i) “Non-Qualified Stock Option” shall mean an Option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
     (j) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
     (k) “Other Stock-Based Award” shall mean any right granted under Section 6(f) of the Plan.
     (l) “Participant” shall mean an employee of or consultant to the Company or any Affiliate or a director of the Company designated to be granted an Award under the Plan.
     (m) “Performance Award” shall mean any right granted under Section 6(d) of the Plan.

 

     (n) “Prior Plans” shall mean the Company’s 1988 Restricted Stock Incentive Plan and 1988 Stock Option Plan.
     (o) “Restricted Period” shall mean the period of time during which Awards of Restricted Stock or Restricted Stock Units are subject to restrictions.
     (p) “Restricted Stock” shall mean any Share granted under Section 6(c) of the Plan.
     (q) “Restricted Stock Unit” shall mean any right granted under Section 6(c) of the Plan that is denominated in Shares.
     (r) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation.
     (s) “Section 16” shall mean Section 16 of the Exchange Act, the rules and regulations promulgated by the Securities and Exchange Commission thereunder, or any successor provision, rule or regulation.
     (t) “Shares” shall mean the Company’s common stock, par value $1.00 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(c) of the Plan.
     (u) “Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.
Section 3. Administration
     The Committee shall administer the Plan, and subject to the terms of the Plan and applicable law, the Committee’s authority shall include without limitation the power to:
          (i) designate Participants;
          (ii) determine the types of Awards to be granted;
          (iii) determine the number of Shares to be covered by Awards and any payments, rights or other matters to be calculated in connection therewith;
          (iv) determine the terms and conditions of Awards and amend the terms and conditions of outstanding Awards;
          (v) determine how, whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended;
          (vi) determine how, whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee;
          (vii) determine the methods or procedures for establishing the fair market value of any property (including, without limitation, any Shares or other securities) transferred, exchanged, given or received with respect to the Plan or any Award;
          (viii) prescribe and amend the forms of Award Agreements and other instruments required under or advisable with respect to the Plan;
 -2- 

 

          (ix) designate Options granted to key employees of the Company or its subsidiaries as Incentive Stock Options;
          (x) interpret and administer the Plan, Award Agreements, Awards and any contract, document, instrument or agreement relating thereto;
          (xi) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the administration of the Plan;
          (xii) decide all questions and settle all controversies and disputes which may arise in connection with the Plan, Award Agreements and Awards;
          (xiii) delegate to directors of the Company the authority to designate Participants and grant Awards, and to amend Awards granted to Participants;
          (xiv) make any other determination and take any other action that the Committee deems necessary or desirable for the interpretation, application and administration of the Plan, Award Agreements and Awards.
     All designations, determinations, interpretations and other decisions under or with respect to the Plan, Award Agreements or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, Affiliates, Participants, beneficiaries of Awards and stockholders of the Company.
Section 4. Shares Available for Awards
     (a)  Shares Available . Subject to adjustment as provided in Section 4(c):
     The maximum number of Shares available for issuance in respect of Awards made under the Plan on or after May 17, 2000 shall be 20,000,000 Shares plus up to an additional 20,000,000 Shares to the extent Shares are acquired by the Company, including Shares purchased in the open market, on or after May 17, 2000 in connection with awards made under the Plan, provided, however, that in the event (i) an Award in respect of Shares under the Plan or the Prior Plans is settled for cash or expires or is terminated unexercised as to any Shares covered thereby, (ii) any Award under the Plan or the Prior Plans in respect of shares is cancelled or forfeited for any reason without the delivery of Shares, (iii) any Option or other Award granted is exercised through the surrender of Shares, or (iv) tax obligations are satisfied through the surrender or withholding of Shares, the number of Shares available for issuance in respect of Awards under the Plan shall be increased by the number of Shares not delivered in connection with any such Award or so surrendered or withheld. Not more than 20,000,000 shares may be awarded as incentive stock options on or after May 17, 2000. Subject to the foregoing, Shares may be made available from the authorized but unissued Shares of the Company or from Shares reacquired by the Company, including but not limited to Shares purchased in the open market.
     (b)  Individual Stock-Based Awards . Subject to adjustment as provided in Section 4(c), no Participant may receive Options or Stock Appreciation Rights under the Plan in any calendar year that relate to more than 4,000,000 Shares in the aggregate; provided, however, that such number may be increased with respect to any Participant by any Shares available for grant to such Participant in accordance with this Paragraph 4(b) in any prior years that were not granted in such prior year beginning on or after January 1, 2000. No provision of this Paragraph 4(b) shall be construed as limiting the amount of any other stock-based or cash-based Award which may be granted to any Participant.
     (c)  Adjustments . Upon the occurrence of any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), change in the capital or shares of capital stock, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
 -3- 

 

combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or extraordinary transaction or event which affects the Shares, then the Committee shall make such adjustment, if any, in such manner as it deems appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, in (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards both to any individual and to all Participants, (ii) outstanding Awards including without limitation the number and type of Shares (or other securities or property) subject thereto, and (iii) the grant, purchase or exercise price with respect to outstanding Awards and, if deemed appropriate, make provision for cash payments to the holders of outstanding Awards; provided, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number.
Section 5. Eligibility
     Any employee of or consultant to the Company or any Affiliate, or any director of the Company, is eligible to be designated a Participant.
Section 6. Awards
     (a)  Options . The Committee is authorized to grant Options to Participants.
     (i) Committee Determinations . Subject to the terms of the Plan, the Committee shall determine:
     (A) the purchase price per Share under each Option, provided, however, that such price shall be not less than 100% of the fair market value of the Shares underlying such Option on the date of grant;
     (B) the term of each Option; and
     (C) the time or times at which an Option may be exercised, in whole or in part, the method or methods by which and the form or forms (including, without limitation, cash, Shares, other Awards or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price) in which payment of the exercise price with respect thereto may be made or deemed to have been made. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder.
          Subject to the terms of the Plan, the Committee may impose such conditions or restrictions on any Option as it deems appropriate.
     (ii) Other Terms . Unless otherwise determined by the Committee:
     (A) A Participant electing to exercise an Option shall give written notice to the Company, as may be specified by the Committee, of exercise of the Option and the number of Shares elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and shall tender the purchase price of the Shares elected for exercise.
     (B) At the time of exercise of an Option payment in full in cash or in Shares (that have been held by the Participant for at least six months) or any combination thereof, at the option of the Participant, shall be made for all Shares then being purchased.
 -4- 

 

     (C) The Company shall not be obligated to issue any Shares unless and until:
     (I) if the class of Shares at the time is listed upon any stock exchange, the Shares to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and
     (II) in the opinion of the Company’s counsel there has been compliance with applicable law in connection with the issuance and delivery of Shares and such issuance shall have been approved by the Company’s counsel.
     Without limiting the generality of the foregoing, the Company may require from the Participant such investment representation or such agreement, if any, as the Company’s counsel may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the Participant agree that any sale of the Shares will be made only in such manner as shall be in accordance with law and that the Participant will notify the Company of any intent to make any disposition of the Shares whether by sale, gift or otherwise. The Participant shall take any action reasonably requested by the Company in such connection. A Participant shall have the rights of a stockholder only as and when Shares have been actually issued to the Participant pursuant to the Plan.
     (D) If the employment of or consulting arrangement with a Participant terminates for any reason (including termination by reason of the fact that an entity is no longer an Affiliate) other than the Participant’s death, the Participant may thereafter exercise the Option as provided below, except that the Committee may terminate the unexercised portion of the Option concurrently with or at any time following termination of the employment or consulting arrangement (including termination of employment upon a change of status from employee to consultant) if it shall determine that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate. If such termination is voluntary on the part of the Participant (other than retirement on or after normal retirement date), the Option may be exercised only within thirty days after the date of termination. If such termination is involuntary on the part of the Participant, the Option may be exercised within three months after the date of termination. If an employee retires on or after normal retirement date, Options shall continue to become exercisable and shall remain exercisable in accordance with the terms and the provisions of this Plan. If the employment or consulting relationship is terminated by reason of permanent and total disability, all unexercisable installments of the option shall thereupon become exercisable and shall remain exercisable for the remainder of the Option term, subject to the provisions of Section 6(a)(ii)(E). Unless the Committee determines otherwise, a change in a Participant’s status from employee to consultant shall be considered a voluntary termination of employment as to any Option granted on or after September 13, 2000 (other than restoration Options granted with respect to Options granted prior to September 13, 2000). For purposes of this Paragraph (D), a Participant’s employment or consulting arrangement shall not be considered terminated (i) in the case of approved sick leave or other bona fide leave of absence (not to exceed one year), (ii) in the case of a transfer of employment or the consulting arrangement among the Company and Affiliates, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee, except as provided above.
     (E) If a Participant dies, all unexercisable installments of the Option shall thereupon become exercisable and, at any time or times within one year after death such Option may be exercised, as to all or any unexercised portion of the Option. The Company may decline to deliver Shares to a designated beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such Option shall expire at the end of such period.
 -5- 

 

     (F) Except as provided above, an Option may be exercised only if and to the extent such Option was exercisable at the date of termination of employment or the consulting arrangement, and an Option may not be exercised at a time when the Option would not have been exercisable had the employment or consulting arrangement continued.
     (G) The provisions of this clause (ii), as amended, shall apply to all outstanding Options, regardless of the grant date.
     (iii) Restoration Options . The Committee may grant a Participant the right to receive a restoration Option with respect to an Option or any other stock option granted by the Company. Unless the Committee shall otherwise determine, a restoration Option shall provide that the underlying option must be exercised while the Participant is an employee of or, with respect to Options granted prior to September 13, 2000, a consultant to the Company or an Affiliate and the number of Shares which are subject to a restoration Option shall not exceed the number of whole Shares exchanged in payment for the exercise of the original option.
     (b)  Stock Appreciation Rights . The Committee is authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the fair market value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise over (ii) the grant price of the right as specified by the Committee. Subject to the terms of the Plan, the Committee shall determine the grant price, term, methods of exercise and settlement and any other terms and conditions of any Stock Appreciation Right and may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.
     (c)  Restricted Stock and Restricted Stock Units .
     (i) Issuance . The Committee is authorized to grant to Participants Awards of Restricted Stock, which shall consist of Shares, and Restricted Stock Units which shall give the Participant the right to receive cash, other securities, other Awards or other property, in each case subject to the termination of the Restricted Period determined by the Committee.
     (ii) Restrictions . The Restricted Period may differ among Participants and may have different expiration dates with respect to portions of Shares covered by the same Award. Subject to the terms of the Plan, Awards of Restricted Stock and Restricted Stock Units shall have such restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise. Unless the Committee shall otherwise determine, any Shares or other securities distributed with respect to Restricted Stock or which a Participant is otherwise entitled to receive by reason of such Shares shall be subject to the restrictions contained in the applicable Award Agreement. Subject to the aforementioned restrictions and the provisions of the Plan, Participants shall have all of the rights of a stockholder with respect to Shares of Restricted Stock.
     (iii) Registration . Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of stock certificates.
     (iv) Forfeiture . Except as otherwise determined by the Committee:
     (A) If the employment of or consulting arrangement with a Participant terminates for any reason (including termination by reason of the fact that any entity is no longer an
 -6- 

 

Affiliate), other than the Participant’s death or permanent and total disability or, in the case of an employee, retirement on or after normal retirement date, all Shares of Restricted Stock theretofore awarded to the Participant which are still subject to restrictions shall upon such termination of employment or the consulting relationship be forfeited and transferred back to the Company. Unless the Committee determines otherwise, a change in a Participant’s status from employee to consultant shall be considered a termination of employment as to any Award of Restricted Stock granted on or after September 13, 2000. Notwithstanding the foregoing or Paragraph (C) below, if a Participant continues to hold an Award of Restricted Stock following termination of the employment or consulting arrangement (including retirement), the Shares of Restricted Stock which remain subject to restrictions shall nonetheless be forfeited and transferred back to the Company if the Committee at any time thereafter determines that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate. For purposes of this Paragraph (A), a Participant’s employment or consulting arrangement shall not be considered terminated (i) in the case of approved sick leave or other bona fide leave of absence (not to exceed one year), (ii) in the case of a transfer of employment or the consulting arrangement among the Company and Affiliates, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee, except as provided above.
     (B) If a Participant ceases to be employed or retained by the Company or an Affiliate by reason of death or permanent and total disability or if following retirement a Participant continues to have rights under an Award of Restricted Stock and thereafter dies, the restrictions contained in the Award shall lapse with respect to such Restricted Stock.
     (C) If an employee ceases to be employed by the Company or an Affiliate by reason of retirement on or after normal retirement date, the restrictions contained in the Award of Restricted Stock shall continue to lapse in the same manner as though employment had not terminated.
     (D) At the expiration of the Restricted Period as to Shares covered by an Award of Restricted Stock, the Company shall deliver the Shares as to which the Restricted Period has expired, as follows:
     (1) if an assignment to a trust has been made in accordance with Section 6(g)(iv)(B)(2)(c), to such trust; or
     (2) if the Restricted Period has expired by reason of death and a beneficiary has been designated in form approved by the Company, to the beneficiary so designated; or
     (3) in all other cases, to the Participant or the legal representative of the Participant’s estate.
     (d)  Performance Awards . The Committee is authorized to grant Performance Awards to Participants. Subject to the terms of the Plan, a Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and other terms and conditions shall be determined by the Committee.
 -7- 

 

     (e)  Dividend Equivalents . The Committee is authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Plan, such Awards may have such terms and conditions as the Committee shall determine.
     (f)  Other Stock-Based Awards . The Committee is authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to or otherwise based on or related to Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purposes of the Plan, provided, however, that such grants to persons who are subject to Section 16 must comply with the provisions of Rule 16b-3. Subject to the terms of the Plan, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof, as the Committee shall determine.
     (g)  General .
     (i)  No Cash Consideration for Awards . Awards may be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.
     (ii)  Awards May Be Granted Separately or Together . Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under another plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
     (iii)  Forms of Payment Under Awards . Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.
     (iv)  Limits on Transfer of Awards .
     (A) Except as the Committee may otherwise determine, no Award or right under any Award may be sold, encumbered, pledged, alienated, attached, assigned or transferred in any manner and any attempt to do any of the foregoing shall be void and unenforceable against the Company.
     (B) Notwithstanding the provisions of Paragraph (A) above:
     (1) An Option may be transferred:
     (a) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
 -8- 

 

     (b) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
     (c) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely in the Participant. Notwithstanding a qualified assignment, the Participant, and not the trust to which rights under such an Option may be as signed, for the purpose of determining compensation arising by reason of the Option shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
     (2) A Participant may assign or transfer rights under an Award of Restricted Stock or Restricted Stock Units:
     (a) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
     (b) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
     (c) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Awards shall revert to and remain solely in the Participant. Notwithstanding a qualified assignment, the Participant, and not the trust to which rights under such an Award may be assigned, for the purpose of determining compensation arising by reason of the Award shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
 -9- 

 

     (3) The Committee shall not permit directors or officers of the Company for purposes of Section 16 to transfer or assign Awards except as permitted under Rule 16b-3.
     (C) The Committee, the Company and its officers, agents and employees may rely upon any beneficiary designation, assignment or other instrument of transfer, copies of trust agreements and any other documents delivered to them by or on behalf of the Participant which they believe genuine and any action taken by them in reliance thereon shall be conclusive and binding upon the Participant, the personal representatives of the Participant’s estate and all persons asserting a claim based on an Award. The delivery by a Participant of a beneficiary designation, or an assignment of rights under an Award as permitted hereunder, shall constitute the Participant’s irrevocable undertaking to hold the Committee, the Company and its officers, agents and employees harmless against claims, including any cost or expense incurred in defending against claims, of any person (including the Participant) which may be asserted or alleged to be based on an Award subject to a beneficiary designation or an assignment. In addition, the Company may decline to deliver Shares to a beneficiary until it receives indemnity against claims of third parties satisfactory to the Company.
     (v)  Share Certificates . All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
     (vi)  Change in Control .
     (A) Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, upon a Change in Control of the Company (as hereinafter defined) the vesting of all rights of Participants under outstanding Awards shall be accelerated and all restrictions thereon shall terminate in order that Participants may fully realize the benefits thereunder. Such acceleration shall include, without limitation, the immediate exercisability in full of all Options and the termination of restrictions on Restricted Stock and Restricted Stock Units. Further, in addition to the Committee’s authority set forth in Section 4(c), the Committee, as constituted before such Change in Control, is authorized, and has sole discretion, as to any Award, either at the time such Award is made hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the purchase of any such Award, upon the Participant’s request, for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable; (ii) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (iii) cause any such Award then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after such Change in Control.
     (B) With respect to any Award granted hereunder prior to December 6, 1995, a Change in Control shall occur if:
     (1) any “person” or “group of persons” as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, other than pursuant to a transaction or agreement previously approved by the Board of Directors of the Company, directly or indirectly purchases or otherwise becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) or has the right to acquire such beneficial ownership (whether or not such right is exercisable immediately, with the passage of time, or subject to any condition) of voting
 -10- 

 

securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company; or
     (2) during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof.
     (C) Notwithstanding the provisions of subparagraph (B), with respect to Awards granted hereunder on or after December 6, 1995, a Change in Control shall occur only if the event described in this subparagraph (C) shall have occurred. With respect to any other Award granted prior thereto, a Change in Control shall occur if any of the events described in subparagraphs (B) or (C) shall have occurred, unless the holder of any such Award shall have consented to the application of this subparagraph (C) in lieu of the foregoing subparagraph (B). A Change in Control for purposes of this subparagraph (C) shall occur if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board of Directors, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. For purposes hereof, “Excluded Directors” are directors whose (i) election by the Board or approval by the Board for stockholder election occurred within one year of any “person” or “group of persons,” as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power or (ii) initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or “person” other than the Board.
     (D)(1) In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a Participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this subparagraph (D)(a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then such Participant shall be entitled to receive from the Company, within 15 days following the determination described in (2) below, an additional payment (“Excise Tax Adjustment Payment”) in an amount such that after payment by such Participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such Participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments.
 -11- 

 

          (2) All determinations required to be made under this Section 6(g)(vi)(D), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the Participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected Participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an “Underpayment”), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected Participant. In the event that the Participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Company.
          (3) This Section 6(g)(vi)(D) shall not apply to any Award (x) that was granted prior to February 17, 1993 and (y) the holder of which is an executive officer of the Company, as determined under the Exchange Act.
     (vii)  Cash Settlement . Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, any Award outstanding hereunder may at any time be cancelled in the Committee’s sole discretion upon payment of the value of such Award to the holder thereof in cash or in another Award hereunder, such value to be determined by the Committee in its sole discretion.
     (viii)  Replacement Options . No outstanding option may be cancelled and replaced with an option having a lower exercise price.
Section 7. Amendment and Termination
     Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:
     (a)  Amendments to the Plan . The Board of Directors of the Company may amend the Plan and the Board of Directors or the Committee may amend any outstanding Award; provided, however, that (i) no Plan amendment shall be effective until approved by stockholders of the Company insofar as stockholder approval thereof is required in order for the Plan to continue to satisfy the conditions of Rule 16b-3, and (ii) without the consent of affected Participants no amendment of the Plan or of any Award may impair the rights of Participants under outstanding Awards, and (iii) no Option may be amended to reduce its initial exercise price other than in connection with an event described in Section 4(c) hereof.
     (b)  Waivers . The Committee may waive any conditions or rights under any Award theretofore granted, prospectively or retroactively, without the consent of any Participant.
     (c)  Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events . The Committee shall make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan.
 -12- 

 

     (d)  Correction of Defects, Omissions, and Inconsistencies . The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to effectuate the Plan.
Section 8. General Provisions
     (a)  No Rights to Awards . No Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards of the same type and the determination of the Committee to grant a waiver or modification of any Award and the terms and conditions thereof need not be the same with respect to each Participant.
     (b)  Withholding . The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards or other property) of withholding taxes due in respect of an Award, its exercise or any payment or transfer under such Award or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes.
     (c)  No Limit on Other Compensation Arrangements . Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, including the grant of options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases.
     (d)  No Right to Employment . The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or other written agreement with the Participant.
     (e)  Governing Law . The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law.
     (f)  Severability . If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
     (g)  No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
     (h)  No Fractional Shares . No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be cancelled, terminated or otherwise eliminated.
 -13- 

 

     (i)  Headings . Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
Section 9. Term
     The Plan shall be effective as of the date of its approval by the Company’s stockholders and no Awards shall be made under the Plan after May 17, 2010.
 -14- 

Exhibit 10.b
MASCO CORPORATION
2005 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated October 26, 2006)
Section 1. Purposes.
     The purposes of the 2005 Long Term Stock Incentive Plan (the “Plan” ) are to encourage selected employees of and consultants to Masco Corporation (the “Company” ) and its Affiliates to acquire a proprietary interest in the Company in order to create an increased incentive to contribute to the Company’s future success and prosperity, and enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom the sustained progress, growth and profitability of the Company depend, thus enhancing the value of the Company for the benefit of its stockholders.
Section 2. Definitions.
     As used in the Plan, the following terms shall have the meanings set forth below:
     (a) “Affiliate” shall mean any entity in which the Company’s direct or indirect equity interest is at least twenty percent, and any other entity in which the Company has a significant direct or indirect equity interest, whether more or less than twenty percent, as determined by the Committee.
     (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, or Dividend Equivalent granted under the Plan.
     (c) “Award Agreement” shall mean any agreement, contract or other instrument or document evidencing any Award granted under the Plan.
     (d) “Board” shall mean the Board of Directors of the Company.
     (e) “Change in Control” shall mean at any time during a period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason ceasing to constitute at least a majority of the members thereof. For purposes hereof, “Excluded Directors” are directors whose (i) election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons,” as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power or (ii) initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or “person” other than the Board.
     (f) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
     (g) “Committee” shall mean a committee of the Company’s directors designated by the Board to administer the Plan and composed of not less than two directors, each of whom is a “non-employee director,” an “independent director” and an “outside director,” within the meaning of and to the extent required respectively by Rule 16b-3, the applicable rules of the NYSE and Section 162(m) of the Code, and any regulations issued thereunder.
     (h) “Dividend Equivalent” shall mean any right granted under Section 6(g) of the Plan.
     (i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

     (j) “Executive Group” shall mean every person who the Committee believes may be both (i) a “covered employee” as defined in Section 162(m) of the Code as of the end of the taxable year in which the Company expects to take a deduction of the Award, and (ii) the recipient of compensation of more than $1,000,000 (as such amount appearing in Section 162(m) of the Code may be adjusted by any subsequent legislation) for that taxable year.
     (k) “Incentive Stock Option” shall mean an Option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto.
     (l) “Non-Qualified Stock Option” shall mean an Option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
     (m) “NYSE” shall mean the New York Stock Exchange.
     (n) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
     (o) “Participant” shall mean an employee of or consultant to the Company or any Affiliate or a director of the Company designated to be granted an Award under the Plan or, for the purpose of granting Substitute Awards, a holder of options or other equity based awards relating to the shares of a company acquired by the Company or with which the Company combines.
     (p) “Performance Award” shall mean any right granted under Section 6(e) of the Plan.
     (q) “Prior Plan” shall mean the Company’s 1991 Long Term Stock Incentive Plan.
     (r) “Restricted Period” shall mean the period of time during which Awards of Restricted Stock or Restricted Stock Units are subject to restrictions.
     (s) “Restricted Stock” shall mean any Share granted under Section 6(d) of the Plan.
     (t) “Restricted Stock Unit” shall mean any right granted under Section 6(d) of the Plan that is denominated in Shares.
     (u) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation.
     (v) “Section 16” shall mean Section 16 of the Exchange Act, the rules and regulations promulgated by the Securities and Exchange Commission thereunder, or any successor provision, rule or regulation.
     (w) “Shares” shall mean the Company’s common stock, par value $1.00 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(c) of the Plan.
     (x) “Stock Appreciation Right” shall mean any right granted under Section 6(c) of the Plan.
     (y) “Substitute Awards” shall mean Awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by a Company or with which the Company combines.
Section 3. Administration.
     The Committee shall administer the Plan, and subject to the terms of the Plan and applicable law, the Committee’s authority shall include without limitation the power to:
     (i) designate Participants;
     (ii) determine the types of Awards to be granted;
     (iii) determine the number of Shares to be covered by Awards and any payments, rights or other matters to be calculated in connection therewith;
 2 

 

     (iv) determine the terms and conditions of Awards and amend the terms and conditions of outstanding Awards;
     (v) determine how, whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended;
     (vi) determine how, whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee;
     (vii) determine the methods or procedures for establishing the fair market value of any property (including, without limitation, any Shares or other securities) transferred, exchanged, given or received with respect to the Plan or any Award;
     (viii) prescribe and amend the forms of Award Agreements and other instruments required under or advisable with respect to the Plan;
     (ix) designate Options granted to key employees of the Company or its subsidiaries as Incentive Stock Options;
     (x) interpret and administer the Plan, Award Agreements, Awards and any contract, document, instrument or agreement relating thereto;
     (xi) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the administration of the Plan;
     (xii) decide all questions and settle all controversies and disputes which may arise in connection with the Plan, Award Agreements and Awards;
     (xiii) delegate to a committee of at least two directors of the Company the authority to designate Participants and grant Awards, and to amend Awards granted to Participants;
     (xiv) delegate to one or more officers or managers of the Company, or a committee of such officers and managers, the authority, subject to such terms and limitations as the Committee shall determine, to cancel, modify, waive rights with respect to, alter, discontinue, suspend or terminate Awards held by employees who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act; provided, however, that any delegation to management shall conform with the requirements of the NYSE applicable to the Company and Delaware corporate law; and
     (xv) make any other determination and take any other action that the Committee deems necessary or desirable for the interpretation, application and administration of the Plan, Award Agreements and Awards.
     All designations, determinations, interpretations and other decisions under or with respect to the Plan, Award Agreements or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, Affiliates, Participants, beneficiaries of Awards and stockholders of the Company.
Section 4. Shares Available for Awards.
          (a) Shares Available . Subject to adjustment as provided in Section 4(c):
     The maximum number of Shares available for issuance in respect of Awards made under the Plan shall be 25,000,000 Shares, provided, however, that if for any reason any Award under the Plan or under the Prior Plan is cancelled, forfeited or expires without the delivery of Shares, the number of Shares available for issuance in respect of Awards under the Plan shall be increased by the number of Shares that were so cancelled, forfeited or subject to expiration. The maximum number of Shares that may be issued and delivered upon vesting of Restricted Stock or Restricted Stock Units is 9,000,000. Subject to the foregoing, Shares may be made available from the authorized but unissued Shares of the Company or from Shares reacquired by the Company.
     (b) Individual Stock-Based Awards . Subject to adjustment as provided in Section 4(c), no Participant may receive Options or Stock Appreciation Rights under the Plan in any calendar year that relate to more than 4,000,000 Shares in the aggregate; provided, however, that such number may be increased with respect to any Participant by any Shares available for grant to such Participant in accordance with this Section 4(b)in any prior years that were not granted in such prior year. No provision of this Section 4(b) shall be construed as limiting the amount of any other stock-based or cash-based award which may be granted to any Participant.
 3 

 

     (c) Adjustments . Upon the occurrence of any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), change in the capital or shares of capital stock, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or extraordinary transaction or event which affects the Shares, then the Committee shall make such adjustment, if any, in such manner as it deems appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, in (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards both to any individual and to all Participants, (ii) outstanding Awards including without limitation the number and type of Shares (or other securities or property) subject thereto, and (iii) the grant, purchase or exercise price with respect to outstanding Awards and, if deemed appropriate, make provision for cash payments to the holders of outstanding Awards; provided, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number.
     (d) Substitute Awards . Shares underlying Substitute Awards shall not reduce the number of shares remaining available for issuance under the Plan for any purpose.
Section 5. Eligibility.
     Any employee of or consultant to the Company or any Affiliate, or any director of the Company, is eligible to be designated a Participant.
Section 6. Awards.
     (a) Options . (i) The Committee is authorized to grant Options to Participants with the following terms and conditions and with such other terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
     (A) the purchase price per Share under each Option, provided, however, that such price shall be not less than 100% of the fair market value of the Shares underlying such Option on the date of grant (except in the case of Substitute Awards);
     (B) the term of each Option (not to exceed ten years);
     (C) the time or times at which an Option may be exercised, in whole or in part, the method or methods by which and the form or forms (including, without limitation, cash, Shares, other Awards or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price) in which payment of the exercise price with respect thereto may be made or deemed to have been made; and
     (D) The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. The maximum number of Shares that may be awarded as Incentive Stock Options is 16,000,000.
     (ii) Other Terms . Notwithstanding the following terms, the Committee may impose other terms that may be more or less favorable to the Company as it deems fit. Unless the Committee shall impose such other terms, the following conditions shall apply:
     (A) Exercise . A Participant electing to exercise an Option shall give written notice to the Company, as may be specified by the Committee, of exercise of the Option and the number of Shares elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and shall tender the purchase price of the Shares elected for exercise.
     (B) Payment . At the time of exercise of an Option payment in full in cash or in Shares or any combination thereof, at the option of the Participant, shall be made for all Shares then being purchased.
     (C) Issuance . The Company shall not be obligated to issue any Shares unless and until:
     (1) if the class of Shares at the time is listed upon any stock exchange, the Shares to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and
 4 

 

     (2) in the opinion of the Company’s counsel there has been compliance with applicable law in connection with the issuance and delivery of Shares and such issuance shall have been approved by the Company’s counsel.
     Without limiting the generality of the foregoing, the Company may require from the Participant such investment representation or such agreement, if any, as the Company’s counsel may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the Participant agree that any sale of the Shares will be made only in such manner as shall be in accordance with law and that the Participant will notify the Company of any intent to make any disposition of the Shares whether by sale, gift or otherwise. The Participant shall take any action reasonably requested by the Company in such connection. A Participant shall have the rights of a stockholder only as and when Shares have been actually issued to the Participant pursuant to the Plan.
     (D) Minimum Vesting . Options may not become fully exercisable prior to the third anniversary of the date of grant, except as provided in Section 6(a)(ii)(E) and Section 7(f) below.
     (E) Termination of Employment; Death . If the employment of a Participant terminates for any reason or if a Participant dies (whether before or after the normal retirement date), Options shall be or become exercisable only as provided in (1) through (5) below:
     (1) If such termination is voluntary on the part of the Participant, such Option may be exercised only if and to the extent such Option was exercisable at the date of termination and only within thirty days after the date of termination. Except as so exercised such Option shall expire at the end of such period.
     (2) If such termination is involuntary on the part of the Participant, such Option may be exercised only if and to the extent such Option was exercisable at the date of termination and only within three months after the date of termination. Except as so exercised such Option shall expire at the end of such period.
     (3) If an employee retires on or after the normal retirement date, such Option shall continue to be and become exercisable in accordance with its terms and the provisions of this Plan.
     (4) If a Participant’s employment is terminated by reason of permanent and total disability, all unexercisable installments of such Option shall thereupon become exercisable and shall remain exercisable for the remainder of the Option term.
     (5) If a Participant dies, all unexercisable installments of such Option shall thereupon become exercisable and, at any time or times within one year after such death, the Option may be exercised, as to all or any unexercised portion of the Option. The Company may decline to deliver Shares to a designated beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such Option shall expire at the end of such period.
     (b) Restoration Options . The Committee may grant a Participant a restoration Option under this Plan with respect to an option granted by the Company under the Prior Plan, or with respect to a restoration option resulting from such an option, when the Participant pays the exercise price by delivering Shares or by attesting to the ownership of such Shares. The restoration option is equal to the number of Shares delivered or attested to by the Participant, and the exercise price shall not be less than 100 percent of the fair market value of the Shares on the date the restoration option is granted. A restoration option otherwise will have the same terms as the original option. Unless the Committee shall otherwise determine, (i) no restoration option shall be granted unless the recipient is an active employee at the time of grant and (ii) the number of Shares which are subject to a restoration Option shall not exceed the number of whole Shares exchanged in payment for the exercise of the underlying Option. No restoration Options shall otherwise be granted under this Plan.
     (c) Stock Appreciation Rights . The Committee is authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the fair market value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise over (ii) the fair market value on the date of grant. Subject to the terms of the Plan, the Committee shall determine the grant price, term, methods of exercise and settlement and any other terms and conditions of any Stock Appreciation Right and may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.
 5 

 

     (d) Restricted Stock and Restricted Stock Units .
     (i) Issuance . The Committee is authorized to grant to Participants Awards of Restricted Stock, which shall consist of Shares, and Restricted Stock Units which shall give the Participant the right to receive cash, other securities, other Awards or other property, in each case subject to the termination of the Restricted Period determined by the Committee. Notwithstanding the following terms, the Committee may impose other terms that may be more or less favorable to the Company as it deems fit. In the absence of any such differing provisions, Awards of Restricted Stock and Restricted Stock Units shall have the provisions described below.
     (ii) Restrictions . The Restricted Period may differ among Participants and may have different expiration dates with respect to portions of Shares covered by the same Award. Subject to the terms of the Plan, Awards of Restricted Stock and Restricted Stock Units shall have such restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise (including the achievement of performance measures as set forth in Section 6(e) hereof), as the Committee may deem appropriate. Any Shares or other securities distributed with respect to Restricted Stock or which a Participant is otherwise entitled to receive by reason of such Shares shall be subject to the restrictions contained in the applicable Award Agreement. Restricted Stock Awards and Restricted Stock Units may not fully vest prior to the third anniversary of the date of grant, except as provided in Sections 6(d)(iv)(B) and 7(f) below. Subject to the aforementioned restrictions and the provisions of the Plan, a Participant shall have all of the rights of a stockholder with respect to Restricted Stock.
     (iii) Registration . Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of stock certificates.
     (iv) Termination; Death . If a Participant’s employment terminates for any reason, all Shares of Restricted Stock or Restricted Stock Units theretofore awarded to the Participant which are still subject to restrictions shall upon such termination be forfeited and transferred back to the Company, except as provided in clauses (A) and (B) below.
     (A) If an employee ceases to be employed by reason of retirement on or after normal retirement date, the restrictions contained in the Award of Restricted Stock or the Restricted Stock Unit shall continue to lapse in the same manner as though employment had not terminated, subject to clause (B) below and Sections 6(d)(v) and 7(f).
     (B) If a Participant ceases to be employed by reason of permanent and total disability or if a Participant dies, whether before or after the normal retirement date, the restrictions contained in such Participant’s Award of Restricted Stock or Restricted Stock Unit shall lapse.
     (C) At the expiration of the Restricted Period, the Company shall deliver Shares in the case of an Award of Restricted Stock or Shares, cash, securities or other property, in the case of a Restricted Stock Unit, as follows:
     (1) if an assignment to a trust has been made in accordance with Section 7(d)(ii)(B), to such trust; or
     (2) if the Restricted Period has expired by reason of death and a beneficiary has been designated in form approved by the Company, to the beneficiary so designated; or
     (3) in all other cases, to the Participant or the legal representative of the Participant’s estate.
     (v) Acceleration . New Awards granted to a Participant in or after the calendar year in which such Participant attains age 65 will vest in five equal annual installments or such earlier vesting as may be specified in the Award Agreement. With respect to an Award granted to a Participant prior to the calendar year in which the Participant attains age 65, if in the calendar year in which the Participant attains age 65 the Restricted Period then remaining thereunder is longer than five years, the Restricted Period shall be shortened so that commencing in the calendar year that a Participant attains age 66, the restrictions contained in the Award shall lapse in equal annual installments such that the Participant shall be fully vested not later than the end of the calendar year in which the Participant attains age 70.
 6 

 

     (e) Performance Awards .
     (i) The Committee is hereby authorized to grant Performance Awards to Participants.
     (ii) Subject to the terms of the Plan, a Performance Award granted under the Plan (A) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock or Restricted Stock Units), other securities or other Awards, and (B) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee. Unless the Committee determines otherwise, the performance period relating to any Performance Award shall be at least one calendar year commencing January 1 and ending December 31 (except in circumstances in connection with a Change in Control, in which event the performance period may be shorter than one year).
     (iii) Every Performance Award to a member of the Executive Group shall, if the Committee intends that such Award should constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Code, include a pre-established formula, such that payment, retention or vesting of the Award is subject to the achievement during a performance period or periods, as determined by the Committee, of a level or levels, as determined by the Committee, of one or more performance measures with respect to the Company or any of its Affiliates, including without limitation the following: (A) net income, (B) return on assets, (C) revenues, (D) total shareholder return, (E) earnings per share; (F) return on invested capital, or (G) cash flow; each as determined in accordance with generally accepted accounting principles, where applicable, as consistently applied by the Company. The following shall be excluded in determining whether any performance criterion has been attained: losses resulting from discontinued operations, extraordinary losses (in accordance with generally accepted accounting principles, as currently in effect), the cumulative effect of changes in accounting principles and other unusual, non-recurring items of loss that are separately identified and quantified in the Company’s audited financial statements. Performance measures may vary from Performance Award to Performance Award and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative. For any Performance Award, the maximum amount that may be delivered or earned in settlement of all such Awards granted in any year shall be (x) if and to the extent that such Awards are denominated in Shares, 2,000,000 Shares (subject to adjustment as provided in Section 4(c)) and (y) if and to the extent that such Awards are denominated in cash, $10,000,000. Notwithstanding any provision of the Plan to the contrary, the Committee shall not be authorized to increase the amount payable under any Award to which this Section 6(e)(iii) applies upon attainment of such pre-established formula.
     (f) Dividend Equivalents . The Committee is authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Plan, such Awards may have such terms and conditions as the Committee shall determine.
     (g) Termination of Employment. Except as otherwise provided in the Plan or determined by the Committee,
     (i) Awards granted to, or otherwise held by, employees will terminate, expire and be forfeited upon termination of employment, which shall include a change in status from employee to consultant and termination by reason of the fact that an entity is no longer an Affiliate, and
     (ii) a Participant’s employment shall not be considered to be terminated (A) in the case of approved sick leave or other approved leave of absence (not to exceed one year or such other period as the Committee may determine), or (B) in the case of a transfer among the Company and its Affiliates.
     (h) Termination of Awards . Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, other than the provisions of Section 7(f), the Committee may terminate any Award (including the unexercised portion of any Option and any Award of Restricted Stock or Restricted Stock Units which remains subject to restrictions) concurrently with or at any time following termination of employment regardless of the reason for such termination of employment if the Committee shall determine that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate.
 7 

 

Section 7. General.
     (a) No Cash Consideration for Awards . Awards may be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.
     (b) Awards May Be Granted Separately or Together . Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under another plan of the Company or an Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
     (c) Forms of Payment Under Awards . Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.
     (d) Limits on Transfer of Awards. Awards can not be transferred, except the Committee is hereby authorized to permit the transfer of Awards with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
     (i) No Award or right under any Award may be sold, encumbered, pledged, alienated, attached, assigned or transferred in any manner and any attempt to do any of the foregoing shall be void and unenforceable against the Company.
     (ii) Notwithstanding the provisions of Section 7(d)(i) above:
     (A) An Option may be transferred:
     (1) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
     (2) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
     (3) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely with the Participant. Notwithstanding a qualified assignment, for the purpose of determining compensation arising by reason of the Option, the Participant, and not the trust to which rights under such an Option may be assigned, shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
     (B) A Participant may assign or transfer rights under an Award of Restricted Stock or Restricted Stock Units:
     (1) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
     (2) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
 8 

 

     (3) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Awards shall revert to and remain solely with the Participant. Notwithstanding a qualified assignment, for the purpose of determining compensation arising by reason of the Award, the Participant, and not the trust to which rights under such an Award may be assigned, shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
     (C) The Committee shall not permit directors or officers of the Company for purposes of Section 16 to transfer or assign Awards except as permitted under Rule 16b-3.
     (iii) The Committee, the Company and its officers, agents and employees may rely upon any beneficiary designation, assignment or other instrument of transfer, copies of trust agreements and any other documents delivered to them by or on behalf of the Participant which they believe genuine and any action taken by them in reliance thereon shall be conclusive and binding upon the Participant, the personal representatives of the Participant’s estate and all persons asserting a claim based on an Award. The delivery by a Participant of a beneficiary designation, or an assignment of rights under an Award as permitted hereunder, shall constitute the Participant’s irrevocable undertaking to hold the Committee, the Company and its officers, agents and employees harmless against claims, including any cost or expense incurred in defending against claims, of any person (including the Participant) which may be asserted or alleged to be based on an Award subject to a beneficiary designation or an assignment. In addition, the Company may decline to deliver Shares to a beneficiary until it receives indemnity against claims of third parties satisfactory to the Company.
     (e) Share Certificates . All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
     (f) Change in Control .
     (i) Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, upon a Change in Control of the Company the vesting of all rights of Participants under outstanding Awards shall be accelerated and all restrictions thereon shall terminate in order that Participants may fully realize the benefits thereunder. Such acceleration shall include, without limitation, the immediate exercisability in full of all Options and the termination of restrictions on Restricted Stock and Restricted Stock Units. Further, in addition to the Committee’s authority set forth in Section 4(c), the Committee, as constituted before such Change in Control, is authorized, and has sole discretion, as to any Award, either at the time such Award is made hereunder or any time thereafter, to take any one or more of the following actions: (A) provide for the purchase of any such Award, upon the Participant’s request, for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable; (B) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (C) cause any such Award then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after such Change in Control.
     (ii) (A) In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a Participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this Section 7(f)(ii)(A) (a “Payment” ), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise
 9 

 

tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax” ), then such Participant shall be entitled to receive from the Company, within 15 days following the determination described in (2) below, an additional payment ( “Excise Tax Adjustment Payment” ) in an amount such that after payment by such Participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such Participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments.
     (B) All determinations required to be made under this Section 7(f)(ii), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the Participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected Participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an “Underpayment” ), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an “Overpayment” ), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected Participant. In the event that the Participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly restored to the Company.
     (g) Cash Settlement . Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, any Award outstanding hereunder may at any time be cancelled in the Committee’s sole discretion upon payment of the value of such Award to the holder thereof in cash or in another Award hereunder, such value to be determined by the Committee in its sole discretion.
     (h) Option Repricing . Except as provided in Section 4(c) and in connection with the granting of a Substitute Award, no outstanding Option may be cancelled and replaced with an Option having a lower exercise price.
Section 8. Amendment and Termination.
     Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:
     (a) Amendments to the Plan . The Board may amend the Plan and the Board or the Committee may amend any outstanding Award; provided, however, that (i) no Plan amendment shall be effective until approved by stockholders of the Company if any stockholder approval thereof is required in order for the Plan to continue to satisfy the conditions of the applicable rules and regulations that the Committee has determined to be necessary to comply with, and (ii) without the consent of affected Participants no amendment of the Plan or of any Award may impair the rights of Participants under outstanding Awards, and (iii) no Option may be amended to reduce its initial exercise price other than in connection with an event described in Section 4(c) hereof or the granting of a Substitute Award.
     (b) Waivers . The Committee may waive any conditions to the Company’s obligations or rights of the Company under any Award theretofore granted, prospectively or retroactively, without the consent of any Participant.
     (c) Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events . The Committee shall make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan; provided, however, no such adjustment shall be made to an Award granted under Section 6(e)(iii) if the Committee intends such Award to constitute “qualified performance-based compensation” unless such adjustment is permitted under Section 162(m) of the Code.
 10 

 

Section 9. Correction of Defects, Omissions, and Inconsistencies
     The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to effectuate the Plan.
Section 10. General Provisions .
     (a) No Rights to Awards . No Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards of the same type and the determination of the Committee to grant a waiver or modification of any Award and the terms and conditions thereof need not be the same with respect to each Participant.
     (b) Withholding . The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards or other property) of withholding taxes due in respect of an Award, its exercise or any payment or transfer under such Award or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes.
     (c) No Limit on Other Compensation Arrangements . Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, including the grant of options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases.
     (d) No Right to Employment or Service . The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ or service of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or service, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or in any other agreement binding the parties.
     (e) Governing Law . The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law.
     (f) Severability . If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
     (g) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
     (h) No Fractional Shares . No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be cancelled, terminated or otherwise eliminated.
     (i) Headings . Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
Section 11. Term.
     The Plan shall be effective as of the date of its approval by the Company’s stockholders and no Awards shall be made under the Plan after May 10, 2015.
 11 

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
David A. Doran
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 cashbonuses 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

 

 Page 2 
October 2, 2000
     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.
     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,

 

 Page 3 
October 2, 2000
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 female mortality rates as set forth in Revenue Ruling 95-6 (or

 

 Page 4 
October 2, 2000
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.

 

 Page 5 
October 2, 2000
     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.
     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

 

 Page 6 
October 2, 2000
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)

 

 Page 7 
October 2, 2000
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

 

 Page 8 
October 2, 2000
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 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.

 

 Page 9 
October 2, 2000
     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:
     (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

 

 Page 10 
October 2, 2000
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

 

 Page 11 
October 2, 2000
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

 

 Page 12 
October 2, 2000
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

 

 Page 13 
October 2, 2000
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

 

 Page 14 
October 2, 2000
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

 

 Page 15 
October 2, 2000
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 16 
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: John R. Leekley
David A. Doran
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 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.

 

 Page 2 
October 2, 2000
     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,

 

 Page 3 
October 2, 2000
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

 

 Page 4 
October 2, 2000
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.

 

 Page 5 
October 2, 2000
     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.
     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

 

 Page 6 
October 2, 2000
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 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.

 

 Page 7 
October 2, 2000
     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,

 

 Page 8 
October 2, 2000
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.
     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

 

 Page 9 
October 2, 2000
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 of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.

 

 Page 10 
October 2, 2000
     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;

 

 Page 11 
October 2, 2000
     (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 12 
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

 

 Page 13 
October 2, 2000
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, 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.

 

 Page 14 
October 2, 2000
     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.

 

 Page 15 
October 2, 2000
     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 16 
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

 

 Page 17 
October 2, 2000
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 for: Timothy Wadhams
[Date]
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 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

 

 Page 2 
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.

 

 Page 3 
     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

 

 Page 4 
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 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)

 

 Page 5 
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).
     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

 

 Page 6 
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

 

 Page 7 
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 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

 

 Page 8 
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 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

 

 Page 9 
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%.

 

 Page 10 
     (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 (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

 

 Page 11 
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

 

 Page 12 
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

 

 Page 13 
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

 

 Page 14 
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

 

 Page 15 
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

 

 Page 16 
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 17 
     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 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.

 

 Page 2 
October 2, 2000
     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,

 

 Page 3 
October 2, 2000
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

 

 Page 4 
October 2, 2000
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,

 

 Page 5 
October 2, 2000
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.
     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

 

 Page 6 
October 2, 2000
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

 

 Page 7 
October 2, 2000
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

 

 Page 8 
October 2, 2000
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 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.

 

 Page 9 
October 2, 2000
     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

 

 Page 10 
October 2, 2000
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

 

 Page 11 
October 2, 2000
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

 

 Page 12 
October 2, 2000
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

 

 Page 13 
October 2, 2000
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

 

 Page 14 
October 2, 2000
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

 

 Page 15 
October 2, 2000
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.

 

 Page 16 
October 2, 2000
     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 17 
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: __________________

Exhibit 10.i
 
AMENDED AND RESTATED
SHAREHOLDERS’ AGREEMENT
BETWEEN
RHJ INTERNATIONAL SA

ASAHI TEC CORPORATION
and
The PRINCIPAL COMPANY SHAREHOLDERS Listed on Schedule I hereto
Dated as of November 21, 2006

 

TABLE OF CONTENTS
 	 	 	 	 	 	 	
 	 	 	 	Page	
 	 	 	 	 	 	 	
1.	 	Definitions	 	 	3	 	
2.	 	Board of Directors	 	 	6	 	
3.	 	Proxy	 	 	8	 	
4.	 	Transfers	 	 	8	 	
5.	 	Offering	 	 	10	 	
6.	 	Demand Offering	 	 	16	 	
10.	 	Informational Rights	 	 	17	 	
11.	 	Further Assurances	 	 	18	 	
12.	 	Amendments	 	 	18	 	
13.	 	Binding Agreement	 	 	18	 	
14.	 	Conflicts — Articles	 	 	18	 	
15.	 	Entire Agreement	 	 	18	 	
16	 	Severability	 	 	19	 	
17.	 	Benefits of Agreement: Third-Party Rights	 	 	19	 	
18.	 	Governing Law	 	 	19	 	
19.	 	No Waiver of Rights	 	 	19	 	
20.	 	Submission to Jurisdiction	 	 	19	 	
21.	 	Specific Performance	 	 	20	 	
22.	 	Costs	 	 	20	 	
23.	 	Notices	 	 	20	 	
24.	 	Confidentiality	 	 	21	 	
25.	 	Definitions Generally	 	 	22	 	
26.	 	English Version Authoritative	 	 	22	 	

 

 2
     AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT dated as of November 27, 2006, amoag the Persons listed on Schedule I hereto, RHJ International SA, a societe anonyms organized under the laws of Belgium, and Asahi Tec Corporation, a Japanese corporation (“Argon’’ or the “Company”).
          WHEREAS, Argon, RHJI and the Principal Company Shareholders entered into a Shareholders’ Agreement dated as August 31, 2006 (the “Original Agreement”), and wish to amend and restate the Original Agreement as set forth herein:
          WHEREAS, Argon, Argon Acquisition Corp., a Delaware corporation (“Acquisition Sub”) and a wholly owned subsidiary of Argon, and Metaldyne Corporation, a Delaware corporation, have entered into an amended and restated Agreement and Plan of Merger dated as of the date hereof (as such agreement may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), whereby (i) Acquisition Sub will merge (the “Merger”) with and into Mercury, (ii) Mercury will become a wholly owned subsidiary of Argon and (iii) each issued share of Mercury common stock not owned by Argon, Acquisition Sub or Mercury shall be converted into the right to receive the applicable Merger Consideration (as defined in the Merger Agreement) set forth in Section 2.0 l(c) of the Merger Agreement;
          WHEREAS, Argon and the Principal Company Shareholders have entered into an amended and restated stock purchase agreement (the “ Parent Stock Purchase Agreement”) dated as of the date hereof whereby the Principal Company Shareholders will acquire an aggregate of 36,017,697 newly issued Shares concurrently with the consummation of the Merger;
          WHEREAS, the Company and HIP, as the holder of the Series B Mercury Preferred Stock (the “Mercury Preferred Stock”), have entered into an amended and restated agreement (the *’HIP_Stock Purchase Agreement ” and, together with the Parent Stock Purchase Agreement, the “ Stock Purchase Agreements”) dated as of the date of this Agreement, whereby HIP shall acquire for cash (1) 9,490,893 newly issued Shares in exchange for the Merger Consideration (as defined in the Merger Agreement) received by HIP as consideration for such Mercury Preferred Stock and (ii) 8,534,345 newly issued Shares in exchange for $15 million;
          WHEREAS, RHJI and the Principal Company Shareholders wish to agree upon certain matters with respect to Argon.

 

 3 
          NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and intending to be legally bound hereby, RHJI and the Principal Company Shareholders hereby agree as follows:
          1. Definitions When used herein, the following terms have the following meanings:
          “ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the direct or indirect possession of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
          “ Agreement ” means this Agreement, as amended or restated from time to time.
          “ Argon ” has the meaning set forth in the preamble to this Agreement.
          “ Articles ” means the articles of incorporation of Argon, as amended or restated from time to time.
          “ Board of Directors ” has the meaning set forth in Section 2 of this Agreement.
          “ Business Day ” means any day other than a Saturday or Sunday, on which banks located in Tokyo or New York are not required or authorized by law to remain closed.
          “ Closing Date ” means the date of consummation of the transactions described in the Stock Purchase Agreements.
          “ Company ” has the meaning set forth in the preamble to this Agreement.
          “ CSFB ” means Credit Suisse First Boston Equity Partners, L.P., Credit Suisse First Boston Equity Partners (Bermuda), L.P., Credit Suisse First Boston U.S. Executive Advisors, L.P., EMA Partners Fund 2000, L.P., EMA Private Equity Fund 2000, L.P., and its Permitted Transferees.
          “ Deferral Period ” has the meaning set forth in Section 6(e) of this Agreement.
          “ Demand Notice ” has the meaning set forth in Section 6(a) of this Agreement.
          “Demand Offering” has the meaning set forth in Section 6(a) of this Agreement.

 

 4 
          “ Demand Offering Expenses ” means all expenses incident to the Company’s performance of or compliance with Section 6, including all fees and expenses of compliance by the Company with securities laws, printing expenses, messenger and delivery expenses, fees and disbursements of counsel for Argon and of the independent certified public accountants of Argon (including the expenses of any annual audit, special audit and “cold comfort” letters required by or incident to such performance and compliance), the reasonable fees and expenses of any special experts retained by Argon in connection with such registration, and fees and expenses of other Persons retained by Argon (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Shares by holders of such Shares or any expenses incurred by the Principal Company Shareholders).
          “ Designator ” has the meaning set forth in Section 2(a){i) of this Agreement.
          “ Director ” has the meaning set forth in Section 2 of this Agreement.
          “ HIP ” means HIP means Heartland Industrial Partners, L.P., HIP Side-By-Side Partners, L.P., Heartland Industrial Partners (FF), L.P., Heartland Industrial Partners (C1), L.P, Metaldyne Investment Fund I, LLC and Metaldyne Investment Fund II, LLC and each of their respective Permitted Transferees.
          “ Inspector ” has the meaning set forth in Section 6(c)(iii).
          “ Institutional Offering ” means one private placement by Argon to institutional investors (with gross proceeds in an aggregate amount of at least $50,000,000) of capital shares of Argon or any successor in interest of Argon after the Closing Date, other than the Offering.
          “ Lead Principal Company Shareholder ” means HIP until the date upon which HIP ceases to own any Shares and thereafter, the Principal Company Shareholder that, together with its Affiliates, owns in the aggregate the largest number of Shares.
          “ Offering ” means the first primary public offering by Argon (with gross proceeds in an aggregate amount of at least $75,000,000) of capital shares of Argon or any successor in interest of Argon after the Closing Date, other than tie Institutional Offering.
          “ Permitted Transferee ” means, (i) with respect to RHJI, any Affiliate of RHJI, (ii) with respect to each Principal Company Shareholder, any Affiliate of such Principal Company Shareholder and (iii) with respect to any Principal Company Shareholder that is a natural Person, the estate or administrators of such Person to whom powers over such Person’s properties pass upon death or incapacity, and the testamentary or intestate beneficiaries of such Person under applicable estate laws.
          “ Person ” means any individual, corporation, partnership, trust, association, limited liability company, limited company, joint venture, joint-stock company or any other entity or organization, including a government or governmental agency.

 

 5 
          “ Principal Company Shareholders ” means the Persons listed on Schedule I hereto and any of their Permitted Transferees to which a Principal Company Shareholder has Transferred Shares in accordance with Section 4.
          “ Receiving Party ” has the meaning set forth in Section 24.
          “ Records ” has the meaning set forth in Section 6(c)(iii).
          “Restricted Period” has the meaning set forth in Section 4(b).
          “RHJI” means RHJ International SA and its Permitted Transferees.
          “ SEL ” means the Japanese Securities and Exchange Law (Law No. 25 of 1948, as amended)
          “ Shareholder ” means any of the Principal Company Shareholders or RHJ.
          “Shares” means the common shares of Argon.
          “ Specified Shares ” means Shares acquired by a Principal Company Shareholder pursuanno a Stock Purchase Agreement and any such Shares Transferred by a Principal Company Shareholder to a Permitted Transferee so long as such Transfer complied with Section 4.
          “ Subsidiary ” means any Person (i) in which Argon, one or more Subsidiaries of Argon and one or more Subsidiaries owns capitai stock representing 50% or more of the capital stock of such Person or (ii) of which Argon or a Subsidiary of Argon is the general partner, manager or managing member or holds a similar management position,
          “ Transfer ” means any direct or indirect transfer, sale, conveyance, assignment, gift, pledge or other disposition of Shares, including any direct or indirect transfer, sale, conveyance, assignment, gift, pledge or other disposition, whether voluntary or by operation of law (including any disposition by means of a merger, consolidation or similar transaction), of the stock, partnership interests, membership interests or any other ownership interests in Argon or any entity that is a direct or indirect beneficial or record owner of any Shares, or any other transaction that has the economic effect of Transferring Shares; provided that neither (i) the Transfer of bona fide publicly traded shares of any holder of Shares (or of the ultimate parent company of any holder of Shares) nor (ii) the bona fide Transfer by a limited partner of its limited partnership interests in Heartland Industrial Partners, L.P., HIP Side-By-Side Partners, L.P., Heartland Industrial Partners (FF), L.P., Heartland Industrial Partners (C l), L.P., Credit Suisse First Boston Equity Partners, L.P., Credit Suisse First Boston Equity Partners (Bermuda), L.P., Credit Suisse First Boston Fund Investments VI Holdings, LLC, Credit Suisse First Boston Fund Investments VI-B (Bermuda), L.P., Credit Suisse First Boston U.S. Executive Advisors, L.P., Masco Corporation, Richard and Jane Manoogian Foundation, First Union Capital Partners, LLC, BancBoston Capital Inc., Metropolitan Life Insurance Company, Equity Asset Investment Trust, Annex Holdings I LP Annex

 

 6 
Capital Farmers LLC, LongPoint Capita] Fund L.P., LongPoint Capital Partners LLC., EMA Partners Fund 2000, L.P., EMA Private Equity Fund 2000, L.P., 75 Wall Street Associates LLC, Graham Partners Investments, L.P., Graham Partners Investments (A), L.P., Graham Partners Investments (B), L.P., Private Equity Portfolio Fund II, LLC, CRM 1999 Enterprise Fund, LLC and DairoterChryster AG shall be a Transfer for the purposes of this Agreement,
          “ Transferee ” means the transferee in a Transfer.
          “ Transferor ” means the transferor in a Transfer.
          “ TSE ” means the Tokyo Stock Exchange.
          2. Board of Directors.
          The Shareholders have agreed to exercise their voting rights with respect to the board of directors (the “Board of Directors” and each director thereof, a “Director”) in accordance with the provisions of this Section 2, which they consider to be in the best interests of Argon.
                         (a) RHJI, HIP and CSFB (each a “Designator” for the purposes of this Section 2), each shall be entitled la propose to nominate the following number of Directors:
               (i) for so long as the Principal Company Shareholders collectively own at least 10% or more of the outstanding number of Shares, HIP and CSFB each shall have the right to nominate one (1) Director;
               (ii) for so long as the Principal Company Shareholders collectively own at least 5% but less than 10% of the outstanding number of Shares, HIP shall have the right to nominate one (1) Director; and
               (iii) RHJI shall have the right to nominate all other Directors nominated by the Shareholders;
which Directors in each case shall be proposed for appointment or removal, as applicable, at an annual or special meeting of the shareholders of Argon (and its nomination committee meeting to be held prior to such meeting of shareholders) promptly following the proposal of the applicable Designator.
                         (b) If a Designator wishes to propose, in accordance with its rights pursuant to Section 2(a) above, that any Person shall be appointed a Director, it shall submit a letter to the other Shareholders setting out such proposal. Each other Shareholders shall (A) cause any member of the nomination committee of Argon who is a Director nominated by such Shareholder to vote in favor of such nomination of the proposed Person as a Director and (B)(x) if any annual or special meeting of the shareholders of

 

 7 
Argon is held, appear at such meeting or otherwise cause its Shares to be counted as present thereat for purposes of establishing a quorum, and vote or (y) act by written consent with respect to (or cause to be voted or acted upon by written consent) all its Shares in favor of such appointment.
                         (c) If a Designator wishes to remove a Director appointed following its proposal from the Board of Directors, it shall submit a letter to the other Shareholders proposing that such Director shall be removed. Each other Shareholders shall (A) cause any member of the nomination committee of Argon who is a Director nominated by such Shareholder to vote in favor of such removal and (B)(x) if any annual or special meeting of the shareholders of Argon is held, appear at such meeting or otherwise cause its Shares to be counted as present thereat for purposes of establishing a quorum, and vote or (y) act by written consent with respect to (or cause to be voted or acted upon by written consent) all its Shares in favor of such removal. Subject to Sections 2(d) and 2(e) below, the Shareholders shall not vote in favor of the removal of a Director, unless the Designator who proposed such Director votes in favor of the removal.
                         (d) If a Director ceases to be a Director for whatever cause (including resignation or removal), the Designator upon the proposal of which the relevant Director had been appointed shall be entitled to propose the appointment of a new Director in accordance with, and subject to the provisions of, this Section 2, so long as such Designator continues to be entitled to propose the appointment of such Director under Section 2(a),
                         (e) The Company has duly called, given notice of, convened and held on November 16, 2006, a Company Stockholders Meeting (as defined in the Merger Agreement) and has elected as directors to the Company Board the persons designated by HIP and CSFB, each of which are effective only so long as the Closing occurs on or prior to January 16, 2007. Subject to the other provisions of this Section 2 , in the event that the Closing Date does not occur on or prior to January 16, 2007, each of the Shareholders undertakes to vote all shares then held by it in favor of the appointment of the Person nominated by HIP and the Person nominated by CSFB, in each case nominated promptly following January- 16, 2007, as Directors at a Company Stockholders Meeting to be held as soon as practicable following such date; provided that the appointment of such Persons shall not become effective until the consummation of the transactions described in the Stock Purchase Agreement. The Shareholders undertake to use commercially reasonable efforts to procure that, until replaced or removed in accordance with this Section 2, such Persons shall be the Directors designated HIP and CSFB,
                         (f) For so long as either of HIP or CSFB has the right to propose to nominate a Director pursuant to Section 2(a) above, and subject to applicable law (including the rules and regulations of the TSE), it shall have the right to appoint one Director to each committee of or under the Board of Directors, including the audit, nomination and compensation committees thereof.

 

 8 
Any Director designated by either of HIP or CSFB shall be promptly reimbursed for all costs and expenses, including travel and lodging expenses, incurred by such Director for attending Board of Directors and committee meetings,
                         (g) A Designator may irrevocably waive at any time its rights under this Section 2 by providing written notice of such waiver to the other Designators.
          3. Proxy. In order to secure RHJI’s rights to vole the Shares of the Principal Company Shareholders, for so long as this Agreement shall remain in full force and effect, each Principal Company Shareholder hereby appoints RHJI, as its true and lawful proxy and attorney-in-fact, with full power of substitution, to vote all of the Shares owned by such Principal Company Shareholder solely for the purpose of electing Directors pursuant to the provisions of Section 2 of the Agreement, and in any event, subject to, and consistent with, the provisions of Section 2 of the Agreement, it being understood that such proxy extends only to the election of Directors pursuant to the provisions of Section 2 of the Agreement and in no event shall such proxy extend to any other matter that may be acted upon at any annual or special meeting of the shareholders of Argon. RHJI may exercise the irrevocable proxy granted to it hereunder at any time and from time to time. The proxies and powers granted by each Principal Company Shareholder pursuant to this Section 3 are coupled with an interest and are given to secure the performance of the obligations of the Principal Company Shareholders under Section 2 of this Agreement. Such proxies and powers given by any Principal Company Shareholder will be irrevocable until the earliest of (i) the termination of this Agreement and (ii) the sale of the Shares by such Principal Company Shareholder in compliance with this Agreement (other than to a Permitted Transferee).
          4. Transfers.
                         (a) Generally. A Principal Company Shareholder may Transfer all or any portion of its Shares so long as (i) such Transfer is not restricted by Section 4(b), (ii) if such Transfer is during a Restricted Period only, the Transferor gives Argon and RHJI not less than ten (10) Business Days prior notice of such Transfer, and if such Transfer is not during a Restricted Period, the Transferor gives Argon and RHJI notice of such Transfer reasonably promptly after such Transfer, (iii) the Transferee, if it is a Permitted Transferee of the Transferor, executes and delivers to RHJI a counterpart of the signature page of this Agreement (or other appropriate assumption agreement) and any other agreements, documents or instruments as RHJI may reasonably require and (iv) the Transfer complies with applicable securities laws (including rules of the stock exchange on which any shares of Argon are listed). Any Transfer made in violation of this Section 4 shall be null and void.
                         (b) Transfer Restrictions, (i) During the period from the Closing Date until the consummation of the Institutional Offering (the “Initial Restricted Period”), a Principal Company Shareholder may not Transfer any Shares except with the written consent of RHJI provided that the transfer restriction imposed by this Section (4)(b)(i) shall expire if the Institutional

 

 9 
Offering has not been consummated within 90 days following the Closing Date. For the avoidance of doubt, the Initial Restricted Period shall not extend beyond the 90 th day from the Closing Date.
               (ii) If required by the underwriters of the Institutional Offering or the Offering, and for so long as the Principal Company Shareholders collectively own at least 5% or more of the outstanding Shares (or 10% or more of the Shares if both HIP and CSFB have irrevocably waived their right to nominate Directors pursuant to Section 2(g)), a Principal Company Shareholder may not transfer any Shares for a period (an “ Offering Restricted Period ” and, together with the Initial Restricted Period, each, a “Restricted Period”) of 180 days after the closing of each of (a) the Institutional Offering and (b) the Offering (or for such shorter lock-up period as the underwriters of the Institutional Offering or the Offering, as applicable, require of RHJI or the Principal Company Shareholders); provided that no Restricted Period shall extend beyond 24 months from the Closing Date.
               (iii) Each Shareholder shall have the right to Transfer at any time, all or any portion of its Shares to its Permitted Transferees without the prior consent of any other Shareholder and without having such Transfer subject to Section 4(b){i) or 4(b)(ii); provided such Transfers otherwise still shall be subject to Section 4(a).
                         (c) For the avoidance of doubt, nothing in this Agreement shall restrict an Affiliate of a Principal Company Shareholder from making a market in securities of Argon or from otherwise trading in securities of Argon; provided that (i) such Affiliate is an entity that is itself not a Principal Company Shareholder and (ii) such Principal Company Shareholder has in place “Chinese wall” policies and procedures reasonably adequate to ensure that any such market making or trading by any such Affiliate shall not be effected in connection with or in coordination with a Principal Company Shareholder or the trading of any Shares held by a Principal Company Shareholder.
                         (d) If a Transferor has Transferred all its Shares pursuant to this Section 4, immediately following such Transfer, such Transferor shall cease to be a party to this Agreement.
                         (e) RHJI and the Principal Company Shareholders each shall notify Argon promptly of any acquisition or Transfer of Shares by it or any of its Affiliates and Argon shall notify the other parties to this Agreement promptly of such acquisition or Transfer, in each case with information with respect thereto sufficient to permit the parties to this Agreement to determine the aggregate number of Shares held by each party hereto and its respective Affiliates in order to comply with their respective reporting and filing requirements regarding share ownership under Japanese law and the rules and regulations of the TSE,

 

 10 
          5. Offering.
          (a) The Board of Directors shall determine the timing, scope and other terms and conditions of the Offering.
          (b) In connection with such Offering:
     (i) the Shareholders, if requested by the applicable underwriters, will enter into a customary “lockup” agreement with the underwriters of the Offering for such period as Argon and Argon’s underwriters may agree in connection with such Offering, provided that such period shall not exceed the Offering Restricted Period; and
     (ii) Argon and the Shareholders will covenant to reasonably cooperate with each other in complying with all applicable public reporting requirements and all other applicable securities laws (including rules of the stock exchange on which any shares of Argon arc listed); provided that the Principal Company Shareholders shall in no event be liable for any action or failure 10 act by the Company or any other Shareholder in performance of this Section 5(b)(ii).
To the extent the underwriters of the Offering exercise an over-allotment option, if any, and all or any portion of such over-allotment option is made available as a secondary offering of Shares, the Principal Company Shareholders shall have the right to participate pro rata in such secondary offering with the other shareholders of the Company participating in such secondary offering,
          (c) In the event that the Company is notified either orally or in writing that the Tokyo Stock Exchange (the “TSE”) has commenced or intends to commence a proceeding to delist the Shares from the TSE as a result of the Transactions (as defined in the Merger Agreement), the Company shall use its reasonable best efforts to prevent the delisting of the Shares by the TSE or, alternatively, to list the Shares on another stock exchange or cause the Shares to be authorized for quotation on an automated quotation system.
          6. Demand Offering.
          (a) Demand Right.
     (i) Following the earlier of (x) the expiration of the Offering Restricted Period following the Offering or (y) 24 months following the Closing Date, upon the written request of the Lead Principal Company Shareholder (a “Demand Not ice”) (a copy of which shall be provided by tie Lead Principal Company Shareholder to each other Principal Company Shareholder), Argon shall cooperate to effect one secondary offering of Specified Shares held by Principal Company Shareholders (a “Demand Offering”) as to the number of Specified Shares specified in such request. Such request for a Demand Offering shall specify the number of Specified

 

 11 
Shares proposed to be offered for sale (the “Demand Offering Shares’’) and shall also specify the intended method of distribution thereof. The Lead Principal Company Shareholder shall have the right to designate any of the following international or Japanese banks as lead underwriters in a Demand Offering: Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Lazard, Lehman Brothers, Merrill Lynch, Mizuho, Morgan. Stanley, Nikko Citi and Nomura or their successors.
     (ii) Argon shall use reasonable efforts to prepare and file offering materials, including a statutory prospectus, for any Demand Offering as promptly as reasonably practicable following delivery of the Demand Notice, and shall use reasonable efforts to make such offering materials effective with the applicable regulatory authorities and under applicable law and shall make any other filings required under applicable Jaws and regulations to be made by the Company in connection with the Demand Offering, including the filing of securities notices, Argon shall supplement or make amendments to such offering materials as may be necessary to correct any material misstaternent or omission contained therein, until such time as the Demand Offering is completed. Argon shall furnish to the Principal Company Shareholders copies of any such supplement or amendment prior to its being used,
     (iii) Any Principal Company Shareholder that elects to participate in a Demand Offering (including any Demand Offering exercised pursuant to Section 6(a)(v)) may withdraw its Shares from such Demand Offering at any time prior to the commencement of the Demand Offering; provided, however, that such Demand Offering shall nonetheless count as the Demand Offering for the purpose of this Section 6(a) unless the Lead Principal Company Shareholder withdraws its Shares in such a manner prior to the commencement of the marketing for such Demand Offering, in which case such Demand Offering shall be terminated and shall not count as the Demand Offering for the purpose of this Section 6(a).
     (iv) Argon shall be required to effect only one Demand Offering pursuant to this Section 6(a) (including any Demand Offering exercised pursuant to Section 6(a)(v)), except that if the lead underwriter participating in the Demand Offering shall cut back by more than 30% the number of Demand Offering Shares to be offered in the Demand Offering as provided in Section 6{b) below, the Lead Principal Company Shareholder shall have one additional right to make a Demand Offering as provided in this Section 6(a); provided, however, that in no event shall Argon be required to effect more than two Demand Offerings pursuant to this Section 6(a) (including any Demand Offering exercised pursuant to Section 6(a)(v)).
     (v) In addition to the right of the Lead Principal Company Shareholder to effect up to two Demand Offerings pursuant to this Section

 

 12 
6(a), each of Masco Corporation (“Masco”) and DaimJerChrysler Corporation (“DCX”‘) has a similar right to effect up to two demand offerings of either Shares or shares of Argon preferred stock pursuant to its respective Other Preferred Stock Purchase Agreement (collectively, each an “Other Demand Right”). If (i) one of the foregoing parties validly exercises an Other Demand Right in respect of Shares and (ii) the Lead Principal Company Shareholder at such time continues to have the right under this Section 6(a) to effect a Demand Offering, then Argon promptly shall notify the Lead Principal Company Shareholder of the exercise of such Other Demand Right and she Principal Company Shareholders shall have the right to participate in the offering of Shares being effected thereby by the Lead Principal Company Shareholder delivering written notice to Argon within ten business days of receipt thereof of its election to so offer Shares; provided that any such election, to so participate shall be deemed an exercise by the Lead Principal Company Shareholder of its right under this Section 6 (a) to effect a Demand Offering and otherwise shall be effected in accordance with this Section 6(a). The holders of Other Demand Rights also shall have a similar right to participate in a Demand Offering effected by the Principal Company Shareholders pursuant to this Agreement. In no event shall Shares and shares of Argon preferred stock be offered in the same Demand Offering except with the approval of Argon and the Lead Principal Company Shareholder. ''Priority Shares” means fur purposes of this Agreement, as applicable, any Shares offered by the Principal Company Shareholders. Masco or DCX, in each case in an offering effected cither pursuant to this Section 6(a) or pursuant to the exercise of an Other Demand Right by Masco or DCX.
          (b) Reduction of Offering. Notwithstanding anything contained herein, if the lead underwriter of an underwritten offering described in Section 6(a) (including any offering being effected in connection with the exercise of an Other Demand right as provided in Section 6(a)(v)) (collectively, a “Specified Offering”) delivers a written opinion to Argon that the number of Shares that the holders of Shares intend to include in any Demand Offering is such that the success of any such offering would be materially and adversely affected, including the price at which the Shares can be sold, then the number of Shares to be included in the Demand Offering for the account of the holders of Shares shall be reduced pro rata to the extent necessary to reduce the total amount of Shares to be included in any such Demand Offering to the amount recommended by such lead underwriter, provided, however, that priority shall be (i) first, the Priority Shares requested to be included in the Demand Offering for the account of the holders of Priority Shares, allocated pro rata among them in accordance with the number of Priority Shares held by each of them until all of such Shares have been included, (ii) second, Shares proposed to be offered by Argon for its own account until all of such Shares have been included and (iii) third, pro rata among any other Shares of Argon requested to be included in the Demand Offering by the holders thereof pursuant to a contractual right, so that the total number of Shares to be included in any such

 

 13 
offering for the account of all such Persons will not exceed the number recommended by such lead underwriter.
     (c)  Demand Offering Procedures. Subject to the provisions of Section 6(a), in connection with the Demand Offering, Argon will as promptly as reasonably practicable:
     (i) Furnish to the Principal Company Shareholders, if requested, prior to such offering, copies of such offering material for such Demand Offering, and thereafter such number of copies of each amendment and supplement (hereto (in each case including all exhibits thereto and documents incorporated by reference therein), and such other documents in such quantities as the Principal Company Shareholders may reasonably request from time to time in order to facilitate the disposition of the Shares,
     (ii) Promptly notify the Principal Company Shareholders of the happening of any event as a result of which the offering memorandum included in such offering materials or amendment contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and Argon will promptly prepare a supplement or amendment to such offering materials so that such offering memorandum will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading,
     (iii) Make available for inspection by the Principal Company Shareholders, any underwriter participating in any disposition pursuant to such Demand Offering, any attorney for the Principal Company Shareholders or the underwriter and any accountant or other agent retained by the Principal Company Shareholders or any such underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of Argon (collectively, the “Records”) as shall be reasonably necessary to enable each of them to exercise its due diligence responsibility, and cause the officers, directors and employees of Argon and its Subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Demand Offering; provided, however, that (i) Records and information obtained hereunder shall be used by such Inspector only to exercise its due diligence responsibility, (ii) Records or information that Argon determines, in good faith, to be confidential shall not be disclosed by the Inspectors unless (x) the disclosure of such Records or information is necessary to avoid or correct a material misstatement or omission in the offering materials for such Demand Offering or (y) the release of such Records or information is ordered pursuant to a subpoena or other order from a court or governmental authority of competent jurisdiction and (iii) Argon may

 

 14 
require, as a condition to the provision to any Inspector of any Records, that such Inspector execute and deliver to Argon a written agreement, in form and substance reasonably satisfactory to Argon, pursuant to which such Inspector agrees to the confidential treatment of such Records.
     (iv) Cause members of senior management of Argon to prepare materials for and participate in a customary road show in connection with the Demand Offering.
          (d) Conditions to Demand Offerings. The obligations of Argon to take the actions contemplated by Sections 6(a) and 6(c) with respect to a Demand Offering are subject to the following conditions:
     (i) The Principal Company Shareholders shall conform to all applicable requirements of the SEL and TSE with respect to the offering and sale of securities.
     (ii) The Principal Company Shareholders shall advise each underwriter through which any of the Shares are offered that the Shares are part of a distribution that is subject to the offering materials delivery requirements of the SEL and TSE.
     (iii) Argon may require the Principal Company Shareholders to furnish to Argon such information regarding the Principal Company Shareholders or the distribution of the Shares as Argon may from time to time reasonably request in writing, in each case only as required by the SEL or TSE,
     (iv) Upon receipt of any notice from Argon of the happening of any event of the kind described in Section 6(c)(ii) or a condition described in Section 6(e), the Principal Company Shareholders will forthwith discontinue disposition of Shares pursuant to the Demand Offering until the Principal Company Shareholders receives copies of the supplemented or amended offering materials contemplated by Section 6(c)(ii) or notice from Argon of the termination of the Deferral Period (as defined in Section 6(e)) and, if so directed by Argon, will promptly deliver to Argon all copies (other than any permanent file copies then in the Principal Company Shareholders’ possession) of the most recent offering materials covering such Shares that were current at the time of receipt of such notice.
          (e) Black-out Period. Argon’s obligations pursuant to Sections 6 (a) shall be suspended if compliance with such obligations would (a) in Argon’s good faith determination based upon the advice of outside legal counsel, violate applicable law or (b) require Argon to disclose a material financing, material acquisition or other material corporate development, and the proper officers of Argon have determined, in the good faith exercise of their reasonable business judgment, that such disclosure is not in the best interests of Argon, provided, however, that any such suspension shall not exceed 90 days

 

 15 
with respect to any single event or series of related events and all such suspensions shall not exceed 180 days in any twelve-month period (the “Deferral Period”). Argon shall promptly give the Principal Company Shareholders written notice of any such suspension containing the approximate length of the anticipated delay, and Argon shall notify the Principal Company Shareholders upon the termination of the Deferral Period.
          (f) Demand Offering Expenses, Argon shall pay all of its Demand Offering Expenses incident to its performance of, and compliance with, the Demand Offering pursuant to Section 6- Each Person who included Shares in any Demand Offering shall pay all discounts and commissions payable to underwriters, selling brokers, managers or other similar Persons related to the sale or disposition of such Person’s Shares pursuant to any Demand Offering in proportion to the amount of such Person’s Shares included in such Demand Offering and all of its other expenses in connection therewith.
          (g) Indemnification, (i)If required by the underwriters participating in the Demand Offering, Argon will execute and deliver a customary indemnity agreement, with respect to the information regarding the Company and its subsidiaries (but not the Principal Company Shareholders) included in the offering materials prepared by Argon and used for such Demand Offering, in favor of the underwriters participating in the Demand Offering and their Affiliates.
     (ii) Argon will execute and deliver a customary indemnity agreement, with respect to the information regarding the Company and its subsidiaries (but not the Principal Company Shareholders) included in the offering materials prepared by Argon and used for such Demand Offering, in favor of the Principal Company Shareholders participating in the Demand Offering
          7. Termination; Effectiveness.
          (a) This Agreement shall terminate (i) with respect to any Shareholder on the date that such Shareholder no longer holds any Shares or (ii) with respect to all Shareholders on the date that the Principal Company Shareholders collectively own less than 5% of the then outstanding Shares,
          (b) Termination or expiration of this Agreement shall not relieve the parties of any obligation accruing prior to such termination or expiration and shall be without prejudice to the rights and remedies of any party with respect to the antecedent breach of any of the provisions of this Agreement. The provisions of Sections 18. 20 and 24 shall survive any termination hereof.
          (c) Notwithstanding anything else to the contrary in this Agreement, this Agreement shall not have any force or effect unless and until the Merger and the other transactions described in the Merger Agreement and Parent Stock Purchase Agreement are consummated.

 

 16 
          8. Representations and Warranties of Shareholders. Each Shareholder, severally and not jointly, represents and warrants to each other Shareholder that:
          (a) the Shareholder has the power, authority and capacity to execute and deliver this Agreement and all other documents and instruments executed or to be executed pursuant to this Agreement. The execution and delivery of this Agreement and all other documents and instruments executed or to be executed by the Shareholder pursuant to this Agreement and the consummation of the transactions contemplated hereby and thereby, have been (July authorized by all necessary action on the part of the Shareholder. This Agreement and all other documents and instruments executed or to be executed by the Shareholder pursuant to this Agreement have been, or will have been, at the time of their respective execution and delivery, duly executed and delivered by a Person duly authorized to execute and deliver this Agreement and such other documents and instruments on behalf of the Shareholder;
          (b) this Agreement has been duly and validly executed and delivered by such Shareholder and constitutes a valid and legally binding obligation of such Shareholder, enforceable in accordance with its terms;
          (c) the execution and delivery of this Agreement and all other documents and instruments executed or to be executed by the Shareholder pursuant to this Agreement, and the consummation of the transactions contemplated hereby and thereby, will not conflict with or result in any violation of or default under any provision of (i) the organizational documents of the Shareholder or (ii) any mortgage, indenture, trust, lease, partnership or other agreement or other instrument, permit, concession, grant, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Shareholder or any of its properties or assets, the result of which would materially impair the Shareholder’s ability to consummate the transactions contemplated hereby,
          (d) no consent, approval or authorization is required to be obtained or made by the Shareholder in connection with its execution, delivery or performance of this Agreement or the validity and enforceability of this Agreement, other than under circumstances where the failure to obtain such consent, approval or authorization would not have a material adverse effect on the validity or enforceability of this Agreement; and
          (b) as of the date of this Agreement, no action, suit, proceeding or governmental investigation is pending against the Shareholder at law or in equity or before any governmental authority that seeks to question, delay or prevent the consummation of the transactions contemplated hereby.
          9. Representations and Warranties of Argon. Argon represents and warrants, to the Shareholders that:
          (a) Argon has the power, authority and capacity to execute and deliver this Agreement and all other documents and instruments executed or to be executed pursuant to this Agreement. The execution and delivery of this Agreement and all other

 

 17 
documents and instruments executed or to be executed by Argon pursuant to this Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action on the part of Argon. This Agreement and all other documents and instruments executed or to be executed by Argon pursuant to this Agreement have been, or will have been, at the time of their respective execution and delivery, duly executed and delivered by a Person duly authorised to execute and deliver this Agreement and such other documents and instruments, on behalf of Argon;
          (b) this Agreement has been duly and validly executed and delivered by Argon and constitutes a valid and legally binding obligation of Argon, enforceable in accordance with its terms;
          (c) the execution and delivery of this Agreement and all other documents and instruments executed or to be executed by Argon pursuant to this Agreement, and the consummation of the transactions contemplated hereby and thereby, will not conflict with or result in any violation of or default under any provision of (i) the organizational documents of Argon or (ii) any mortgage, indenture, trust, lease, partnership or other agreement or other instrument, permit, concession, grant, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Argon or any of its properties or assets, the result of which would materially impair Argon’s ability to consummate the transactions contemplated hereby;
          (d) no consent, approval or authorization is required to be obtained or made by Argon in connection with its execution, delivery or performance of this Agreement or the validity and enforceability of this Agreement, other than under circumstances where the failure to obtain such consent, approval or authorization would not have a material adverse effect on the validity or enforceability of this Agreement; and
          (e) as of the date of this Agreement, no action, suit, proceeding or governmental investigation is pending against Argon at law or in equity or before any governmental authority that seeks to question, delay or prevent the consummation of the transactions contemplated hereby,
          10. Informational Rights. (a) The Principal Company Shareholders shall be entitled to receive, in an English language version, (if otherwise available), as promptly as practicable after such information is available (i) quarterly consolidated unaudited financial statements and reports of Argon, (ii) consolidated annual audited financial statements and reports of Argon, and (iii) such other information relating to the business, affairs, (including any matter customarily requiring the approval of the Board of Directors), prospects or condition (financial or otherwise) of Argon as is available to Argon and that such Principal Company Shareholder may reasonably request or that customarily is provided to RHJI; provided that any Principal Company Shareholder may waive its rights under this Section 10 at any time in its sole discretion.
          (b) Argon recognizes that a Principal Company Shareholder may have one or more limited partners that require certain information and consultation rights from Argon in order for such limited partner to continue to qualify as a “venture capital operating company” (“VCOC”), as that term is commonly referred to under ERISA (as

 

 18 
defined in the Parent Stock Purchase Agreement). Argon hereby agrees to provide promptly any such requesting limited partner of a Principal Company Shareholder (which limited partner can substantiate a legitimate requirement to Argon’s reasonable satisfaction) with a VCOC letter substantially consistent with similar VCOC letters previously issued by Argon to HIP and CSFB (but excluding any right to have observation rights at the Board of Directors),
          11. Further Assurances. Each Shareholder shall endeavor to take or cause to be taken all actions, and to do or cause to be done all other things, necessary, proper or advisable in order to fulfill and perform its obligations in respect of this Agreement. From time to time, each Shareholder shall, in cooperation with the other parties hereto, as appropriate, execute and deliver, or cause to be executed and delivered, such additional documents and instruments, and take such, other actions as may be reasonably requested by the other party or parties to render effective or otherwise cany out the intent and purposes of this Agreement.
          12. Amendments. This Agreement may be amended only by a written instrument executed by RHJI and the Principal Company Shareholders holding a majority of all the Shares then held by all Principal Company Shareholders; provided, however, notwithstanding anything to the contrary in this Agreement, no amendment or change to (i) any representation and warranty in this agreement that is adverse to the Principal Company Shareholders may be made without the approval of each Principal Company Shareholder, (ii) the existing liabilities or obligations of any Principal Company Shareholder under this Agreement that is adverse to such Principal Company Shareholder may be made without the approval of such Principal Company Shareholder or (iii) provide any additional benefit or right to HIP or RHJI under this Agreement (other than as provided as of the date hereof) may be made without the approval of each Principal Company Shareholder.
          13. Binding Agreement. This Agreement and the rights and duties of (he parties hereto shall be binding upon and shall inure to the benefit of the parties hereto and their respective executors, administrators, heirs, successors and permitted assigns; provided that such rights and duties may not he assigned by any party hereto (and any such assignment shall be void) except that any Permitted Transferee acquiring any Shares shall became a “Shareholder” in accordance with Section 4(a).
          14. Conflicts — Articles. Each of the Shareholders shall take all action necessary, including but not limited to the voting of their Shares, to ensure that the Articles of Argon and the Articles and by-laws or other governing documents of Argon’s Subsidiaries are consistent with, and do not conflict with, the terras of this Agreement and undertake to amend the Articles to incorporate some or all of the provisions of this Agreement, to the extent reasonably determined by RHJI. The Shareholders undertake to sign any other document reasonably deemed necessary by Argon to give effect to this Agreement. To the extent legally permissible, in the case of conflict between the Shareholders, the provisions of this Agreement shall take precedence over the Articles.
          15. Entire Agreement This Agreement constitutes the entire agreement and understanding among the parties hereto with respect to the matters

 

 19 
referred to herein (other than with respect to a certain agreement between HIP and CSFB regarding the exercise of their rights as Principal Company Shareholders under this Agreement) and supersedes all prior agreements and understandings (including the Original Agreement) among the parties hereto with respect to the matters referred to herein.
          16. Severability. If any term, provision covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the agreement contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the agreement contemplated hereby be governed as originally contemplated to the fullest extent possible.
          17. Benefits of Agreement; Third-Party Rights. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of any party to this Agreement. Nothing in this Agreement shall be deemed to create any right in any Person not a party hereto and no Person not a party hereto shall have any right to compel performance by any parry hereto of its obligations hereunder.
          18. Governing Law . This Agreement and all actions contemplated hereby shall be governed by and construed and enforced in accordance with the laws of Japan.
          19. No Waiver of Rights. No failure or delay on the part of any party in the exercise of any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or of any other right or power, The waiver by any party or parties hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach hereunder, All rights and remedies existing under this Agreement are cumulative and are not exclusive of any rights or remedies otherwise available.
          20. Submission to Jurisdiction. Any and all suits, legal actions or proceedings arising out of this Agreement shall be brought either in the courts of Japan or in U.S. Federal court located in the Southern District of New York, and each party hereto hereby submits to and accepts the exclusive jurisdiction of such courts for the purpose of such suits, legal actions or proceedings. To the fullest extent permitted by law, each party hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such suit, legal action or proceeding in any such court and hereby further waives any claim that any suit, legal action or proceeding brought in any such court has been brought in an inconvenient forum.

 

 20 
          21. Specific Performance. The parties hereby declare that irreparable damage would occur as a result of the failure of any party hereto to perform any of its obligations under this Agreement in accordance with the specific terms hereof. Therefore, all parties hereto shall have the right to specific performance of the obligations of the other parlies under this Agreement, and if any party hereto shall institute any action or proceeding to enforce the provisions hereof, any Person against whom such action or proceeding is brought hereby waives the claim or defense therein that such party has or have an adequate remedy by the payment of a financial compensation. The right to specific performance should be in addition to any other remedy to which a party hereto may be entitled.
          22. Costs. Save as otherwise provided in this Agreement or in the Stock Purchase Agreement, the parties shall be responsible for and shall bear their own costs (including those of their respective external advisors) in connection with this Agreement and their participation in Argon.
          23. Notices. All notices and other communications required or permitted by this Agreement shall be made in writing and any such notice or communication shall be deemed delivered when delivered in person, transmitted by telecopier, or one business day after it has been sent by a nationally recognized overnight courier, at the following address or addresses, or at the address or addresses of the recipient designated at the time it became a parry hereto:
if to RHJl:
RHJ International SA
Avenue Louise 326
1050 Brussels
Belgium
Attention: Robert E, Ewers, Jr., General Counsel
Facsimile No.: +32 (0)2 648 99 38
with a copy to:
Cravaih, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
United States of America
Attention: Thomas E. Dunn
Facsimile No.: +1 -212-474-3 700
if to the Principal Company Shareholders, to:
As set forth on Schedule II.

 

 21 
Communications by telecopier also shall be sent concurrently by an internationally recognized overnight courier, but shall in any event be effective as stated above. Each party hereto may from time to time change its address for notices under this Section 23 by giving at least five Business Days’ notice of such changed address to the other parlies hereto.
          24. Confidentiality, Each party undertakes to take all necessary measures to keep the contents of this Agreement strictly confidential and not to disclose it to third parties, provided that each Shareholder shall be permitted to disclose (he contents of this Agreement if required or advisable as a matter of applicable law (including rules of the stock exchange on which any shares of Argon are listed) or to any entity which it believes in good faith to be seriously considering a significant investment in or loan to Argon so long as such entity has executed a confidentiality agreement and, with respect to any disclosure by a Principal Company Shareholder or Transferee thereof, either (i) Argon reasonably determines that such entity will be able to meet its obligations under such confidentiality agreement or (ii) such Principal Company Shareholder agrees to be liable for the obligations of such entity under such confidentiality agreement, Each Shareholder undertakes to take all necessary measures to keep any confidential information of Argon and its Subsidiaries strictly confidential and not to disclose it to third parties without the consent of Argon. The foregoing restrictions on disclosure shall not apply to information that (a) can be demonstrated to have already been known to (he receiving party (the ''Receiving Party”), without restriction as to confidentiality or use, prior to disclosure of same by Argon; (b) is received from a third party without restriction as to confidentiality or use, by a third party lawfully entitled to possession of such information and who does not violate any contractual, legal or fiduciary obligation, direct or indirect, to keep such information confidential; (c) was in or becomes part of the public domain through no fault of the Receiving Party; (d) the Receiving Party is legally compelled to disclose; (e) is disclosed as required to enforce this Agreement; or (f) is to be disclosed to any prospective Transferee; provided that (i) the prospective Transfer must be permitted under this Agreement, (ii) the prospective Transferee enters into a written confidentiality agreement with Argon reasonably satisfactory to Argon and (iii) either (A) Argon approves the prospective Transferee which enters into such confidentiality agreement, which approval shall not be unreasonably withheld (the poor creditworthiness and/or negative business reputation of such prospective Transferee being a reasonable basis for Argon to refuse its approval) or (B) the Receiving Party agrees to be liable for such prospective Transferee’s obligations under such confidentiality agreement, In the event that the Receiving Party becomes legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process or otherwise) to disclose any of the information, the Receiving Party shall provide Argon with prompt prior written notice of such disclosure requirement (which shall include a copy of any applicable subpoena or order) so that Argon may seek a protective order or other appropriate remedy and/or waive compliance with the terms of this Section 24. In the event that such protective order or other remedy is not obtained, or that Argon waives compliance with the provisions hereof, the Receiving Party agrees to furnish only that portion of the information which the Receiving Party is advised by written opinion of counsel is legally required and to exercise best efforts to obtain assurance that confidential treatment will be accorded such

 

 22 
informat ion. Each party further agrees not to make any public announcement or press release relating to this Agreement without the prior written consent of the other parties hereto and without an agreement on the content of such disclosure.
          25. Definitions Generally. Definitions in this Agreement apply equally to both the singular and plural forms of the defined terms. The words “include" 51 and “including” shall be deemed to be followed by the phrase “without limitation” when such phrase does not otherwise appear. The terms “herein”, “hereof and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. The section titles appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All section, paragraph or clause references not attributed to a particular document shall be references to such parts of this Agreement.
          26. Eng1ish Version Authoritative. The Shareholders agree that any dispute shall be resolved solely based on the English language version of the definitive documentation.
[Signature page follows.]

 

          IN “WITNESS WHEREOF, five original copies of (he Agreement are signed and each of the undersigned, intending to be legally bound hereby, has duly executed this Agreement as of the date first above written and acknowledges the receipt of an original and signed copy of the Agreement
 	 	 	 	 	 	 	
 	 	ASAHI TEC CORPORATION,	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Akira NaKamura
 
Name: Akira NaKamura	 	 	
 	 	 	 	Title: President	 	 	

 

 	 	 	 	 	 	 	
 	 	RHJ INTERNATIONAL S.A.,	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ [ILLEGIBLE]	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	Title:	 	 	
Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	HEARTLAND INDUSTRIAL PARTNERS, L.P,	
 	 	 	 	 	 	 	
 	 	By:	 	HEARTLAND INDUSTRIAL	 	 	
 	 	 	 	ASSOCIATES, L.L.C.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ [ILLEGIBLE]
 
Name:	 	 	
 	 	 	 	Title:	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	
 	METALDYNE INVESTMENT FUND I, LLC
 	 	
 	By:  	/s/ [ILLEGIBLE]  	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	
 	METALDYNE INVESTMENT FUND II, LLC
 	 	
 	By:  	/s/ [ILLEGIBLE]  	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	HIP SIDE-BY-SIDE PARTNERS, L.P.	
 	 	 	 	 	 	 	
 	 	By:	 	HEARTLAND INDUSTRIAL ASSOCIATES. LL.C.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ [ILLEGIBLE]
 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	Title:	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON EQUITY PARTNERS, L.P.	
 	 	 	 	 	 	 	
 	 	By:	 	Hemisphere Private Equity Partners, Ltd.,	 	 	
 	 	 	 	Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kenneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Kenneth Lohsen	 	 	
 	 	 	 	Titie: Authorized Signatory	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON EQUITY PARTNERS
     (BERMUDA), L.P.	
 	 	 	 	 	 	 	
 	 	By:	 	Hemisphere Private Equity Partners, Ltd,
its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kenneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Kenneth Lohsen	 	 	
 	 	 	 	Title: Authorized Signatory	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON FUND	 	 	
 	 	     INVESTMENTS VI HOLDINGS, LLC	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By: 	 	Credit Suisse First Boston Fund Investments   
VI, L.P., Its Managing Member	 	 	
 	 	 	 	     By: 	 	Merchant Capital, Inc., Its General Partner	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse First Boston Fund Investments
Vl-Side Partnership, L.P., Its Managing Member	 	 	
 	 	 	 	     By: 	 	Merchant Capital, Inc., Its General Partner	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse First Boston Investment	 	 	
 	 	 	 	Partnership VI (Bermuda), L.P., Its Managing Member	 	 	
 	 	 	 	     By: 	 	Merchant Capital, Inc., Its General Partner	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kenneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Kenneth Lohsen	 	 	
 	 	 	 	Title: Vice President	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON FUND	 	 	
 	 	     INVESTMENTS VI-B (BERMUDA), L.P.,	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Merchant Capital, Inc, Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kernneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Kernneth Lohsen	 	 	
 	 	 	 	Title: Vice President	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON U.S. EXECUTIVE
ADVISORS, L.P.	
 	 	 	 	 	 	 	
 	 	By:	 	Hemisphere Private Equity Partners, Ltd,
Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kenneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Kenneth Lohsen	 	 	
 	 	 	 	Title: Authorized Signatory	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	EMA PARTNERS FUND 2000, L.P.	
 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse (Bermuda) Limited, Its
General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kenneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Kenneth Lohsen	 	 	
 	 	 	 	Title: Vice President	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	EMA PRIVATE EQUITY FUND 2000, L.P.	
 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse (Bermuda) Limited, Its
Gentral Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kenneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Kenneth Lohsen	 	 	
 	 	 	 	Title: Vice President	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	MASCO CORPORATION	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ [ILLEGIBLE]	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	Title:	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	RICHARD AND JANE MANOOG1AN
       FOUNDATION	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Richard A. Manooglan	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Richard A. Manooglan	 	 	
 	 	 	 	Title: President	 	 	
Amended and Restated Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	RICHARD MANOOG1AN	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Richard A. Manoog1an	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Richard A. Manoog1an	 	 	
 	 	 	 	Title: Trustee, Richard A. Manoog1an	 	 	
 	 	 	 	Trust Dated February 15, 2006	 	 	
 	 	 	 	as Amended and Restated	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	WACHOVIA CAPITAL PARTNERS 2000, LLC,	 	 	
 	 	(formerly First Union Capital Partners, LLC)	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ [ILLEGIBLE]	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: [ILLEGIBLE]	 	 	
 	 	 	 	Title: Vice President	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	
 	BANCBOSTON CAPITAL INC.
 	 	
 	By:  	/s/ [ILLEGIBLE]  	 	
 	 	Name:  	[ILLEGIBLE] 	 	
 	 	Title:  	Vice President 	 	
 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	
 	METROPOLITAN LIFE INSURANCE
COMPANY
 	 	
 	By:  	/s/ Christopher Farrington  	 	
 	 	Name:  	Christopher Farrington	 	
 	 	Title:  	Director 	 	
 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	
 	EQUITY ASSET INVESTMENT TRUST
 	 	
 	By:  	/s/ Ron Herman  	 	
 	 	Name:  	Ron Herman	 	
 	 	Title:  	Attorney in Fact 	 	
 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	ANNEX HOLDINGS ILP	 	 	
 	 	 	 	 	 	 	
 	 	By: Annex Capital Partners, LLC, its	 	 	
 	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Alexander P. Coleman	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Alexander P. Coleman	 	 	
 	 	 	 	Title: Managing Member	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	LONG POINT CAPITAL FUND, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By: Long Point Capital Partners, LLC, its	 	 	
 	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Ira Starr	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Ira Starr	 	 	
 	 	 	 	Managing Director	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	
 	LONG POINT CAPITAL PARTNERS, L.L.C.
 	 	
 	By:  	/s/ Ira Starr  	 	
 	 	Ira Starr  	 	
 	 	Managing Director 	 	
 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	 	 	 	 	 	 	
 	 	75 WALL STREET ASSOCI ATES LLC	 	 	 	 	
 	 	By:	 	ALLIANZ LEBEN PRIVATE EQUITY FUNDS PLUS GmbH	 	 	 	 	
 	 	Its:	 	Member	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Wanching Ang	 	/s/ Claus Zeliner	 	 	 	 	
 	 	 	 	 	
 	 	 	 	Name: Wanching Ang	 	Claus Zeliner	 	 	 	 	
 	 	 	 	Title: Managing Director	 	Director	 	 	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	GRAHAM PARTNERS INVESTMENTS, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS GENERAL	 	 	
 	 	 	 	PARTNER, L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS	 	 	
 	 	 	 	(GP2), L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS	 	 	
 	 	 	 	(GP), LLC	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Steven C. Graham	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Steven C. Graham	 	 	
 	 	 	 	Title: Managing Member	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	GRAHAM PARTNERS INVESTMENTS (A), L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS GENERAL	 	 	
 	 	 	 	PARTNER, L.P.,	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS	 	 	
 	 	 	 	(GP2), L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS (GP), LLC	 	 	
 	 	Its:	 	General partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Steven C. Graham	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Steven C. Graham	 	 	
 	 	 	 	Title: Managing Member	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	 	 	
 	 	GRAHAM PARTNERS INVESTMENTS (B), L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS GENERAL PARTNER, L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS (GP2), L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS (GP), LLC	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Steven C. Graham	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Steven C. Graham	 	 	
 	 	 	 	Title: Managing Member	 	 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	
 	PRIVATE EQUITY PORTFOLIO FUND II, LLC
 	 	
 	By:  	/s/ Matthew J. Ahern  	 	
 	 	Name:  	Matthew J. Ahern  	 	
 	 	Title:  	VlCE PRESIDENT 	 	
 	
Amended and Restate Shareholders’ Agreement

 

 	 	 	 	 	
 	CRM 1999 ENTERPRISE FUND, LLC
 	 	
 	By:  	/s/ Carlos Leal  	 	
 	 	Name:  	Carlos Leal 	 	
 	 	Title:  	CFO 	 	
 	
Amended and Restate Shareholders’ Agreement

 

Exhibit 10.j

SHAREHOLDERS AGREEMENT
BY AND AMONG
TRIMAS CORPORATION,
METALDYNE COMPANY LLC,
THE HEARTLAND ENTITIES LISTED ON THE
SIGNATURE PAGES HERETO, AND
THE OTHER SHAREHOLDERS NAMED HEREIN OR ADDED
AS PARTIES HERETO FROM TIME TO TIME
 
DATED AS OF JUNE 6, 2002
AS AMENDED AND RESTATED AS OF JULY 19, 2002

 

 

TABLE OF CONTENTS
 	 	 	 	 	 	 	
 	 	 	 	Page	 	
 	 	 	 	 	 	 	
ARTICLE I	 	 	 	 	
 	 	 	 	 	 	 	
DEFINITIONS; RULES OF CONSTRUCTION	 	 	 	 	
 	 	 	 	 	 	 	
SECTION 1.01.	 	Definitions	 	 	1	 	
SECTION 1.02.	 	Rules of Construction	 	 	7	 	
 	 	 	 	 	 	 	
ARTICLE II	 	 	 	 	
 	 	 	 	 	 	 	
REPRESENTATIONS AND WARRANTIES	 	 	 	 	
 	 	 	 	 	 	 	
SECTION 2.01.	 	Authority; Enforceability	 	 	8	 	
SECTION 2.02.	 	No Breach	 	 	8	 	
SECTION 2.03.	 	Consents	 	 	8	 	
SECTION 2.04.	 	Share Ownership	 	 	9	 	
SECTION 2.05.	 	No Post-Closing Breach	 	 	9	 	
 	 	 	 	 	 	 	
ARTICLE III	 	 	 	 	
 	 	 	 	 	 	 	
SHARE TRANSFERS	 	 	 	 	
 	 	 	 	 	 	 	
SECTION 3.01.	 	Restrictions on Transfer	 	 	9	 	
SECTION 3.02.	 	Exceptions to Restrictions	 	 	10	 	
SECTION 3.03.	 	Improper Transfer	 	 	10	 	
SECTION 3.04.	 	Restrictive Legend	 	 	10	 	
 	 	 	 	 	 	 	
ARTICLE IV	 	 	 	 	
 	 	 	 	 	 	 	
RIGHTS OF CERTAIN SHAREHOLDERS	 	 	 	 	
 	 	 	 	 	 	 	
SECTION 4.01.	 	Rights of First Offer	 	 	11	 	
SECTION 4.02.	 	Tag-Along Rights	 	 	13	 	
SECTION 4.03.	 	Drag-Along Rights	 	 	15	 	
SECTION 4.04.	 	Information	 	 	16	 	
SECTION 4.05.	 	Preemptive Rights	 	 	18	 	
SECTION 4.06.	 	Board of Directors	 	 	20	 	
SECTION 4.07.	 	Transaction with Affiliates	 	 	22	 	
 -i-  

 

 	 	 	 	 	 	 	
 	 	 	 	Page	 	
 	 	 	 	 	 	 	
ARTICLE V	 	 	 	 	
 	 	 	 	 	 	 	
REGISTRATION RIGHTS	 	 	 	 	
 	 	 	 	 	 	 	
SECTION 5.01.	 	Company Registration	 	 	23	 	
SECTION 5.02.	 	Demand Registration Rights	 	 	24	 	
SECTION 5.03.	 	Registration Procedures	 	 	28	 	
SECTION 5.04.	 	Registration Expenses	 	 	33	 	
SECTION 5.05.	 	Indemnification	 	 	33	 	
SECTION 5.06.	 	1934 Act Reports	 	 	36	 	
SECTION 5.07.	 	Holdback Agreements	 	 	36	 	
SECTION 5.08.	 	Participation in Registrations	 	 	37	 	
SECTION 5.09.	 	Remedies	 	 	37	 	
SECTION 5.10.	 	Other Registration Rights	 	 	37	 	
SECTION 5.11.	 	Rule 144	 	 	38	 	
 	 	 	 	 	 	 	
ARTICLE VI	 	 	 	 	
 	 	 	 	 	 	 	
MISCELLANEOUS	 	 	 	 	
 	 	 	 	 	 	 	
SECTION 6.01.	 	Notices	 	 	38	 	
SECTION 6.02.	 	Binding Effect; Benefits; Entire Agreement	 	 	38	 	
SECTION 6.03.	 	Waiver	 	 	39	 	
SECTION 6.04.	 	Amendment	 	 	39	 	
SECTION 6.05.	 	Assignability	 	 	39	 	
SECTION 6.06.	 	Applicable Law	 	 	39	 	
SECTION 6.07.	 	Specific Performance	 	 	40	 	
SECTION 6.08.	 	Severability	 	 	40	 	
SECTION 6.09.	 	Additional Securities Subject to Agreement	 	 	40	 	
SECTION 6.10.	 	Section and Other Headings	 	 	40	 	
SECTION 6.11.	 	Counterparts	 	 	40	 	
SECTION 6.12.	 	Termination of Certain Provisions	 	 	40	 	
SECTION 6.13.	 	ERISA Matters	 	 	41	 	
SECTION 6.14.	 	Regulatory Cooperation	 	 	41	 	
SECTION 6.15.	 	Publicity	 	 	41	 	
SECTION 6.16.	 	MCLLC Securities	 	 	42	 	
 -ii-  

 

SHAREHOLDERS AGREEMENT
     THIS AGREEMENT (the “Agreement”), dated as of June 6, 2002, and amended and restated as of July 19, 2002, by and among TRIMAS CORPORATION, a Delaware corporation (the “Company”), METALDYNE COMPANY, LLC, a Delaware limited liability company (“MCLLC”), Masco Capital Corporation, a Delaware corporation, hIP Side-by-Side Partners, L.P., a Delaware limited partnership, the Heartland entities listed on the signature pages hereto and the other Shareholders listed on the signature pages hereto (each of Sponsor, MCLLC, Masco Capital Corporation, HIP Side-by-Side Partners, L.P., the other shareholders party hereto and each other Person executing a Joinder Agreement after the date hereof, individually a “Shareholder” and together the “Shareholders”).
     WHEREAS, each Shareholder listed on Schedule 2.04, other than MCLCC, has purchased (the “Stock Purchase”) shares of the Company’s common stock, $.01 par value (the “Common Stock”) on the original date hereof or on the date of the amendment and restatement.
     WHEREAS, as a result of and in connection with the Stock Purchase, each Shareholder owns the number of shares of Common Stock set forth on Schedule 2.04 hereto.
     WHEREAS, the parties hereto desire to enter into this agreement to provide for certain rights and restrictions with respect to the Common Stock.
     NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties mutually agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
                    SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings:
     “ADJUSTMENTS” means adjustments to the number of shares of Common Stock outstanding as a result of a stock split, stock dividend, reclassification, subdivision or reorganization, recapitalization or similar event.
     “ADVICE” see Section 5.03(p).
     “AFFILIATE” of any specified Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such specified

 

 -2- 
Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
     “AGREEMENT” see the recitals to this Agreement.
     “ASSIGNEE” see Section 4.01(c).
     “BUSINESS DAY” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close.
     “CAPITAL STOCK” means, with respect to any Person, except as otherwise provided in Section 4.05, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person’s capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable or exercisable for or convertible into such capital stock.
     “COMMISSION” means the Securities and Exchange Commission.
     “COMMON STOCK” see the recitals to this Agreement.
     “COMPANY” see the recitals to this Agreement.
      “COMPANY OPTION PERIOD” see Section 4.01(b).
      “CONVERTIBLE SECURITY” see Section 6.16(b).
      “DEMAND CONDITIONS” see Section 5.02(b).
     “DEMAND HOLDERS” means MCLLC (on behalf of itself and its Direct Permitted Transferees) or Sponsor (on behalf of itself and its Direct Permitted Transferees).
     “DEMAND REGISTRATION” see Section 5.02(a).
     “DIRECT PERMITTED TRANSFEREE” means
     (i) with respect to any Shareholder who is a natural person, (1) the spouse or any lineal descendant (including by adoption and stepchildren) of such Shareholder, (2) any trust of which such Shareholder is the trustee and which is established solely for the benefit of any of the foregoing individuals or (3) any partnership, all of the

 

 -3- 
general partner(s) and limited partner(s) (if any) of which are one or more Persons identified in this clause (i);
     (ii) with respect to Sponsor, any Affiliate of Sponsor;
     (iii) with respect to MCLLC, Metaldyne and any controlled Affiliate of Metaldyne (including any wholly-owned subsidiary of Metaldyne);
     (iv) with respect to any Institutional Shareholder, any Affiliate of such Institutional Shareholder; and
     (v) with respect to any Shareholder, any institutional lender to which such Shareholder pledges or grants a security interest in shares of Common Stock in a bona fide transaction effected in good faith, provided that (x) such pledgee executes a Joinder Agreement and (y) prior to any subsequent foreclosure or sale of such shares or any Transfer resulting from such foreclosure is effected, the provisions of Section 4.01 must be satisfied.
     “ELIGIBLE OFFERING” see Section 4.05(a).
     “FIRST OPTION” see Section 4.01(b).
     “GAAP” means United States generally accepted accounting principles consistently applied throughout the specified period.
     “HEARTLAND ENTITIES” means Heartland Industrial Partners, L.P., Heartland Industrial Partners (FF), L.P., Heartland Industrial Partners (K1), L.P., Heartland Industrial Partners (C1), L.P., HIP Side-by-Side Partners, L.P. and Direct Permitted Transferees of any of the foregoing.
     “HOLDER” means any Demand Holder or Incidental Demand Holder.
     “INCIDENTAL DEMAND HOLDER” see Section 5.02.
     “INITIAL PUBLIC OFFERING” means either (x) an underwritten initial public offering of Common Stock pursuant to an effective registration statement filed under the 1933 Act (excluding registration statements filed on Form S-8, or any similar successor form or another form used for a purpose similar to the intended use for such forms) or (y) the listing of the Common Stock on a national securities exchange or authorization for quotation on the Nasdaq National Market System.
     “INSTITUTIONAL SHAREHOLDER” means any Shareholder that is not a natural person (other than Sponsor).

 

 -4- 
     “INVESTOR’S NOTICE” see Section 4.01(a).
     “IPO PRIMARY DEMAND” see Section 5.02(a).
     “JOINDER AGREEMENT” means a joinder agreement, a form of which is attached hereto as Exhibit A.
     “METALDYNE” means Metaldyne Corporation.
     “METALDYNE SHAREHOLDERS AGREEMENT” means that certain shareholders agreement dated November 28, 2000 as amended, between Metaldyne and the shareholders thereto.
     “1933 ACT” means the Securities Act of 1933.
     “1934 ACT” means the Securities Exchange Act of 1934, as amended.
     “OFFERED SHARES” see Section 4.01(a).
     “PERMITTED TRANSFEREE” means
     (i) with respect to any Shareholder who is a natural person, (1) the spouse or any lineal descendant (including by adoption and stepchildren) of such Shareholder, (2) any trust of which such Shareholder is the trustee and which is established solely for the benefit of any of the foregoing individuals, (3) any charitable foundation selected by such Shareholder, or (4) any partnership, all of the general partner(s) and limited partner(s) (if any) of which are one or more Persons identified in this clause (i), provided that, in the case of clauses (1), (2), (3) or (4), such Person executes a Joinder Agreement;
     (ii) with respect to Sponsor, (1) any investor in Sponsor or an Affiliate of such investor in Sponsor or an investor in any fund or other investment vehicle established or managed by Sponsor or any of its controlled Affiliates or any other Person which is an Affiliate of Sponsor on the date hereof, (2) any of the Shareholders and any of their respective Affiliates, (3) any controlled Affiliate of Sponsor, and (4) any investor in Sponsor that is an investment fund in connection with a pro rata distribution of shares of Common Stock to all investors in Sponsor at the time of the expiration or termination of the fund, provided that, in the case of clauses (1), (2), (3) or (4), any such Person executes a Joinder Agreement; and provided, further, that, in the case of the preceding clauses (1), (2), (3) or (4), Transfers to such Persons would not cause Sponsor to own, together with its Affiliates (other than Metaldyne or any of its subsidiaries),

 

 -5- 
a number of shares equal to less than thirty-five percent (35%) of the outstanding shares of Common Stock after giving effect to any such Transfer;
     (iii) with respect to MCLLC, any controlled Affiliate of Metaldyne (including any wholly-owned subsidiary of MCLLC), provided that such Person executes a Joinder Agreement;
     (iv) with respect to any Institutional Shareholder, (1) any Affiliate of such Institutional Shareholder, (2) any investor of such Institutional Shareholder that is an investment fund in connection with a pro rata distribution of shares of Common Stock to all investors in such Institutional Shareholder at the time of the expiration or termination of the fund, or (3) any Person acquiring all or substantially all of the investment portfolio of such Institutional Shareholder; and provided, further, that, in the case of clause (1), (2) or (3), all such Persons execute a Joinder Agreement; and
     (v) with respect to any Shareholder, any institutional lender to which such Shareholder pledges or grants a security interest in shares of Common Stock in a bona fide transaction effected in good faith, provided that (x) such pledgee executes a Joinder Agreement and (y) prior to any subsequent foreclosure or sale of such shares or any Transfer resulting from such foreclosure is effected, the provisions of Section 4.01 must be satisfied.
     “PERSON” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government, a political subdivision or an agency or instrumentality thereof.
     “PIGGYBACK HOLDER” see Section 5.01(a).
     “PIGGYBACK REGISTRATION” see Section 5.01(a).
     “PRO RATA PORTION” means, with respect to shares of Common Stock held by a Shareholder at any date of determination such number of shares of Common Stock owned by such Shareholder as would result in such Shareholder selling the same percentage of the total number of shares of Common Stock held by such Shareholder in the Transfer subject to the applicable Transfer Notice (the “Subject Sale”) as the Sponsor Transferor sells in the Subject Sale (assuming, with respect to the Transfer Notice, that all Shareholders have exercised their Tag-Along Right).
     “PURCHASER” see Section 4.02(a).
     “QUALIFYING PUBLIC EQUITY OFFERING” means either (x) one or more underwritten public offerings of Common Stock pursuant to an effective registration statement filed

 

 -6- 
under the 1933 Act (excluding registration statements filed on Form S-8, or any similar successor form) resulting in aggregate gross proceeds to the Company of $100,000,000 or more or (y) the listing of the Common Stock on a national securities exchange or authorization for quotation on the Nasdaq National Market System for which there is a public float of at least $100,000,000 held by non-Affiliates of the Company.
     “REGISTRABLE SECURITIES” shall mean any of (i) the shares of Common Stock owned by any Shareholder at the time of determination and (ii) any other securities issued or issuable with respect to the Common Stock by way of a stock split, stock dividend, reclassification, subdivision or reorganization, recapitalization or similar event. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the offering of such securities by the holder thereof shall have been declared effective under the 1933 Act and such securities shall have been disposed of by such holder pursuant to such registration statement, (b) such securities have been sold to the public pursuant to Rule 144 (or any similar provision then in force) promulgated under the 1933 Act, (c) except for purposes of Section 5.02, such securities shall have been otherwise transferred and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require registration or qualification under the 1933 Act or any similar state law then in force or (d) such securities shall have ceased to be outstanding.
     “REGISTRATION” see Section 5.03.
     “REPRESENTATIVES” means the officers, employees, directors and agents of such Shareholder, including representatives of its legal, accounting and financial advisors.
     “REQUEST NOTICE” see Section 5.02(a).
     “SECOND OPTION” see Section 4.01(c).
     “SECONDARY DEMAND REGISTRATION” see Section 5.02(a).
     “SHAREHOLDERS” see the recitals to this Agreement.
     “SIGNIFICANT SUBSIDIARY” means any subsidiary of the Company that would be a “significant subsidiary” as such term is defined in Rule 1.02 of Regulation S-X under the 1933 Act.
     “SPONSOR” means collectively the Heartland Entities or Heartland Industrial Partners, L.P. acting on behalf of the other Heartland Entities.
     “SPONSOR OPTION PERIOD” see Section 4.01(c).

 

 -7- 
     “SUBSTANTIAL CHANGE OF CONTROL” means the sale, lease or transfer in one or a series of related transactions of at least a majority of the consolidated assets of the Company and its subsidiaries or a majority of the Capital Stock of the Company representing the right to vote for directors to any Person or “group” of Persons (other than Sponsor and its Affiliates) whether direct or indirect or by way of any merger, consolidation or other business combination or purchase of beneficial ownership or otherwise.
     “TRANSACTIONS” has the meaning set forth in the TriMas Purchase Agreement.
     “TRANSFER” means the direct or indirect offer, sale, donation, assignment (as collateral or otherwise), pledge, hypothecation, encumbrance, transfer or disposition of any security.
     “TRANSFER NOTICE” see Section 4.02(a).
     “TRANSFEREE” means any Person who acquires shares of Common Stock from a Shareholder and who is not a Permitted Transferee.
     “TRIGGERING EVENT” means the earlier of (i) the fourth anniversary of the date hereof, provided the Demand Conditions are satisfied, and (ii) the 180th day after an Initial Public Offering.
     “TRIMAS PURCHASE AGREEMENT” means the Stock Purchase Agreement dated as of May 17, 2002 among the Company, Metaldyne and Heartland Industrial Partners, L.P.
                    SECTION 1.02. Rules of Construction. For purposes of this Agreement whenever a threshold for the dollar amount of cash invested in Common Stock or the percentage of ownership of Common Stock is to be determined as to a Shareholder, the cash investments and the beneficial ownership of Direct Permitted Transferees of such Shareholder shall be aggregated with the cash investments and beneficial ownership of such Shareholder and the cash investments and the beneficial ownership of the Heartland Entities will be deemed to be aggregated; provided that in no event shall the cash investments and beneficial ownership of MCLLC and Sponsor be deemed aggregated for such purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
     Each of the parties hereby severally represents and warrants to each of the other parties as follows as of the original date hereof and as of the amendment and restatement:

 

 -8- 
                    SECTION 2.01. Authority; Enforceability. Such party has the legal capacity or corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. Such party (in the case of parties that are not natural persons) is duly organized and validly existing under the laws of its jurisdiction of organization, and the execution of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary action. No other act or proceeding, corporate or otherwise, on its part is necessary to authorize the execution of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement has been duly executed by such party and constitutes its legal, valid and binding obligation, enforceable against it in accordance with the terms of this Agreement, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to the exercise of judicial discretion in accordance with general principles of equity (whether applied by a court of law or of equity).
                    SECTION 2.02. No Breach. Neither the execution of this Agreement nor the performance by such party of its obligations hereunder nor the consummation of the transactions contemplated hereby or by the Transactions does or will
          (a) in the case of parties that are not natural persons, conflict with or violate its certificate of incorporation, bylaws or other organizational documents;
          (b) violate, conflict with or result in the breach or termination of, or otherwise give any other person the right to accelerate, renegotiate or terminate or receive any payment or constitute a default or an event of default (or an event which with notice, lapse of time, or both, would constitute a default or event of default) under the terms of, any material contract or agreement to which it is a party or by which it or any of its assets or operations are bound or affected; or
          (c) constitute a violation by such party of any laws, rules or regulations of any governmental, administrative or regulatory authority or any judgments, orders, rulings or awards of any court, arbitrator or other judicial authority or any governmental, administrative or regulatory authority.
                    SECTION 2.03. Consents. (a) No consent, waiver, approval, authorization, exemption, registration, license or declaration is required to be made or obtained by such party, other than those which have been made or obtained, in connection with (i) the execution or enforceability of this Agreement or (ii) the consummation of any of the transactions contemplated hereby or by the Transactions.
                    (b) The Company represents and warrants that no consent, waiver, approval, authorization, exemption, registration, license or declaration is required to be made or obtained, other than those which have been made or obtained,

 

 -9- 
in connection with the July 19, 2002 amendment and restatement of this Agreement.
                    SECTION 2.04. Share Ownership. (a) The Company represents and warrants that in the case of a Shareholder, such party owns, as of the amendment and restatement, the number of shares of Capital Stock of the Company set forth opposite such party’s name in Schedule 2.04 attached hereto, free and clear of any and all liens, claims and encumbrances, other than those created by this Agreement.
                    (b) The Company represents and warrants that, as of the original date hereof after giving effect to the Transactions and as of the amendment and restatement, the authorized capital stock of the Company consists of (A) 400,000,000 shares of Common Stock, of which 20,000,000 shares of Common Stock are issued and outstanding, and (B) 100,000,000 shares of preferred stock, of which no shares of preferred stock are issued and outstanding. Except as provided for in this Agreement and the TriMas Purchase Agreement, no subscription, warrant, option, convertible or exchangeable security or other right to purchase or acquire any shares of Capital Stock of the Company is authorized or outstanding and the Company has no obligation to issue any subscription, warrant, option, convertible or exchangeable security or other such right.
                    (c) The Company represents and warrants that the shares of Common Stock issued to each Shareholder in connection with the TriMas Purchase Agreement were duly and validly authorized, and when issued to each Shareholder in connection with the TriMas Purchase Agreement, were duly and validly issued, fully paid and non-assessable and such shares are not subject to preemptive or similar rights except as provided by this Agreement.
                    SECTION 2.05. No Post-Closing Breach. The Company represents and warrants that neither the Company, nor to the best of the Company’s knowledge after due inquiry, Metaldyne, is in breach, violation or default of any post-closing covenants contained in the TriMas Purchase Agreement other than such breaches, violations or defaults which do not or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (as defined in the TriMasPurchase Agreement) on the Company.
ARTICLE III
SHARE TRANSFERS
                    SECTION 3.01. Restrictions on Transfer. During the term of this Agreement, each Shareholder agrees that it will not Transfer any Common Stock, except as permitted by or in accordance with this Agreement.

 

 -10- 
                    SECTION 3.02. Exceptions to Restrictions. Subject to all applicable laws, the restrictions on Transfer set forth in Section 3.01 hereof shall not apply to any of the following:
          (a) a Transfer by a Shareholder of Common Stock to one of its Permitted Transferees; provided that such Permitted Transferee shall agree to execute a Joinder Agreement in the form annexed hereto as Exhibit A (the “Joinder Agreement”);
          (b) a Transfer of Common Stock by a Shareholder in accordance with Sections 4.02 and 4.03 of this Agreement;
          (c) a Transfer by a Shareholder after such Shareholder has complied with Section 4.01; provided that the Transferee shall agree to execute a Joinder Agreement;
          (d) a Transfer of Common Stock by a Shareholder pursuant to an effective registration statement under the 1933 Act or a Transfer pursuant to Rule 144 under the 1933 Act; and
          (e) a Transfer by MCLLC in connection with the issuance of a Convertible Security as contemplated by Section 6.16; provided that the recipient of such Convertible Security agrees to execute a Joinder Agreement as described in Section 6.16.
                    SECTION 3.03. Improper Transfer. Any attempt to Transfer any shares of Common Stock not in accordance with this Agreement shall be null and void and the Company will not give nor permit the Company’s transfer agent to give any effect to such attempted Transfer in its stock records.
                    SECTION 3.04. Restrictive Legend. Each certificate representing shares of Common Stock and held by a Shareholder will bear a legend substantially similar to the following (with such additions thereto or changes therein as the Company may be advised by counsel are required by law or necessary to give full effect to this Agreement):
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.

 

 -11- 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING WITH RESPECT TO THE DIRECT OR INDIRECT TRANSFER THEREOF, OF A SHAREHOLDERS AGREEMENT DATED AS OF JUNE 6, 2002, AS AMENDED AND RESTATED AS OF JULY 19, 2002. THE SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, SIGNIFICANT RESTRICTIONS ON TRANSFER OF THE SECURITIES OF THE COMPANY. A COPY OF THE SHAREHOLDERS AGREEMENT IS AVAILABLE UPON REQUEST FROM THE COMPANY.”
ARTICLE IV
RIGHTS OF CERTAIN SHAREHOLDERS
                    SECTION 4.01. Rights of First Offer. (a) At any time or from time to time prior to a Qualifying Public Equity Offering, in the event that a Shareholder (other than Sponsor and its Affiliates) desires to Transfer all or part of its Common Stock (such shares being the “Offered Shares” and such proposed Shareholder transferor being the “Offeror”), other than pursuant to Section 3.02(a), 3.02(d), 4.02 or 4.03 of this Agreement, such Shareholder shall give prompt written notice (an “Investor’s Notice”) of its desire to sell the Offered Shares to the Company and Sponsor. The Investor’s Notice shall identify (x) the number of Offered Shares and (y) all other material terms and conditions of the proposed Transfer including the purchase price and the form of the consideration.
                    (b) The Company shall have the right, but not the obligation, to purchase all, but not less than all, the Offered Shares (the “First Option”) on the same terms and conditions as set forth in the Investor’s Notice, which option shall be exercised by delivering to such Shareholder irrevocable written notice of its commitment to purchase the Offered Shares within fifteen (15) business days after receipt of the Investor’s Notice (the “Company Option Period”). Failure by the Company to give such notice within such fifteen (15) business day period shall be deemed an election by the Company not to purchase the Offered Shares.
                    (c) In the event that the Company decides not to purchase the Offered Shares pursuant to Section 4.01(b), then Sponsor shall have the right, but not the obligation, to purchase all, but not less than all, the Offered Shares (the “Second Option”) on the same terms and conditions as set forth in the Investor’s Notice, which option shall be exercised by delivering to such Shareholder irrevocable written notice of its commitment to purchase the Offered Shares within ten (10) business days after the termination of the Company Option Period (the “Sponsor Option Period”); provided that Sponsor may, at its sole option, but subject to following the procedures of the next sentence (if applicable), assign its rights to purchase Offered Shares pursuant to this Section 4.01 to another Shareholder or a Permitted Transferee of

 

 -12- 
Sponsor (such person an “Assignee”). If a proposed Assignee is a Shareholder (other than an Affiliate of Sponsor) as of the date of the Investor’s Notice, then Sponsor shall offer each Shareholder (other than the Offeror, but including the proposed Assignee) the right, but not the obligation, to purchase not less than its percentage equivalent of a fraction, the numerator of which is the number of such Shareholder’s shares of Common Stock and the denominator of which is the aggregate number of all shares of Common Stock owned by Shareholders (other than the Offeror) each as of the date of the Investor’s Notice, of the Offered Shares on the same terms and conditions as set forth in the Investor’s Notice. Nothing shall preclude Sponsor from retaining its relative share of the Offered Shares if it so elects. Failure by Sponsor or its Assignee to give such notice within such ten (10) business day period shall be deemed an election by Sponsor or its Assignee not to purchase the Offered Shares.
                    In the event that a Heartland Entity (other than the Company and its subsidiaries) acquires shares of Common Stock (or the existing warrant therefor) from MCLLC (but not any transferee thereof other than a Direct Permitted Transferee of MCLLC), it shall promptly give written notice thereof to each Shareholder (other than MCLLC and its Direct Permitted Transferees) (each an “Offeree” and collectively the “Offerees”), and each Offeree shall have the right, but not the obligation, to purchase from such Heartland Entity not less than the percentage equivalent of a fraction, the numerator of which is the number of shares of such Offeree’s Common Stock and the denominator of which is the total number of shares of Common Stock owned by Offerees and the Heartland Entities immediately before such Heartland Entity acquired such Common Stock (or the existing Warrant therefor) from MCLLC or a Direct Permitted Transferee thereof, of such Common Stock at the same price as paid by the applicable Heartland Entity. Nothing herein shall preclude any Heartland Entity from retaining or receiving its relative share of the Common Stock (or the existing warrant therefor) acquired from MCLLC or a Direct Permitted Transferee thereof. Each Shareholder’s right to purchase Common Stock pursuant to this paragraph shall be for ten (10) business days after the notice referred to earlier in this paragraph is given by such Heartland Entity.
                    (d) Delivery of written notice by the Company, Sponsor or its Assignee accepting the First Option or the Second Option, as the case may be, shall constitute a contract between the Company, Sponsor or its Assignee, on the one hand, and such Shareholder on the other hand, for the purchase and sale of the Offered Shares on the terms and conditions set forth in the Investor’s Notice. The purchase of any Offered Shares pursuant to the exercise of the First Option or the Second Option, as the case may be, shall be completed not later than forty-five (45) days following receipt of the Investor’s Notice with respect to the Offered Shares, subject to receipt of any required material third-party or governmental approvals, compliance with applicable laws and the absence of any injunction or similar legal order preventing such transaction (collectively, the “Conditions”) in which case the purchase of the Offered Shares shall be delayed pending the satisfaction of the Conditions up to an additional thirty (30) days. As a condition to entering into the contract referred to above, the Company,

 

 -13- 
Sponsor and its Assignee will agree to use commercially reasonable efforts to satisfy the Conditions as soon as possible. In the event that neither the First Option nor the Second Option is exercised, the Shareholder shall have the right for a period of seventy-five (75) days after the termination of the Sponsor Option Period to Transfer (the “Investor Sale”) the Offered Shares at a price not less than ninety percent (90%) of the price contained in, and otherwise on terms and conditions no less favorable to such Shareholder than those set forth in, the Investor’s Notice, except that the purchase of the Offered Shares may be delayed up to an additional thirty (30) days pending satisfaction of the Conditions; provided that the Transferee agrees to execute a Joinder Agreement. If the Investor Sale is not consummated pursuant to the terms of the immediately preceding sentence, the Shareholder will not effect Transfer of any of the Offered Shares without commencing de novo the procedures set forth in this Section 4.01.
                    SECTION 4.02. Tag-Along Rights. (a) If, at any time or from time to time prior to a Qualifying Public Equity Offering, Sponsor or any of its Affiliates (but not including Metaldyne or any of its subsidiaries or the Company and any of its Subsidiaries) (the “Sponsor Transferor”) proposes to Transfer any shares of Common Stock to a Person (the “Purchaser”), other than pursuant to Section 3.02(a), 3.02(d), 5.01 or 5.02 or in a circumstance where all of the shares owned by all the Shareholders are being purchased pursuant to Section 4.03, the Sponsor Transferor shall give written notice (a “Transfer Notice”) of such proposed Transfer to the Shareholders at least fifteen (15) days prior to the consummation of such proposed Transfer, setting forth (A) the total number of shares of Common Stock offered to be Transferred to Purchaser, (B) the consideration to be received for such shares of Common Stock by the Sponsor Transferor, (C) the identity of the Purchaser(s), (D) any other material terms and conditions of the proposed Transfer, (E) the expected date of the proposed Transfer and (F) that each such Shareholder shall have the right (the “Tag-Along Right”) to elect to sell up to its Pro Rata Portion of such shares of Common Stock to be Transferred to Purchaser. If any portion of the consideration contained in the Transfer Notice includes consideration other than cash, the Sponsor Transferor shall provide the Shareholders with a summary of a valuation study, if any, that the Sponsor Transferor has prepared concerning such consideration, but the Sponsor Transferor shall have no liability to any Shareholder with respect to any such summary or study and no obligation to undertake any such valuation. Notwithstanding the first sentence of this Section 4.02(a), MCLLC and each Shareholder will have a Tag-Along Right in connection with Transfers of shares of Common Stock by the Sponsor Transferor to a Permitted Transferee (other than an Affiliate of the Sponsor Transferor) when the Sponsor Transferor Transfers shares of Common Stock to such Person at a price per share (as adjusted for Adjustments) that is greater than the price per share (as adjusted for Adjustments) paid for such shares by the Sponsor Transferor.
                    (b) Upon delivery of a Transfer Notice, each Shareholder has the option, but not the obligation, to sell up to the Pro Rata Portion of its shares of Common Stock at the same price per share of Common Stock and pursuant to the same terms and conditions with

 

 -14- 
respect to payment for the shares of Common Stock as agreed to by the Sponsor Transferor, by sending written notice to the Sponsor Transferor within ten (10) days of the date of the Transfer Notice, indicating its election to sell up to the Pro Rata Portion of its shares of Common Stock in the same transaction. To the extent that elections pursuant to this Section 4.02(b) are not made with respect to any shares of Common Stock included in a Transfer Notice within such 10-day period, then the Sponsor Transferor shall re-offer to Shareholders who have elected to sell their Pro Rata Portion (the “Tag-Along Shareholders”) for one additional three day period, the right to sell such additional number of shares as will result in the Tag-Along Shareholders being able to sell their pro rata share of such remaining shares of Common Stock, based upon all the shares of Common Stock being sold by all the Tag Along Shareholders (not including the remaining shares). For a sixty (60) day period following such ten (10) day period (which period may be extended an additional thirty (30) days in order to satisfy the Conditions), each Tag-Along Shareholder shall be permitted to sell to the Purchaser(s) on the terms and conditions set forth in the Transfer Notice that amount of its shares of Common Stock as to which it has made its election and the Sponsor Transferor shall be permitted to concurrently sell the balance of the shares of Common Stock that are the subject of the Transfer Notice that are not sold by the Tag-Along Shareholders.
                    (c) The provisions of Sections 4.02(a) and (b) shall not apply to any Transfer or series of Transfers by Sponsor of shares of Common Stock to one or more Persons other than Permitted Transferees (x) which are effected in order to comply with the preemptive rights provisions of Section 4.05 of the Metaldyne Shareholders Agreement with respect to Sponsor’s investment in the Company pursuant to the TriMas Purchase Agreement or (y) which are effected within one year of the date hereof at a price per share of not greater than $20.00 per share (as adjusted for Adjustments); provided that, after giving effect to any such Transfer referred to in this clause (y), Sponsor would own, together with its Affiliates (not including Metaldyne and its subsidiaries), thirty percent (30%) or more of the outstanding shares of Common Stock.
                    (d) Each Tag-Along Shareholder shall not be required to make representations and warranties in connection with such sale other than customary representations and warranties with respect to (i) such Shareholder’s due organization, power and authority, (ii) such Shareholder’s ownership of the shares of Common Stock and ability to freely convey such shares of Common Stock without liens or encumbrances, (iii) customary representations regarding non-contravention of such Shareholder’s charter, bylaws or other organizational documents or material agreements of such Tag-Along Shareholder and (iv) the enforceable nature of such Tag-Along Shareholder’s obligations under the documents for such sale to which it is a party (collectively, the “Shareholder Representations”). No Tag-Along Shareholder shall be liable in respect of any indemnification provided in connection with a sale of Common Stock pursuant to this Section 4.02 (a “Tag-Along Sale”), (with respect to such Shareholder’s Shareholder Representations) in excess of the consideration received by such

 

 -15- 
Tag-Along Shareholder in such Tag-Along Sale and no Tag-Along Shareholder shall be required to participate in any escrow relating to such Tag-Along Sale in excess of such Tag-Along Shareholder’s participation in the Tag-Along Sale.
                    (e) In the event that no Shareholder elects to sell shares of Common Stock pursuant to this Section 4.02, Sponsor and/or its Affiliates (as the case may be) shall have the right for a period of seventy-five (75) days (which period may be extended by an additional thirty (30) days to satisfy the Conditions) after the expiration of the 10-day period referred to in Section 4.02(b) to Transfer the Shares subject to the Transfer Notice to the Purchaser at a price not greater than the price contained in, and otherwise on terms and conditions no more favorable to Sponsor and/or such Affiliates than those set forth in, the Transfer Notice; it being agreed that, after the end of the 75-day period referred to in this Section 4.02(e) (including any permitted extension thereof), Sponsor and/or such Affiliates will not effect any transaction in any shares of Common Stock that are the subject of the Transfer Notice without commencing de novo the procedures set forth in this Section 4.02.
                    SECTION 4.03. Drag-Along Rights. If at any time prior to a Qualifying Public Equity Offering, Sponsor and its Affiliates intend to effect a Substantial Change of Control, Sponsor shall have the right to require the other Shareholders (the “Drag-Along Shareholders”) to sell the same percentage of Common Stock held by them relative to such Shareholder’s ownership of Common Stock as Sponsor and its Affiliates are selling in such transaction in connection with such Substantial Change of Control; to vote such Common Stock, whether by proxy, voting agreement or otherwise in favor of the transactions constituting a Substantial Change of Control; to waive their appraisal or dissenters’ rights with respect to such transaction; or otherwise participate in such Substantial Change of Control and each other Shareholder agrees to take any and all reasonably necessary action in furtherance of the foregoing; provided that (a) the consideration to be received by the other Shareholders shall be for the same type and amount per share of consideration received by Sponsor, and (b) after giving effect to such transaction, Sponsor and its Direct Permitted Transferees shall have sold the same percentage of their holdings of Common Stock as sold by the Drag-Along Shareholders; provided, however, that MCLLC and its Direct Permitted Transferees will not be obligated to participate in such transaction if the consideration per share in such transaction is less than $20.00 per share (as adjusted for Adjustments) of the Common Stock, and provided, further, that if Sponsor and its Affiliates are selling all of their shares of Common Stock in connection with such Substantial Change of Control, the Drag- Along Shareholders will be required to sell all of their shares pursuant to this Section 4.03. In connection with the sale of their shares of Common Stock pursuant to this Section 4.03, the Drag-Along Shareholders shall not be required to make any representations and warranties other than the Shareholder Representations. In addition, no Drag-Along Shareholder shall be liable in respect of any indemnification in connection with a transaction effected pursuant to this Section 4.03 (a “Drag-Along Transaction”) (with respect to such Shareholder’s Shareholder Representations) in

 

 -16- 
excess of the consideration received by such Drag-Along Shareholder in such Drag-Along Transaction and no such Drag-Along Shareholder shall be required to participate in any escrow relating to such Drag-Along Transaction in excess of the amount of Common Stock such Drag-Along Shareholder is required to sell pursuant to this Section 4.03.
                    SECTION 4.04. Information. (a) Prior to the occurrence of an Initial Public Offering, the Company shall deliver to each Shareholder
          (1) as soon as available, but in any event within forty-five (45) days after the end of each quarter, copies of
     (i) consolidated balance sheets of the Company and its subsidiaries as at the end of such quarter, and
     (ii) consolidated statements of income, stockholders’ equity and cash flows of the Company and its subsidiaries, for such quarter and for the portion of the fiscal year ending with such quarter,
in each case prepared in accordance with GAAP applicable to periodic financial statements generally, fairly presenting, in all material respects, the financial position of the Persons being reported on and their results of operations and cash flows, subject to changes resulting from normal year-end adjustments;
          (2) as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Company, copies of
     (i) consolidated balance sheets of the Company and its subsidiaries as at the end of such year, and
     (ii) consolidated statements of income, stockholders’ equity and cash flows of the Company and its subsidiaries for such year,
in each case prepared in accordance with GAAP, fairly presenting, in all material respects, the financial position of the Persons being reported on and their results of operations and cash flows, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the Persons being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP;
                    (b) In the case of any Shareholder (other than MCLLC) prior to the occurrence of a Qualifying Public Equity Offering, and for so long as such Shareholder owns

 

 -17- 
twenty-five percent (25%) or more of the number of shares of Common Stock (as adjusted for Adjustments) owned by such Shareholder as of the date of the amendment and restatement hereof or in the case of MCLLC, for so long as MCLLC retains a number of shares of Common Stock equal to at least twenty-five percent (25%) of the number of shares of Common Stock (as adjusted for Adjustments) owned by MCLLC immediately following the Transactions, the Company shall deliver to each such Shareholder and MCLLC
          (1) the information and reports provided pursuant to Sections 4.04(a)(1) and (2);
          (2) monthly “flash reports” utilized by the Company in its own management containing summarized, abbreviated data with respect to income statement amounts, balance sheet data and cash flows to the extent available; and
          (3) such other information concerning the condition or operations, financial or otherwise, of the Company and its subsidiaries as a Shareholder may, from time to time, reasonably request.
                    (c) The rights to receive the information set forth in subsections (1) and (2) of paragraph (a) shall be assignable to Transferees of Common Stock and Permitted Transferees that become Shareholders. The rights to receive the information set forth in subsections (2) and (3) of paragraph (b) shall be assignable to a Transferee that acquires from MCLLC at least fifty percent (50%) of the shares of Common Stock owned by MCLLC as of the date hereof (as adjusted for Adjustments).
                    (d) Prior to the occurrence of a Qualifying Public Equity Offering, and for so long as a Shareholder owns twenty-five percent (25%) or more of the number of shares of Common Stock (as adjusted for Adjustments) owned by such Shareholder on date of the amendment and restatement hereof, Representatives of such Shareholder shall be provided with a reasonable opportunity to discuss the business and affairs of the Company with the Company’s senior managers, directors, officers and senior employees upon reasonable advance notice during normal business hours; provided that such Company representatives shall be available to such Shareholder for an annual meeting with senior management at which the following year’s budget is presented and to MCLLC for quarterly meetings at which the most recent quarterly results are discussed.
                    (e) Each Shareholder hereby agrees that neither it nor its Representatives will disclose to any third party any information provided to it or its Representatives by the Company hereunder which is not generally available to the public, except with the prior express approval of the Company or as may be required by applicable law; it being understood that nothing in this Section 4.04(f) will restrict the ability of a Shareholder to disclose certain

 

 -18- 
information to its investors in accordance with its governing documents; provided that such investors agree to be bound by the confidentiality provisions of this Agreement.
                    (f) Notwithstanding the above, access to highly confidential proprietary information and facilities need not be provided by the Company, nor shall the Company be required to provide information to any Shareholder that is a competitor or reasonably likely to become a competitor of the Company or any of its subsidiaries; it being understood that the Shareholders and parties to the Metaldyne Shareholder’s Agreement existing as of the date hereof are not competitors.
                    SECTION 4.05. Preemptive Rights. (a) Prior to the occurrence of an Initial Public Offering, the Company hereby grants and hereby agrees to cause each Significant Subsidiary of the Company to grant to each Shareholder the right to purchase up to such Shareholder’s Proportionate Percentage (as hereinafter defined) of any future Eligible Offering (as hereinafter defined). For purposes of this Section 4.05, the following terms shall have the meanings set forth below.
          “Proportionate Percentage” means, with respect to any Shareholder as of any given date with respect to an Eligible Offering, the number (expressed as a percentage) obtained by dividing (A) the number of shares of Common Stock owned by such Shareholder as of such date by (B) the total number of shares of Common Stock held by all Shareholders.
          “Eligible Offering” means an offer by the Company or a Significant Subsidiary of the Company to sell to any Person or Persons for cash, any Capital Stock of the Company or a Significant Subsidiary, other than an offering by the Company or a Significant Subsidiary of the Company:
          (i) of Common Stock in an underwritten public offering (a “Public Offering”) registered under the 1933 Act or pursuant to a Rule 144A offering under the 1933 Act;
          (ii) of Common Stock issued upon the exercise of options, warrants or convertible securities outstanding as of the date hereof;
          (iii) of Common Stock or options to purchase shares of Common Stock in connection with or pursuant to any stock option, stock purchase plan or agreement or other benefit plans approved by the Board of Directors of the Company to full-time employees, officers, directors, consultants and/or advisors to the Company or its subsidiaries (excluding employees of Sponsor);

 

 -19- 
          (iv) of Common Stock issued in connection with restricted stock awards;
          (v) of Capital Stock of the Company issued as consideration to any seller in connection with the acquisition by the Company or any subsidiary of the Company of the assets of any Person in any transaction approved by the Board of Directors of the Company;
          (vi) of Capital Stock of the Company issued as an inducement in connection with any debt financing of the Company, subject to terms and conditions approved by the Board of Directors of the Company;
          (vii) of Capital Stock of a Significant Subsidiary of the Company in connection with any sale of control of such Significant Subsidiary to, or any joint venture between such Significant Subsidiary and a third party that is not a financial sponsor or investor, which sale or joint venture is approved by the Board of the Directors of the Company; and
          (viii) of director qualifying or similar shares of a Significant Subsidiary.
                    For purposes of this Section 4.05 only, “Capital Stock” means any and all shares of common stock or options, warrants or similar instruments or any other securities convertible or exchangeable or exercisable therefor (collectively, “Equity Interests”) or any equity security linked to or offered or sold in connection with any Equity Interests of such Person or any of its Significant Subsidiaries, as the case may be.
                    (b) The Company shall, before any securities are issued pursuant to an Eligible Offering, give written notice (a “Preemptive Notice”) thereof to each Shareholder that is entitled to preemptive rights hereunder. Such notice shall specify the security or securities proposed to be issued, the proposed date of issuance, the consideration that the Company or such Significant Subsidiary intends to receive therefor and all other material terms and conditions of such proposed issuance. For a period of ten (10) days following the date of such notice, each such Shareholder shall be entitled, by written notice to the Company, to elect to purchase all or part of such Shareholder’s Proportionate Percentage of the securities being sold in the Eligible Offering. To the extent that elections pursuant to this Section 4.05(b) shall not be made with respect to any shares of Capital Stock included in a Preemptive Notice within such 10-day period, then the Company shall re-offer to Shareholders who have elected to purchase their Proportionate Percentage (the “Preemptive Shareholders”) for one additional three-day period, the right to purchase any part of the shares of Capital Stock not purchased by other Shareholders (the “Section 4.05 Remaining Shares”) pursuant to this Section 4.05 which is equal to the product obtained by multiplying (i) the number of Section 4.05 Remaining Shares

 

-20-
by (ii) a fraction, the numerator of which is the number of shares of Common Stock then owned by any such Preemptive Shareholder and the denominator of which is the aggregate number of shares owned by all Preemptive Shareholders. To the extent that elections pursuant to this Section 4.05(b) shall not be made with respect to any securities included in an Eligible Offering within such ten (10) day period, then the Company or such Significant Subsidiary, as the case may be, shall not be obligated to issue to such Shareholder such securities for which such Shareholder has elected not to purchase. To the extent that there are securities that have not been purchased pursuant to this Section 4.05, then the Company or such Significant Subsidiary, as the case may be, may issue such securities, but only for consideration not less than, and otherwise on no less favorable terms to the Company or such Significant Subsidiary, as the case may be, than, those set forth in the Preemptive Notice and only within thirty (30) days after the end of such ten (10) day period. In the event that any such offer is accepted by any such Shareholder or Shareholders, the Company or such Significant Subsidiary, as the case may be, shall sell to such Shareholder or Shareholders, and such Shareholder or Shareholders shall purchase from the Company or such Significant Subsidiary, as the case may be, for the consideration and on the terms set forth in the notice as aforesaid, the securities that such Shareholder or Shareholders shall have elected to purchase within ten (10) days of such Shareholder’s election to purchase such Proportionate Percentage (subject to delay for an additional thirty days for satisfaction of the Conditions).
                    (c) The Company may comply with any applicable securities laws before issuing any shares of Capital Stock pursuant to this Section 4.05 and shall not be in violation of the provisions hereof by reason of such compliance; provided it is using commercially reasonable efforts to so comply.
                    SECTION 4.06. Board of Directors. (a) At each annual or special stockholders meeting called for the election of directors, and whenever the Shareholders of the Company act by written consent with respect to the election of directors, each Shareholder agrees to vote or otherwise give such Shareholder’s consent in respect of all shares of the Capital Stock of the Company (whether now owned or hereafter acquired) owned by such Shareholder, and take all other appropriate action and the Company shall take all necessary and desirable actions within its control in order to cause:
          (i) an amendment to the Bylaws of the Company to provide that the authorized number of directors on the Board of Directors of the Company shall be as recommended by the Sponsor in its sole discretion; provided such number not be less than the number of directors needed to satisfy MCLLC’s right to a director under Section 4.06(a)(ii)(2) and CSFB Plan Partner’s right to a director under Section 4.06(a)(ii)(3);

 

 -21- 
          (ii) the election to the Board of Directors of

 	(1)	 	such number of directors as shall constitute a majority of the Board of Directors as designated by Heartland Industrial Partners, L.P.;	
 		
 	(2)	 	one director designated by MCLLC; provided that upon MCLLC and its subsidiaries ceasing to own at least 20% of the outstanding shares of Common Stock owned by MCLLC immediately following the Transactions (as adjusted for Adjustments), MCLLC shall no longer have the right to designate one director to the Board of Directors of the Company; and	
 		
 	(3)	 	one director designated by the CSFB Plan Partner (as defined in the Metaldyne Shareholders Agreement) for so long as CSFB Plan Partner has the right under the Metaldyne Shareholders Agreement to appoint a director to the Board of Directors of Metaldyne; provided, that upon MCLLC and its subsidiaries ceasing to own at least 20% of the outstanding shares of Common Stock owned by MCLLC immediately following the Transactions (as adjusted for Adjustments), CSFB Plan Partner shall no longer have the right to designate one director to the Board of Directors of the Company;	
all of which persons shall hold office subject to their earlier removal in accordance with clause (iii) below, the Bylaws of the Company and applicable corporate law, until their respective successors shall have been elected and shall have qualified;
          (iii) the removal from the Board of Directors (with or without cause) of any director elected in accordance with clause (ii) above upon the written request of the Shareholders that designated such director; and
          (iv) upon any vacancy in the Board of Directors as a result of any individual designated as provided in clause (ii) above ceasing to be a member of the Board of Directors whether by resignation or otherwise, the election to the Board of Directors as promptly as possible of an individual designated by the Shareholders that designated such individual; provided that MCLLC and CSFB Plan Partner will consult with Sponsor prior to designating a replacement.
                    (b) The parties hereto agree to cause the Company’s Board of Directors to appoint at least one MCLLC Director to each decision-making committee of the Board and to cause at least one MCLLC Director to be nominated to the board of each subsidiary of the

 

 -22- 
Company to the extent the composition of such boards is substantially identical to the composition of the Company’s Board of Directors.
                    (c) The Company agrees to provide customary directors’ liability insurance.
                    (d) For so long as MCLLC owns at least 20% of the shares of Common Stock owned by MCLLC immediately following the Transactions (as adjusted for Adjustments), the Company shall not (a) make any material amendments or changes to its certificate of incorporation or bylaws without MCLLC’s prior written consent (which consent shall not be unreasonably withheld) or (b) liquidate, dissolve or wind-up its affairs without MCLLC’s prior written consent (which consent shall not be unreasonably withheld).
                    SECTION 4.07. Transaction with Affiliates. Without the consent of Shareholders (other than Sponsor and its Affiliates) owning a majority of the shares of Common Stock held by such Persons, for so long as Sponsor directly or indirectly beneficially owns thirty-five percent (35%) or more of the outstanding shares of Common Stock, the Company and its subsidiaries will not enter into, or suffer to exist, any transaction with Sponsor or any of its Affiliates (excluding Metaldyne and its subsidiaries) involving payments or other consideration in excess of $1.0 million. The foregoing restrictions will not apply to (a) the payment of annual monitoring fees to Sponsor in an amount not to exceed $4.0 million plus reimbursement of out-of-pocket expenses incurred by Sponsor in connection with the advisory services provided to the Company for the first year after the date hereof; (b) the payment to Sponsor of advisory fees and out-of-pocket expense reimbursement in connection with an acquisition, divestiture or financing by the Company or any of its subsidiaries (but excluding sales and purchases of personal property in the ordinary course of business) provided that such fees shall be in an amount equal to 1% of the aggregate value of such transaction; (c) fees payable to Sponsor in connection with the Transactions and reimbursement of out-of-pocket expenses incurred by Sponsor in connection with the Transactions; (d) transactions involving the sale, purchase or lease of goods or services in the ordinary course of business and on an arm’s-length basis between or among the Company or any of its subsidiaries and portfolio companies of Sponsor; (e) transactions between or among the Company or any of its subsidiaries; (f) issuances of Capital Stock to Sponsor and its Affiliates pursuant to, and in compliance with, Section 4.05; (g) transactions approved by the disinterested members of the Board of Directors of the Company (it being understood that a disinterested board member is one who does not have a direct or indirect material interest in the transaction to be voted on); (h) transactions pursuant to or contemplated by the TriMas Purchase Agreement; and (i) any transaction as to which the Company has received an opinion from an independent investment banking or other qualified firm that the transaction is fair to the Company from a financial point of view; provided that such firm shall be selected by the chief executive officer of MCLLC. Notwithstanding the foregoing, the benefits of this Section 4.07 shall terminate

 

 -23- 
upon MCLLC and its subsidiaries ceasing to own at least 20% of the shares of Common Stock owned by MCLLC immediately following the Transactions (as adjusted for Adjustments).
ARTICLE V
REGISTRATION RIGHTS
                    SECTION 5.01. Company Registration.
                    (a) Right to Piggyback on Registration of Stock. Subject to Section 5.01(c), if at any time or from time to time the Company proposes to register the Common Stock under the 1933 Act in connection with a public offering of such Common Stock on any form other than Form S-4 or Form S-8 or any similar successor forms or another form used for a purpose similar to the intended use for such forms (a “Piggyback Registration”), whether for its own account or for the account of one or more shareholders of the Company, the Company shall each such time promptly give each Shareholder written notice of such determination; provided, however, that such notice of a Piggyback Registration shall be given at least ten (10) business days prior to the earlier of the anticipated effective date of such Piggyback Registration or (y) the commencement of formal selling efforts by any underwriter in the case of an underwritten offering. Upon the written request of any Shareholder (the “Piggyback Holder”) given within eight (8) business days after the providing of any such notice by the Company, the Company shall use its best efforts to cause to be registered under the 1933 Act all of the Registrable Securities held by such Shareholder that the Shareholder has requested to be registered; provided, however, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Piggyback Holder and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the registration expenses in connection therewith); and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 5.01 shall relieve the Company of its obligation to effect any registration upon demand under Section 5.02. The registration rights contained in Section 5.01 may be assigned to any Transferee or Permitted Transferee.
                    (b) Selection of Underwriters. If any Piggyback Registration involves an underwritten offering, the Company shall have sole discretion in the selection of any underwriter or underwriters to manage such Piggyback Registration.

 

 -24- 
                    (c) Priority on Piggyback Registrations. In the event that the Piggyback Registration includes an underwritten offering, the Company shall so advise the Shareholders as part of the written notice given pursuant to Section 5.01(a) and the registration rights provided in Section 5.01(a) shall be subject to the condition that if the managing underwriter or underwriters of a Piggyback Registration advise the Company in writing (a copy of which shall be provided to the applicable Shareholders) that in its opinion the number of Registrable Securities proposed to be sold in such Piggyback Registration exceeds the number which can be sold, and would materially adversely affect the price at which the Registrable Securities are to be sold, in such offering, the Company (or the Shareholders, as the case may be) will include in such registration only the number of Registrable Securities which, in the opinion of such underwriter or underwriters can be sold in such offering without such material adverse effect. The Registrable Securities so included in such Piggyback Registration shall be apportioned (i) first, either (x) subject to the rights of MCLLC set forth in the proviso to this Section 5.01(c), in a case including a primary registration on behalf of the Company, to any shares of Common Stock that the Company proposes to sell, or (y) in the case of a secondary registration on behalf of any person exercising demand registration rights, pro rata among the Holders on the basis of the number of shares of Common Stock to be registered pursuant to such demand registration (except to the extent otherwise provided in Section 5.02), (ii) second, shares held by MCLLC (in the event MCLLC ceases to be a Holder), (iii) third, pro rata among the Shareholders (other than MCLLC), if any, not included under clause (i) and (iv) fourth, pro rata among other shares included in such Piggyback Registration, in each case according to the total number of shares of the Common Stock requested for inclusion by said selling stockholders, or in such other proportions as shall mutually be agreed to among such selling stockholders; provided, however that, in the event of any primary registration on behalf of the Company, 50% of the Registrable Securities to be apportioned to the Piggyback Holders shall be apportioned to MCLLC to the extent MCLLC is a Piggyback Holder.
                    SECTION 5.02. Demand Registration Rights.
                    (a) Right to Demand. At any time after a Triggering Event, the Demand Holders may, individually or collectively, (x) make a written request, which request will specify the aggregate number of Registrable Securities to be registered and will also specify the intended methods of disposition thereof (the “Request Notice”) to the Company for registration with the Commission under and in accordance with the provisions of the 1933 Act of all or part of the Registrable Securities then owned by Demand Holders (a “Secondary Demand Registration”) or (y) make a written request, requesting that the Company register shares of Common Stock on a primary basis and consummate an Initial Public Offering (the “IPO Primary Demand” and together with the Secondary Demand Registration, a “Demand Registration”); provided that the Company may, if its Board of Directors so determines in the exercise of its reasonable, good faith judgment that due to a pending or contemplated acquisition or disposition or public offering or other material event involving the Company it would be in-

 

 -25- 
advisable to effect such Demand Registration at such time, the Company may, upon providing the Demand Holders written notice (the “Delay Notice”), defer, postpone or suspend such Demand Registration for a single period with respect to such Demand Registration not to exceed one hundred thirty-five (135) days. Upon receipt by the Company of a request (a “Demand Request”) to effect a Demand Registration the Company will within 10 business days after the receipt of such notice, notify each other Demand Holder of such request and such other Demand Holder(s) shall have the option to include its Registrable Securities in such Demand Registration pursuant to this Section 5.02. Subject to Section 5.02(g), the Company will register all other Registrable Securities which the Company has been requested to register by such other Demand Holders which still have the right to make a Request Notice pursuant to Section 5.02 hereof (each an “Incidental Demand Holder”) pursuant to this Section 5.02 by written request given to the Company by such holders within eight (8) business days after the giving of such written notice by the Company to such other Demand Holders. The Company shall not be obligated to maintain a registration statement pursuant to a Demand Registration effective for more than (x) ninety (90) days or (y) such shorter period when all of the Registrable Securities covered by such registration statement have been sold pursuant thereto (the “Effectiveness Period”). Notwithstanding the foregoing, the Company shall not be obligated to effect more than one Demand Registration in any 180-day period. Upon any such request for a Demand Registration, the Company will deliver any notices required by Section 5.01 and 5.02 and thereupon the Company will, subject to Section 5.01(c) and 5.02(f) hereof use its best efforts to effect the prompt registration under the 1933 Act of;
          (i) the Registrable Securities which the Company has been so requested to register by Demand Holders as contained in the Request Notice, and
          (ii) all other Registrable Securities which the Company has been requested to register by the Piggyback Holders and Incidental Demand Holders,
all to the extent required to permit the disposition of the Registrable Securities so to be registered in accordance with the intended method or methods of disposition of each seller of such Registrable Securities.
                    (b) Demand Conditions. Notwithstanding anything herein to the contrary, a Demand Holder will not be permitted to deliver a Request Notice prior to a Qualifying Public Equity Offering unless the Request Notice relates to an underwritten public offering. Such Demand Holder and the Company shall consult with one another and a nationally recognized investment banking firm selected by the Company to determine whether or not the most probable price to public for an initial public offering of Common Stock would be a per share price (the “Target Price”) that is in excess of $20.00 per share (as adjusted by the Adjustments). The Company shall not be obligated to proceed if the price to public is expected to be or is

 

 -26- 
less than the Target Price. All of the requirements referred to herein for a Request Notice prior to a Qualifying Public Equity Offering are referred to as the “Demand Conditions”.
                    (c) Number of Demand Registrations. The Company shall not be required to prepare and file a registration statement pursuant to this Section 5.02 if the Request Notice relates to shares of Common Stock held by such Demand Holder having a value of less than $40,000,000. In addition, the Company will not be required to effect more than three registrations pursuant to this Section 5.02 on behalf of MCLLC and its Direct Permitted Transferees provided, that MCLLC shall be afforded an additional Demand Registration if it has made an IPO Primary Demand. Sponsor and its Affiliates will be entitled to an unlimited number of Demand Registrations. It is hereby acknowledged and agreed by the parties that any Registrable Securities included in a registration statement on behalf of an Incidental Demand Holder will not count as a Demand Registration for such Incidental Demand Holder. In connection with a Demand Registration by more than one Demand Holder or by a Demand Holder and Incidental Demand Holders, such Demand Holders and Incidental Demand Holders shall elect one such Holder to act as representative (the “DH Representative”) in connection with such Demand Registration and the Company shall only be obligated to communicate with such DH Representative in connection with such Demand Registration. The Holders shall give the DH Representative any and all necessary powers of attorneys needed for the DH Representative to act on their behalf.
                    (d) Revocation. Holders of a majority in number of the Registrable Securities to be included in a registration statement pursuant to this Section 5.02 may, at any time prior to the effective date of the registration statement relating to such Demand Registration, acting through their DH Representative revoke such request by providing a written notice thereof to the Company. The Holders of Registrable Securities who revoke such request shall reimburse the Company for all its expenses incurred in the preparation, filing and processing of the registration statement. If pursuant to the terms of this Section 5.02(d), the Holders reimburse the Company for its reasonable expenses incurred in the preparation, filing and processing of any registration statement requested and subsequently revoked by such Holders, the attempted registration by such requested and subsequently revoked registration statement shall not be deemed to be a Demand Registration. Notwithstanding the foregoing, the Holders of a majority in number of the Registrable Securities to be included in a registration statement pursuant to this Section 5.02 may, at any time within five days after receipt of any Delay Notice acting through their DH Representative revoke such request by providing written notice thereof to the Company and the attempted Demand Registration shall not be deemed to be a Demand Registration, notwithstanding that such Holders shall not reimburse the Company for any expenses incurred in the preparation, filing and processing of any Registration Statement.
                    (e) Effective Registration. A registration will not count as a Demand Registration (i) if a Demand Holder determines in its good faith judgment to withdraw the pro-

 

 -27- 
posed registration of any Registrable Securities requested to be registered by such Demand Holder (x) due to marketing or regulatory reasons subject to such Holder reimbursing the Company for its expenses in accordance with Section 5.02(d) above, or (y) due to a material adverse change in the Company (other than as a result of any action by such Demand Holder); (ii) if such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason (other than as a result of any action by the Holder) and the Company fails to promptly have such stop order, injunction or other order or requirement removed, withdrawn or resolved to the Holder’s satisfaction; or (iii) the conditions to closing specified in the underwriting agreement or purchase agreement entered into in connection with the registration relating to any such demand are not satisfied (other than as a result of a default or breach thereunder by the relevant Holder).
                    (f) Selection of Underwriters. If any of the Registrable Securities covered by a Demand Registration are to be sold in an underwritten offering, the Company will have the right to select the managing underwriter(s) to administer the offering.
                    (g) Priority on Demand Registrations. If the managing underwriter or underwriters of a Secondary Demand Registration advise the Company in writing that in its or their opinion the number of Registrable Securities proposed to be sold in such Secondary Demand Registration exceeds the number which can be sold, or adversely affects the price at which the Registrable Securities are to be sold, in such offering (the “Underwriter Cutback”), the Company will include in such registration only the number of Registrable Securities which, in the opinion of such underwriter or underwriters, can be sold in such offering without such material adverse effect. To the extent such Secondary Demand Registration includes Registrable Securities of more than one Holder, the Registrable Securities so included in such Secondary Demand Registration shall be apportioned (i) first, pro rata among the Demand Holders and any Incidental Demand Holders based upon the number of shares of Common Stock owned by each such Holder at the date of determination and (ii) second, pro rata among other shares of Common Stock included in such Secondary Demand Registration; provided, however that after an Initial Public Offering if MCLLC is a Demand Holder with respect to such Secondary Demand Registration, then MCLLC will be able to include in such registration in priority (such priority, the “MCLLC Priority”) to all Shareholders as many Registrable Securities as possible subject to the Underwriter Cutback.
                    (h) Assignability of Demand Registration Rights. The rights offered a Shareholder pursuant to Section 5.02 are only assignable to a Direct Permitted Transferee.
                    (i) Company Preemption Right. Notwithstanding anything herein to the contrary, if at any time a Holder shall request a Secondary Demand Registration, the Company may elect at that time to effect an underwritten primary offering by the Company (in which

 

 -28- 
case the applicable demand will not count as a Demand Registration) if, in the good faith judgment of the Company’s Board of Directors, it would be in the best interests of the Company to access the public market to raise equity capital in order to (i) finance an acquisition or investment or (ii) enhance the Company’s capital structure, liquidity or financial position. If the Company elects to effect a primary registration after receiving such a request for a Secondary Demand Registration, the Company will give prompt written notice (and in any event within 45 days after receiving such a request for a Demand Registration) to all Holders of its intention to effect such a registration and shall afford the Holders rights to Piggyback Registration in accordance with Section 5.01 hereof.
                    SECTION 5.03. Registration Procedures. It shall be a condition precedent to the obligations of the Company and any underwriter or underwriters to take any action pursuant to this Article V that the Shareholders requesting inclusion in any Piggyback Registration or Demand Registration (a “Registration”) shall furnish to the Company such information regarding them, the Registrable Securities held by them, the intended method of disposition of such Registrable Securities, and such agreements regarding indemnification, disposition of such securities and other matters referred to in this Article V as the Company shall reasonably request and as shall be required in connection with the action to be taken by the Company. With respect to any Registration which includes Registrable Securities held by a Shareholder, the Company will, subject to Sections 5.01 and 5.02 promptly:
          (a) Prepare and file with the Commission a registration statement on the appropriate form prescribed by the Commission and use its best efforts to cause such registration statement to become effective as soon as practicable thereafter; provided that the Company shall not be obligated to maintain such registration effective for a period longer than the Effectiveness Period; provided further that before filing a registration statement or prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the registration statement, the Company will furnish to the holders of the Registrable Securities covered by such registration statement and the underwriter or underwriters, if any, copies of or drafts of all such documents proposed to be filed, including documents incorporated by reference in the Prospectus and, if required by such holders, the exhibits incorporated by reference, at least three (3) business days prior thereto, which documents will be subject to the reasonable review of such holders and underwriters. Holders of Registrable Securities covered by such registration statement will have the opportunity to object to any information pertaining to such holders that is contained therein and the Company will make the corrections reasonably requested by such holders with respect to such information prior to filing any registration statement or amendment thereto or any prospectus or any supplement thereto; provided, however, that the Company will not file any registration statement or amendment thereto or any prospectus or any supplement thereto or any documents required to be incorporated by reference therein to

 

 -29- 
which holders of a majority of the Registrable Securities covered by such registration statement or the underwriters, if any, shall reasonably object;
          (b) Prepare and file with the Commission such amendments and post-effective amendments to such registration statement and any documents required to be incorporated by reference therein as may be necessary to keep the registration statement effective for a period of not less than the Effectiveness Period (but not prior to the expiration of the time period referred to in Section 4(3) of the 1933 Act and Rule 174 thereunder, if applicable); cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all Registrable Securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus;
          (c) Furnish to such Shareholder, without charge, such number of conformed copies of the registration statement and any post-effective amendment thereto, as such Shareholder may reasonably request, and such number of copies of the prospectus (including each preliminary prospectus) and any amendments or supplements thereto, and any documents incorporated by reference therein as the Shareholder or underwriter or underwriters, if any, may request in order to facilitate the disposition of the securities being sold by the Shareholder (it being understood that the Company consents to the use of the prospectus and any amendment or supplement thereto by the Shareholder covered by the registration statement and the underwriter or underwriters, if any, in connection with the offering and sale of the securities covered by the prospectus or any amendments or supplements thereto);
          (d) Notify such Shareholder, at any time when a prospectus relating thereto is required to be delivered under the 1933 Act, when the Company becomes aware of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect) contains any untrue statement of material fact or omits to state a material fact necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter delivered to the investors of such securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

 

 -30- 
          (e) In the case of an underwritten offering, enter into such customary agreements (including underwriting agreements in customary form) and make members of senior management of the Company available on a basis reasonably requested by the underwriters to participate in, “road show” and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities) and cause to be delivered to the underwriters reasonable opinions of counsel to the Company in customary form, covering such matters as are customarily covered by opinions for an underwritten public offering as the underwriters may reasonably request and addressed to the underwriters;
          (f) Make available, for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to a registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent that are necessary to be reviewed by such person in connection with the preparation of such registration statement;
          (g) If requested, cause to be delivered, immediately prior to the effectiveness of the registration statement (and, in the case of an underwritten offering, at the time of delivery of any Registrable Securities sold pursuant thereto), letters from the Company’s independent certified public accountants addressed to each selling Shareholder (unless such selling Shareholder does not provide to such accountants the appropriate representation letter required by rules governing the accounting profession) and each underwriter, if any, stating that such accountants are independent public accountants within the meaning of the 1933 Act and the applicable rules and regulations adopted by the Commission thereunder, and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of the independent certified public accountants delivered in connection with primary or secondary underwritten public offerings, as the case may be;
          (h) Provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of the registration statement;
          (i) Use its best efforts to cause all securities included in such registration statement to be listed, by the date of the first sale of securities pursuant to such registration statement, on any national securities exchange, quotation system or other market on which the Common Stock is then listed or proposed to be listed by the Company, if any;

 

 -31- 
          (j) Make generally available to its security holders an earnings statement, which need not be audited, satisfying the provisions of Section 11(a) of the 1933 Act as soon as reasonably practicable after the end of the twelve (12)-month period beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the registration statement, which statement shall cover said twelve (12)-month period;
          (k) After the filing of a registration statement, (i) promptly notify each Shareholder holding Registrable Securities covered by such registration statement of any stop order issued or, to the Company’s knowledge, threatened by the Commission and of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction and (ii) take all reasonable actions to obtain the withdrawal of any order suspending the effectiveness of the registration statement or the qualification of any Registrable Securities at the earliest possible moment; (l) Subject to the time limitations specified in paragraph (b) above, if requested by the managing underwriter or underwriters or such Shareholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or the Shareholder reasonably requests to be included therein, including, without limitation, with respect to the number of shares being sold by the Shareholder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any term of the underwritten offering of the securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;
          (l) Subject to the time limitations specified in paragraph (b) above, if requested by the managing underwriter or underwriters or such Shareholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or the Shareholder reasonably requests to be included therein, including, without limitation, with respect to the number of shares being sold by the Shareholder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any term of the underwritten offering of the securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;
          (m) As promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement, deliver a copy of such document to such Shareholder;
          (n) On or prior to the date on which the registration statement is declared effective, use its best efforts to register or qualify, and cooperate with such Shareholder, the underwriter or underwriters, if any, and their counsel in connection with the registration or qualification of, the securities covered by the registration statement for offer and sale under the securities or blue sky laws of each state and other jurisdiction of the United States as the Shareholder or managing underwriter or underwriters, if any, requests in writing, to use its best efforts to keep each such registration or qualification effective, including through new filings, or amendments or renewals, during the Effectiveness Period and do any and all other acts or things necessary or advisable to

 

 -32- 
enable the disposition in all such jurisdictions of the Registrable Securities covered by the applicable registration statement; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject;
          (o) Cooperate with such Shareholder and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under the registration statement, and enable such securities to be in such denominations and registered in such names as the Shareholder or the managing underwriter or underwriters, if any, may request, as applicable; and
          (p) Use its best efforts to cause the securities covered by the registration statement to be registered with or approved by such other governmental agencies, authorities or self-regulatory bodies within the United States as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities.
                    At all times after an Initial Public Offering, the Company shall file all reports required to be filed by it under the 1933 Act and the 1934 Act and the rules and regulations adopted by the Commission thereunder, and take such further action as any Shareholders may reasonably request, all to the extent required to enable such Shareholders to be eligible to sell Registrable Securities pursuant to Rule 144 of the 1933 Act (or any similar rule then in effect).
                    The Shareholders, upon receipt of any notice from the Company of the happening of any event of the kind described in subsection (d) of this Section 5.03, will forthwith discontinue disposition of the securities until the Shareholders’ receipt of the copies of the supplemented or amended prospectus contemplated by subsection (d) of this Section 5.03 or until it is advised in writing (the “Advice”) by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, each Shareholder will, or will request the managing underwriter or underwriters, if any, to, deliver, to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Shareholder’s possession, of the prospectus covering such securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time periods mentioned in subsections (a), (b) and (n) of this Section 5.03 shall be extended by the number of days during the period from and including any date of the giving of such notice to and including the date when each seller of securities covered by such registration statement shall

 

 -33- 
have received the copies of the supplemented or amended prospectus contemplated by subsection (d) of this Section 5.03 hereof or the Advice.
                    SECTION 5.04. Registration Expenses. (a) Subject to Section 5.02(d), in the case of any Registration, the Company shall bear all expenses incident to the Company’s performance of or compliance with Sections 5.01, 5.02 and 5.03 of this Agreement, including, without limitation, all Commission and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), rating agency fees, printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company and all independent certified public accountants and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions, or transfer taxes, if any, attributable to the sale of Registrable Securities by a Piggyback Holder or Holder or fees and expenses of more than one counsel representing the Shareholders selling Registrable Securities under such Registration).
                    (b) In connection with each registration initiated hereunder (whether a Demand Registration or a Piggyback Registration), the Company shall reimburse the holders of Registrable Securities covered by such registration or sale for the reasonable fees and disbursements of one law firm chosen by the holders of a majority of the number of shares of Registrable Securities included in such registration.
                    (c) The obligation of the Company to bear the expenses described in Section 5.04(a) and to reimburse the holders for the expenses described in Section 5.04(b) shall apply irrespective of whether a registration, once properly demanded, if applicable, becomes effective, is withdrawn or suspended, or is converted to another form of registration and irrespective of when any of the foregoing shall occur; provided, however, that the expenses for any registration statement withdrawn pursuant to 5.02(d) prior to its effectiveness at the request of a Holder (unless withdrawn following and due to a Delay Notice), any registration statement withdrawn solely at the request of a Holder, or any supplements or amendments to a registration statement or prospectus resulting from a misstatement furnished to the Company by a Holder, shall be borne by such Holder.
                    SECTION 5.05. Indemnification.
                    (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Shareholder, its officers, directors, Affiliates and agents and each Person who controls (within the meaning of the 1933 Act or the 1934 Act) the Shareholder, including, without limitation any general partner or manager of any thereof, against all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and disburse-

 

 -34- 
ments) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, in which such Shareholder participates in an offering of Registrable Securities or in any document incorporated by reference therein or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, except insofar as the same are made in reliance on and in conformity with any information with respect to such Shareholder furnished in writing to the Company by such Shareholder expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Shareholder from whom the Person asserting such loss, claim, damage or liability purchased the securities if it is determined that such loss, claim, damage or liability was caused by such Shareholder’s failure to deliver to such Shareholder’s immediate purchaser a current copy of the prospectus (if the current copy of the prospectus was required by applicable law to be so delivered) after the Company has furnished such Shareholder with a sufficient number of copies of such prospectus. The Company will also indemnify underwriters (as such term is defined in the 1933 Act), their officers and directors and each Person who controls such underwriters (within the meaning of the 1933 Act) to the same extent as provided above with respect to the indemnification of the Shareholders.
                    (b) Indemnification by the Shareholders. In connection with any registration statement in which a Shareholder is participating, each such Shareholder will furnish to the Company in writing such information and affidavits with respect to such Shareholder as the Company reasonably requests for use in connection with any registration statement or prospectus covering the Registrable Securities of such Shareholder and to the extent permitted by law agrees to indemnify and hold harmless the Company, its directors, officers and agents and each Person who controls (within the meaning of the 1933 Act or the 1934 Act) the Company, against any losses, claims, damages, liabilities and expenses arising out of or based upon any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements in the registration statement or prospectus or preliminary prospectus (in the case of the prospectus or preliminary prospectus, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is made in reliance on and in conformity with the information or affidavit with respect to such Shareholder so furnished in writing by such Shareholder expressly for use in the registration statement or prospectus; provided, however, that the obligation to indemnify shall be several, not joint and several, among such Shareholders and the liability of each such Shareholder shall be in proportion to and limited to the net amount received by such Shareholder from the sale of Registrable Securities pursuant to such registration statement in accordance with the terms of this Agreement. The indemnity agreement contained in this Section 5.05 shall not apply to amounts paid in settlement of any such

 

 -35- 
loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of such Shareholder (which consent shall not be unreasonably withheld or delayed). The Company and the holders of the Registrable Securities hereby acknowledge and agree that, unless otherwise expressly agreed to in writing by such holders, the only information furnished or to be furnished to the Company for use in any registration statement or prospectus relating to the Registrable Securities or in any amendment, supplement or preliminary materials associated therewith are statements specifically relating to (a) transactions or the relationship between such holder and its Affiliates, on the one hand, and the Company, on the other hand, (b) the beneficial ownership of shares of Common Stock by such holder and its Affiliates, (c) the name and address of such holder and (d) any additional information about such holder or the plan of distribution (other than for an underwritten offering) required by law or regulation to be disclosed in any such document.
                    (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest may exist between such indemnified and indemnifying parties with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. The failure to so notify the indemnifying party shall not relieve the indemnifying party from any liability hereunder with respect to the action, except to the extent that such indemnifying party is materially prejudiced by the failure to give such notice; provided, however, that any such failure shall not relieve the indemnifying party from any other liability which it may have to any other party. No indemnifying party in the defense of any such claim or litigation, shall, except with the consent of such indemnified party, which consent shall not be unreasonably withheld, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party there may be one or more legal or equitable defenses available to such indemnified party which are in addition to or may conflict with those available to any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels; provided, however, that such number of additional counsel must be reasonably acceptable to the indemnifying party.
                    (d) Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) of this Section 5.05 is unavailable to an indemnified party as contemplated by the preceding paragraphs (a) and (b) of this Section 5.05, then the indemnify-

 

 -36- 
ing party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. In no event shall the liability of any selling Shareholder be greater in amount than the amount of net proceeds received by such Shareholder upon such sale or the amount for which such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided in paragraph (b) of this Section 5.05 had been available.
                    SECTION 5.06. 1934 Act Reports. The Company agrees that at all times after it has filed a registration statement pursuant to the requirements of the 1933 Act relating to any class of equity securities of the Company, it will use its best efforts to file in a timely manner all reports required to be filed by it pursuant to the 1934 Act to the extent the Company is required to file such reports. Notwithstanding the foregoing, the Company may deregister any class of its equity securities under Section 12 of the 1934 Act or suspend its duty to file reports with respect to any class of its securities pursuant to Section 15(d) of the 1934 Act if it is then permitted to do so pursuant to the 1934 Act and rules and regulations thereunder.
                    SECTION 5.07. Holdback Agreements. (a) Whenever the Company proposes to register any of its equity securities under the 1933 Act for its own account (other than on Form S-4 or S-8 or any similar successor form or another form used for a purpose similar to the intended use of such forms) or is required to use its best efforts to effect the registration of any Registrable Securities under the 1933 Act pursuant to Section 5.01 or 5.02, each holder of Registrable Securities agrees by acquisition of such Registrable Securities not to effect any sale or distribution, including any sale pursuant to Rule 144 under the 1933 Act, or to request registration under Section 5.02 of any Registrable Securities within 10 days prior to and 90 days (unless advised by the managing underwriter that a longer period, not to exceed 180 days, is required, or such shorter period as the managing underwriter for any underwritten offering may agree) after the effective date of the registration statement relating to such registration, except as part of such registration or unless in the case of a private sale or distribution, the transferee agrees in writing to be subject to this Section 5.07. If requested by such managing underwriter, each holder of Registrable Securities agrees to execute a holdback agreement, in customary form, consistent with the terms of this Section 5.07(a). Notwithstanding the foregoing, no Shareholder will be restricted from selling any Registrable Securities if such Shareholder and its Affiliates beneficially own a number of shares of Common Stock as of such date of determination equal to less than five percent (5%) of the outstanding Common Stock.
                    (b) The Company agrees not to effect any sale or distribution of any of its equity securities or securities convertible into or exchangeable or exercisable for any of such

 

 -37- 
securities within the 10 days prior to and during the 90 days (unless advised by the managing underwriter that a longer period, not to exceed 180 days, is required, or such shorter period as the managing underwriter for any underwritten offering may agree) beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or S-4 or any successor forms thereto), except that such restriction shall not prohibit (i) grants of employee stock options or other issuances of Capital Stock pursuant to the terms of a Company employee benefit plan, issuances by the Company of Capital Stock pursuant to the exercise of such options or the exercise of any other employee stock options outstanding on the date hereof, (ii) the Company from issuing shares of Capital Stock in private placements pursuant to Section 4(2) of the 1933 Act or in connection with a strategic alliance, or (iii) the Company from publicly announcing its intention to issue, or actually issuing, shares of Capital Stock to shareholders of another entity as consideration for the Company’s acquisition of, or merger with, such entity. In addition, upon the request of the managing underwriter, the Company shall use its best efforts to cause each holder of its equity securities or any securities convertible into or exchangeable or exercisable for any of such securities whether outstanding on the date of this Agreement or issued at any time after the date of this Agreement (other than any such securities acquired in a public offering), to agree not to effect any such public sale or distribution of such securities during such period, except as part of any such registration if permitted, and to cause each such holder to enter into a similar agreement to such effect with the Company.
                    SECTION 5.08. Participation in Registrations. No Shareholder may participate in any Registration hereunder which is underwritten unless such Shareholder (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements, and (b) completes and executes all questionnaires, powers of attorney, underwriting agreements and other documents customarily required under the terms of such underwriting arrangements.
                    SECTION 5.09. Remedies. Each Shareholder shall have the right and remedy to have the provisions of Sections 5.01 and 5.02 specifically enforced by any court having jurisdiction in the event that the Company materially breaches such provisions, and the Company shall reimburse such Shareholder for the reasonable costs of and expenses for counsel for such Shareholder incurred in connection with such proceeding.
                    SECTION 5.10. Other Registration Rights. The Company will not grant any Person any demand or piggyback registration rights with respect to the Capital Stock of the Company other than registration rights that would not be in conflict or inconsistent with the rights of the Shareholders as set forth in this Article V (it being understood that the Company shall not grant any registration rights that adversely impact the MCLLC Priority set forth herein).

 

 -38- 
                    SECTION 5.11. Rule 144. The Company shall file any reports required to be filed by it under the 1933 Act and the 1934 Act and the rules and regulations adopted by the Commission thereunder, and it will take such further action as any holder of Registrable Securities may reasonably request to make available adequate current public information with respect to the Company meeting the current public information requirements of Rule 144(c) under the 1933 Act, to the extent required to enable such holder to sell Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Notwithstanding the foregoing, nothing in this Section 5.11 shall be deemed to require the Company to register any of its securities pursuant to the 1934 Act.
ARTICLE VI
MISCELLANEOUS
                    SECTION 6.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile or similar writing) and shall be given to such party at its address or telex or facsimile number set forth on the signature pages hereof or in the relevant Joinder Agreement or such other address or telex or facsimile number as such party may hereafter specify in writing to the Secretary of the Company for the purpose by notice to the party sending such communication. Each such notice, request or other communication shall be effective (i) if given by telex or facsimile, when such message is transmitted to the number specified on the signature pages to this Agreement or any Joinder Agreement, (ii) if given by mail, three (3) business days after such communication is deposited in the mails registered or certified, return receipt requested, with postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered at the address specified on the signature pages to this Agreement or any Joinder Agreement.
                    SECTION 6.02. Binding Effect; Benefits; Entire Agreement. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. This Agreement constitutes the entire agreement and understanding, and supersedes all prior agreements and understandings, both oral and written, between the parties hereto relating to the subject matter hereof.
                    SECTION 6.03. Waiver. Any party hereto may by written notice to the other (a) extend the time for the performance of any of the obligations or other actions of any other party under this Agreement; (b) waive compliance with any of the conditions or covenants of

 

 -39- 
any other party contained in this Agreement; and (c) waive or modify performance of any of the obligations of any other party under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by any party to exercise any right or privilege hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be deemed a waiver of such party’s rights to exercise the same at any subsequent time or times hereunder.
                    SECTION 6.04. Amendment. Other than as a result of the execution and delivery of a Joinder Agreement, this Agreement may not be amended, modified or supplemented in any respect except by a written instrument executed by each Shareholder and the Company; provided that this Agreement may be amended and restated or amended without consent of Shareholders for the addition of new shareholders after the date hereof if such addition does not materially and adversely affect the rights of the Shareholders (it being understood that, subject to Section 5.10, the granting of Demand Registration rights to new shareholders shall not constitute an adverse effect and that piggyback registration rights and tag along rights shall not constitute an adverse effect).
                    SECTION 6.05. Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or any Shareholder except as otherwise expressly stated hereunder or with the prior written consent of each other party. A Direct Permitted Transferee who executes a Joinder Agreement in accordance with the provisions hereof may be assigned any rights available hereunder. All of the rights offered a Shareholder under this Agreement are assignable to a Transferee or a Permitted Transferee who executes a Joinder Agreement, except for the rights set forth in Sections 4.05, 4.06, 4.07 and 5.02. The rights set forth in Sections 4.04 and 5.02 are assignable to a Transferee or a Permitted Transferee who executes a Joinder Agreement to the extent provided in Section 4.04 and 5.02(h), respectively.
                    SECTION 6.06. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of law that would require the application of the laws of another jurisdiction, and the parties irrevocably submit to (and waive immunity from) the jurisdiction of the federal and state courts located in the County of New York in the State of New York.
                    SECTION 6.07. Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not

 

 -40- 
performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any state or federal court of New York (this being in addition to any other remedy to which they are entitled at law or in equity), and each party hereto agrees to waive in any action for such enforcement the defense that a remedy at law would be adequate.
                    SECTION 6.08. Severability. If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of the Agreement will not be affected and will remain in full force and effect.
                    SECTION 6.09. Additional Securities Subject to Agreement. Each Shareholder agrees that any other shares of Common Stock which it hereafter acquires by means of a stock split, stock dividend, distribution, exercise of options or warrants or otherwise (other than pursuant to a public offering) whether by merger, consolidation or otherwise (including shares of a surviving corporation into which the shares of Common Stock are exchanged in such transaction) will be subject to the provisions of this Agreement to the same extent as if held on the date hereof, including for purposes of constituting Registrable Securities hereunder. For purposes hereof, the presently existing and exercisable warrant held by MCLLC should be deemed exercised.
                    SECTION 6.10. Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
                    SECTION 6.11. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.
                    SECTION 6.12. Termination of Certain Provisions. The provisions of this Agreement set forth in Sections 3.01, 3.02, 4.01, 4.02, 4.03, 4.04(b) and 4.04(d) will terminate and be of no force and effect upon the occurrence of a Qualifying Public Equity Offering. The provisions of this Agreement set forth in Sections 4.04(a) and 4.05 will terminate and be of no force and effect upon the occurrence of an Initial Public Offering.

 

-41-
                    SECTION 6.13. ERISA Matters. The Company agrees to give Sponsor certain board observation rights and consultation rights to the extent Sponsor does not have the ability to designate a Person to the Board of Directors of the Company and failure to have such board observation rights and consultation rights would cause Sponsor to have an ERISA Problem. For purposes of this Section 6.13, “ERISA Problem” means that the assets of Sponsor and its Affiliates would be considered “Plan Assets” within the meaning of 29 CFR 2510.3-101 due to the fact that Sponsor and its Affiliates do not have such rights.
                    SECTION 6.14. Regulatory Cooperation. If any Shareholder reasonably determines that, by reason of any existing or future federal or state rule, regulation, guideline, order, request or directive (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) (collectively, a “Regulatory Requirement”), it is effectively restricted or prohibited from holding any of the shares of Common Stock (including any shares of Capital Stock or other securities distributable in any merger, reorganization, readjustment or other reclassification of such shares), the Company and the other Shareholders shall take such action as may be reasonably necessary to permit such Shareholder to comply with such Regulatory Requirement; provided, that no such action pursuant to this Section 6.14 shall adversely affect the Company, the rights of the other Shareholders hereunder or the rights, preferences, qualifications and limitations of any Capital Stock of the Company held by the other Shareholders; provided, further that neither the Company nor any Shareholder shall be required to purchase any of such shares of Common Stock as a result of such Regulatory Requirement. Such reasonable action to be taken may include the Company’s authorization of one or more new classes of non-voting common stock that is otherwise substantially identical to the Common Stock then owned by such Shareholder and the amendment of the Company’s certificate of incorporation or any other documents or instruments executed in connection with the shares held by such Shareholder. Such Shareholder shall give written notice to the Company and the other Shareholders of any such determination and the actions necessary to comply with such Regulatory Requirement, and the Company and such other Shareholders shall take all reasonably necessary steps to comply with such determination as expeditiously as possible.
                    SECTION 6.15. Publicity. None of the parties hereto shall issue any press release or make any public disclosure regarding the transactions contemplated hereby unless such press release or public disclosure shall be approved by those parties mentioned in such press release or public disclosure in advance. Notwithstanding the foregoing, each of the parties hereto may, in documents required to be filed by it with the Commission or other regulatory bodies, make such statements with respect to the transactions contemplated hereby as each may be advised by counsel is legally necessary or advisable, and may make such disclosure as it is advised by its counsel is required by law.

 

 -42- 
                    SECTION 6.16. MCLLC Securities. Notwithstanding clause (iii) of the definition of “Permitted Transferee”, MCLLC or any controlled Affiliate of MCLLC (including any wholly-owned subsidiary of MCLLC) may issue any security (the “Convertible Security”) which is convertible or exchangeable into the Common Stock, provided that concurrently with such issuance the recipient of such Convertible Security executes a Joinder Agreement agreeing to be bound by the terms of this Shareholders Agreement as a Shareholder to the extent that the Convertible Security is converted or exchanged into the Common Stock and agrees that no subsequent Transfers of such Convertible Security shall be effected unless such subsequent transferee executes a Joinder Agreement agreeing to be bound by the terms of this Shareholders Agreement as a Shareholder to the extent that the Convertible Security is converted or exchanged into the Common Stock.
[Signature Pages Follow]

 

                    IN WITNESS WHEREOF, the Company and each Shareholder have executed this Agreement as of the day and year first above written.
 	 	 	 	 	
 	TRIMAS CORPORATION
 	 	
Date: June 6, 2002 	By:  	/s/ Todd R. Peters  	 	
 	 	Name:  	Todd R. Peters 	 	
 	 	Title:  	EVP and CFO 	 	

		
Date: July 19, 2002 	By:  	/s/ Todd R. Peters  	 	
 	 	Name:  	Todd R. Peters 	 	
 	 	Title:  	EVP and CFO 	 	

 	Notices: 	 	
 		
 	TriMas Corporation 	 	
 	39400 North Woodward Ave., Suite 130
Bloomfield Hills, MI 48304
Attention: General Counsel
Facsimile: (734) 207-6797 	 	

 	With a copy to:
 	 	
 	Cahill Gordon & Reindel 	 	
 	80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420 	 	

 

 	 	 	 	 	
 	 	 	 	 	
 	METALDYNE COMPANY LLC
 	 	
 	By:  	/s/ R. Jeffrey Pollock  	 	
 	 	Name:  	R. Jeffrey Pollock  	 	
 	 	Title:  	Secretary 	 	

 	Notices:
 	 	
 	47603 Halyard Drive  	 	
 	Plymouth, Michigan 48170
Attention: Chairman of the Board and
                    General Counsel
Facsimile: (248) 631-5444 	 	

 

 	 	 	 	 	
 	 	 	
 	MESIROW CAPITAL PARTNERS VIII, L.P.	 	
 		
Dated: July 19, 2002  	By: Mesirow Financial Services, Inc., its General Partner	 	
 		
 	By:  	/s/ Thomas E. Galuhn  	 	
 	 	Name:  	Thomas E. Galuhn  	 	
 	 	Title:  	Senior Managing Director 	 	

 	Notices:
 	 	
 	Mesirow Private Equity Investments  	 	
 	350 North Clark Street
Chicago, IL 60610
Attn: Thomas Galuhn
Facsimile: (312) 595-6211 	 	

 

 	 	 	 	 	
 	 	 	
 	MESIROW CAPITAL PARTNERS VII, L.P.	 	
 		
Dated: July 19, 2002  	By: Mesirow Financial Services, Inc., its General Partner	 	
 		
 	By:  	/s/ Thomas E. Galuhn  	 	
 	 	Name:  	Thomas E. Galuhn 	 	
 	 	Title:  	Senior Managing Director 	 	

 	Notices:
 	 	
 	Mesirow Private Equity Investments 	 	
 	350 North Clark Street
Chicago, IL 60610
Attn: Thomas Galuhn
Facsimile: (312) 595-6211 	 	

 

 	 	 	 	 	
 	 	 	 	 	
 	GE CAPITAL EQUITY INVESTMENTS, INC.
 	 	
Date: July 19, 2002 	By:  	/s/ Patrick Kocsi  	 	
 	 	Name:  	Patrick Kocsi 	 	
 	 	Title:  	Vice President 	 	

 	Notices:
 	 	
 	GE Capital Equity Investments, Inc. 	 	
 	120 Long Ridge Road
Stamford, CT 06927
Attention: Barbara J. Gould, Esq.
Facsimile: (203) 357-3047
Attention: William R. Kraus
Facsimile: (203) 357-6426 	 	

 	With a copy to:
 	 	
 	Winston & Strawn 	 	
 	200 Park Avenue
New York, NY 10166
Attention: David B. Hertzog, Esq.
Facsimile: (212) 294-4700 	 	

 

HEARTLAND ENTITY:

 	TRIMAS INVESTMENT FUND I, L.L.C.	 	
 		
Date: September 11, 2002	By: Heartland Industrial Associates L.L.C.,
       its General Partner	 	
 		
 	By:  	/s/ Daniel P. Tredwell  	 	
 	 	Name:  	Daniel P. Tredwell 	 	
 	 	Title:  	Managing Member 	 	

 	Notices:
 	 	
 	55 Railroad Avenue 	 	
 	Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722 	 	
 	 	 	 	 	
 	With a copy to:
 	 	
 	Cahill Gordon & Reindel 	 	
 	80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420 	 	

 

HEARTLAND ENTITY:

 	TRIMAS INVESTMENT FUND I, L.L.C.	 	
 		
Date: September 11, 2002	By: Heartland Industrial Associates L.L.C.,
       its General Partner	 	
 		
 	By:  	/s/ Daniel P. Tredwell  	 	
 	 	Name:  	Daniel P. Tredwell 	 	
 	 	Title:  	Managing Member 	 	
 	 	 	 	 	
 	Notices:
 	 	
 	55 Railroad Avenue 	 	
 	Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722 	 	
 	 	 	 	 	
 	With a copy to:	 	
 	
 	Cahill Gordon & Reindel 	 	
 	80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420 	 	

 

 	 	 	 	 	
MASCO CAPITAL ENTITY:
 	 	 	 	 	
 	MASCO CAPITAL CORPORATION
 	 	
 	By:  	/s/ Peter T. Cracchiolo  	 	
 	 	Name:  	Peter T. Cracchiolo  	 	
 	 	Title:  	Vice President 	 	

 	Notices:
 	 	
 	21001 Van Born Road Taylor, 	 	
 	Michigan 48140
Attention: Chairman of the Board and General Counsel
Facsimile: (313) 792 4107 	 	

 	With a copy to:
 	 	
 	Honigman Miller Schwartz and Cohn  	 	
 	2290 First National Building
Detroit, Michigan 48226
Attention: Alan Stuart Schwartz, Esq.
Facsimile: (313) 465-7575 	 	

 

 	 	 	 	 	
CANADA PENSION PLAN ENTITY:
 	 	 	 	 	
 	HIP SIDE-BY-SIDE PARTNERS, L.P.  	 	
 	 	 	
 	By: Heartland Industrial Associates L.L.C.,
       its General Partner	 	
 		
 	By:  	/s/ David A. Stockman  	 	
 	 	Name:  	David A. Stockman  	 	
 	 	Title:  	Managing Member 	 	

 	Notices:
 	 	
 	55 Railroad Avenue 	 	
 	Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722 	 	

 	With a copy to:
 	 	
 	Cahill Gordon & Reindel 80 Pine 	 	
 	Street New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420 	 	

 

 	 	 	 	 	
SCHEDULE 2.04
 	 	 	 	 	
Shareholder List	 	 	 	 	
 		
Trimas Investment Fund I, L.L.C.	 	 	10,074,005	 	
 	 	 	 	 	
Trimas Investment Fund II, L.L.C.	 	 	250,995	 	
 	 	 	 	 	
Masco Capital Corporation	 	 	1,250,000	 	
 	 	 	 	 	
HIP Side-by-Side Partners, L.P.	 	 	675,000	 	
 	 	 	 	 	
Metaldyne Company LLC	 	 	6,000,000	 	
 	 	 	 	 	
GE Capital Equity Investments, Inc.*	 	 	750,000	 	
 	 	 	 	 	
Mesirow Capital Partners VIII, L.P.*	 	 	175,000	 	
 	 	 	 	 	
Mesirow Capital Partners VII, L.P.*	 	 	75,000	 	

*	 	Added by amendment and restatement dated as of July 19, 2002.	

 

EXHIBIT A
JOINDER AGREEMENT
                    WHEREAS, the undersigned is acquiring simultaneously with the execution of this Agreement common stock (the “Common Stock”), par value $0.01 per share of TriMas Corporation (the “Company”); and
                    WHEREAS, as a condition to the acquisition of the Common Stock, the undersigned has agreed to join in a certain Shareholders Agreement (the “Shareholders Agreement”) dated as of June 6, 2002 and amended and restated as of July 19, 2002 among TriMas Corporation and the Shareholders (as such term is defined in the Shareholders Agreement); and
                    WHEREAS, the undersigned understands that execution of this Agreement is a condition precedent to the acquisition of the Common Stock;
                    NOW, THEREFORE, as an inducement to both the transferor of the Common Stock and the other Shareholders (as such term is defined in the Shareholders Agreement), to Transfer (as such term is defined in the Shareholders Agreement) and to allow the Transfer of the Common Stock to the undersigned, the undersigned agrees as follows:
                    1. The undersigned hereby joins in the Shareholders Agreement and agrees to be bound by the terms and provisions of the Shareholders Agreement as provided by the Shareholders Agreement.
                    2. The undersigned hereby consents that the certificate or certificates to be issued to the undersigned representing the Common Stock shall be legended as follows:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING WITH RESPECT TO THE DIRECT OR INDIRECT TRANSFER THEREOF, OF A

 

SHAREHOLDERS AGREEMENT DATED AS OF JUNE 6, 2002, AS AMENDED AND RESTATED AS OF JULY 19, 2002. THE SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, SIGNIFICANT RESTRICTIONS ON TRANSFER OF THE SECURITIES OF THE COMPANY. A COPY OF THE SHAREHOLDERS AGREEMENT IS AVAILABLE UPON REQUEST FROM THE COMPANY.”
                    IN WITNESS WHEREOF, the undersigned has executed this Agreement this ___day of                      , 20_.

 	 	 	
 	Name:  	 	 	
 	Title:  	 	 	
 	Address:  	 	 	

  

Exhibit 10.k
AMENDMENT NO. 1
TO SHAREHOLDERS AGREEMENT
     AMENDMENT NO. 1 (this “ Amendment ”), dated as of August 31, 2006, to the SHAREHOLDERS AGREEMENT, dated as of June 6, 2002, as amended and restated as of July 19, 2002 (the “ Shareholders Agreement ”) by and among TRIMAS CORPORATION, a Delaware corporation (the “ Company ”), METALDYNE COMPANY LLC (“ MCLLC ”), HEARTLAND INDUSTRIAL PARTNERS, L.P. and the HEARTLAND ENTITIES identified on the signature pages thereto and the other parties identified as SHAREHOLDERS therein and listed on the signature pages thereto or identified on the signature page of any Joinder Agreement executed and delivered pursuant to the Shareholders Agreement and the parties identified on the signature pages hereto as “METALDYNE SHAREHOLDER PARTIES”. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed thereto in the Shareholders Agreement.
R E C I T A L S :
     A. MCLLC is the owner of 4,076,087 shares of the issued and outstanding Common Stock of the Company and a Warrant to purchase 750,000 shares of Common Stock of the Company (the “ Warrant ” and, together with the shares of Common Stock owned by MCLLC or issuable upon exercise of the Warrant, the “ Metaldyne Shares ”) on the date hereof.
     B. MCLLC is considering making a distribution of the Metaldyne Shares to its parent company, Metaldyne Corporation (“ Metaldyne ”), which will, in turn, make a distribution of the Metaldyne Shares to the stockholders of record of Metaldyne and MCLLC has requested an amendment of certain provisions of the Shareholders Agreement to permit the foregoing.
     C. The Company, MCLLC and the other Shareholders desire to amend certain provisions of the Shareholders Agreement to permit the Metaldyne Distribution (as hereinafter defined), but, as a condition to its willingness to execute the Amendment, the Company is requiring that all current stockholders of Metaldyne that are also currently parties to the shareholders agreement in place with respect to shares of common stock of Metaldyne execute this Amendment and agree to the provisions of the Shareholders Agreement in anticipation of the Metaldyne Distribution in the event that it should occur.
     NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

 -2- 
A G R E E M E N T :
          The parties agree as follows:
      1.  Amendment to Introduction . (a) The Preamble to the Shareholders Agreement is hereby amended by adding “either” after the word “executing” and by adding the following after the word “hereof”: “and, with respect to the Metaldyne Shareholders, upon the occurrence of the Metaldyne Distribution”. It is hereby agreed that, from and after the Metaldyne Distribution, the Metaldyne Shareholder Parties shall be “Shareholders” for all purposes of the Shareholders Agreement.
          (b) The first “Whereas” clause of the Shareholders Agreement is hereby amended by adding the following at the end of such clause: “and, upon the occurrence of the Metaldyne Distribution (if it should occur), each Metaldyne Shareholder Party has received its pro rata share of the Distributed Shares pursuant to the Metaldyne Distribution.”
          (c) The second “Whereas” clause of the Shareholders Agreement is hereby amended and restated as follows: “WHEREAS, as a result of and in connection with the Stock Purchase, each Shareholder as of July 19, 2002 owns the number of shares set forth on Schedule 2.04 hereto and, as a result of and in connection with the Metaldyne Distribution (if it should occur), MCLLC will no longer own the Distributed Shares reflected on Schedule 2.04 hereto and each Metaldyne Shareholder Party will own its pro rata share of the Distributed Shares.”
      2.  Amendment to Section 1.01 . (a) Section 1.01 of the Shareholders Agreement is hereby amended by adding the following at the end of the definition of “Transfer”: “; provided that the declaration (as opposed to the making) of the Metaldyne Distribution shall not be considered to be a Transfer for purposes of the Shareholders Agreement.”
          (b) Section 1.01 of the Shareholders Agreement is hereby amended by inserting the following defined terms (in their appropriate alphabetic order) into such section:
“ Distributed Shares ” means any shares of Common Stock or of all or any portion of the Warrant that, in either case, is subject to a Metaldyne Distribution to Metaldyne Shareholders.
“ First Amendment ” means Amendment No. 1 to Shareholders Agreement, dated as of August 31, 2006, among the Company, MCLLC, Heartland Industrial Partners, L.P., the Heartland Entities identified on the signature pages thereto, the other Shareholders listed on the signature pages thereto and the Metaldyne Shareholder Parties listed on the signature pages thereto.

 

 -3- 
“ First Amendment Date ” means August 31, 2006.
“ Limited Permitted Transferee ” means (a) with respect to any Shareholder that is a natural person, (i) the spouse or any lineal descendant (including by adoption or stepchildren) of such Shareholder or any Transferee of such Shareholder by operation of laws of descent, (ii) any trust of which such Shareholder is the trustee and which is established solely for the benefit of any of the foregoing individuals and (iii) any partnership, all of the general partner(s) and limited partner(s) (if any) of which are one or more Persons identified in the preceding clause (i) and (b) with respect to any other Person, an Affiliate of such Person.
“ Metaldyne Distribution ” means any distribution by MCLLC to Metaldyne or by Metaldyne to Metaldyne Shareholders of any shares of Common Stock (including shares of Common Stock issuable upon exercise of the Warrant) or of all or any portion of the Warrant.
“ Metaldyne Shareholders ” means (i) the owners of record of the common stock of Metaldyne Corporation as of the record date of any Metaldyne Distribution or (ii) any legal successor-in-interest to or any Limited Permitted Transferee of any Person referred to in clause (i) of this definition.
“ Metaldyne Shareholder Parties ” means (i) those owners of record of the common stock of Metaldyne Corporation as of the First Amendment Date that are party to the Shareholders Agreement relating to shares of common stock of Metaldyne dated as of November 28, 2000 among Metaldyne and the Shareholders named therein (whether directly or by joinder agreement), as amended from time to time, and (ii) any legal successor-in-interest to or any Transferee of any Person referred to in clause (i) of this definition that is required to become a party to the Shareholders Agreement by reason of Section 11(a) of the First Amendment.
“ 1934 Act Registration ” means the registration of the Common Stock by the Company under the 1934 Act.
      3.  Amendment to Section 3.02 . Section 3.02 of the Shareholders Agreement is hereby amended and restated in its entirety as follows:
          “Subject to all applicable laws, the restrictions on Transfer set forth in Section 3.01 hereof shall not apply to any of the following:

 

 -4- 
(a) a Transfer by a Shareholder of Common Stock (other than Distributed Shares prior to the 1934 Act Registration) to one of its Permitted Transferees; provided that such Permitted Transferee shall agree to execute a Joinder Agreement in the form annexed hereto as Exhibit A (the “ Joinder Agreement ”);
(b) a Transfer of Common Stock (other than Distributed Shares prior to the 1934 Act Registration) by a Shareholder in accordance with Sections 4.02 and 4.03 of this Agreement;
(c) a Transfer by a Shareholder of Common Stock (other than Distributed Shares prior to the 1934 Act Registration) after such Shareholder has complied with Section 4.01; provided that the Transferee shall agree to execute a Joinder Agreement;
(d) a Transfer of Common Stock by a Shareholder pursuant to an effective registration statement under the 1933 Act or a Transfer of Common Stock (other than Distributed Shares prior to the 1934 Act Registration) pursuant to Rule 144 under the 1933 Act;
(e) a Transfer by MCLLC in connection with the issuance of a Convertible Security as contemplated by Section 6.16; provided that the recipient of such Convertible Security agrees to execute a Joinder Agreement as described in Section 6.16;
(f) Transfers by MCLLC and Metaldyne pursuant to a Metaldyne Distribution; provided that, if such Transfer is to Metaldyne Shareholders prior to the 1934 Act Registration, provision shall be made to ensure that subsequent Transfers of Distributed Shares shall only be made, prior to the 1934 Act Registration, by Metaldyne Shareholders to Limited Permitted Transferees of such Metaldyne Shareholder; and
(g) following a Metaldyne Distribution and prior to the 1934 Act Registration, a Transfer by a Metaldyne Shareholder of Distributed Shares to Limited Permitted Transferees of such Metaldyne Shareholder.
      4.  Amendment of Section 4.01. Section 4.01(a) of the Shareholders Agreement is hereby amended by (i) deleting the phrase “Section 3.02(a), 3.02(d), 4.02 or 4.03” and replacing it in its entirety with “Section 3.02(a), 302(d), 3.02(g), 4.02 or 4.03” and (ii) adding the following to the end of that section: “Notwithstanding anything to the contrary

 

 -5- 
herein, this Section 4.01 (including, without limitation, the provisions of the second paragraph of Section 4.01(c)) shall be inapplicable to the Metaldyne Distribution itself.”
      5.  Amendment of Section 4. 02(a) . Section 4.02(a) of the Shareholders Agreement is hereby amended by (i) deleting the phrase “Section 3.02(a), 3.02(d), 5.01 or 5.02” and replacing it in its entirety with “Section 3.02(a), 3.02(d), 3.02(g), 5.01 or 5.02” and (ii) adding the following to the end of last sentence thereof: “ provided that, for the avoidance of doubt, the provisions of this last sentence shall not apply to Transfers of Distributed Shares received by the Sponsor Transferor.”
      6.  Amendment of Section 4.03. Section 4.03 of the Shareholders Agreement is hereby amended by adding the following to the end of first sentence thereof: “ provided , further , that, for the avoidance of doubt, the second proviso of this sentence shall cease to apply following the Metaldyne Distribution.”
      7.  Amendment of Section 4.04. (a) Section 4.04(b) of the Shareholders Agreement is hereby amended by deleting the beginning thereof through but not including “(1)” and replacing it in its entirety with the following: “In the case of (x) any Shareholder (other than MCLLC) prior to the occurrence of a Qualifying Public Equity Offering, and for so long as such Shareholder owns twenty-five percent (25%) of the number of shares of Common Stock (as adjusted for Adjustments) owned by such Shareholder (in the case of any Shareholder other than a Metaldyne Shareholder Party, as of the date of the amendment and restatement hereof or, in the case of any Metaldyne Shareholder Party, as of and after giving effect to the Metaldyne Distribution) or (y) MCLLC, for so long as MCLLC owns twenty-five percent (25%) of the number of shares of Common Stock (as adjusted for Adjustments) owned by MCLLC immediately following the Transactions, the Company shall deliver the following to each such Shareholder and MCLLC:”
          (b) Section 4.04(b) shall be amended by the addition of the following at the end thereof: “Notwithstanding the foregoing and the last sentence of Section 4.04(c), the information available under Section 4.04(b) (2) and (3) shall not be made available to a Metaldyne Shareholder Party if the Company is filing annual, quarterly and current reports under the 1934 Act (unless it would otherwise be entitled to such information as a Shareholder apart from the Metaldyne Distribution).”
          (c) Section 4.04(e) shall be amended by the addition of the following language at the end thereof: “Each Shareholder acknowledges that trading in securities of the Company and its Subsidiaries on the basis of material non-public information received under this Agreement may constitute a violation of United States Federal securities laws and agrees to act to ensure compliance with such laws.”

 

 -6- 
      8.  Amendment of Section 4.06. (a) Section 4.06(a) of the Shareholders Agreement is hereby amended by the addition of the following at the end thereof: “(e) For the avoidance of doubt, Section 4.06(a)(ii)(2) and (3), the proviso to Section 4.06(a)(iv), Section 4.06(b) and Section 4.06(d) shall have no further effect following the occurrence of the Metaldyne Distribution.”
      9.  Amendment of Section 4.07. Upon the occurrence any Metaldyne Distribution, the proviso to the penultimate sentence of Section 4.07 shall be deleted.
      10.  Amendment of Sections 5.01, 5.02 and 5.07 . (a) Section 5.01(a) of the Shareholders Agreement is hereby amended by the addition of the following at the end thereof: “Notwithstanding anything herein to the contrary, and for the avoidance of doubt, no Metaldyne Shareholder shall become entitled to rights pursuant to this Section 5.01 by reason of receiving Distributed Shares in the Metaldyne Distribution, except that Affiliates of the Company that receive Distributed Shares shall be entitled to the registration rights afforded to a “Shareholder” pursuant to this Section 5.01 in respect of such Distributed Shares, in addition to such rights as may otherwise exist under Article V in favor of such Affiliate.”
          (b) Section 5.02(a) shall be amended by the addition of the following at the end thereof: “Notwithstanding anything herein to the contrary, and for the avoidance of doubt, no Metaldyne Shareholder shall become entitled to rights pursuant to this Section 5.02 by reason of receiving Distributed Shares in the Metaldyne Distribution, except for Sponsor and its Direct Permitted Transferees in their capacity as Demand Holders.”
          (c) Each Metaldyne Shareholder Party agrees that, regardless of whether or not Distributed Shares held by it are Registrable Securities, such shares shall be subject to the holdback agreements of Section 5.07 as though they were Registrable Securities solely for purposes of any Initial Public Offering.
      11.  Addition of Section 6.17 . The Shareholders Agreement is hereby amended by adding the following section:
          “Section 6.17. Metaldyne Distribution .
          (a) Notwithstanding any provision of this Agreement, MCLLC and Metaldyne may effect any Metaldyne Distribution; provided that (i) no recipient of Distributed Shares will thereby become entitled to the rights and benefits of, or be subject to the obligations and burdens under, this Agreement that are specifically ascribed to MCLLC and (ii) the only Persons that will become entitled to rights and be subject to obligations hereunder as a result of the Metaldyne Distribution will be the Metaldyne Shareholder Parties by reason of their execution of the First Amendment or of a Joinder Agreement. For the sake of clarity, it is agreed

 

 -7- 
that, other than in the case of the Metaldyne Shareholder Parties, recipients of Distributed Shares pursuant to the Metaldyne Distribution need not sign a Joinder Agreement.
          (b) Notwithstanding any provision to the contrary contained in this Agreement and for the sake of clarity, each Metaldyne Shareholder Party agrees that, following a Metaldyne Distribution and prior to the 1934 Act Registration, Transfers of Distributed Shares shall only be made to Limited Permitted Transferees and MCLLC shall take and cause Metaldyne to take all reasonably necessary action to ensure such.
          (c) The Company agrees to cooperate and take all such actions as may be required to ensure compliance with applicable United States Federal and state securities laws in connection with the foregoing, including, without limitation, the Company agrees to file a registration statement on Form 10 (or any successor form) with respect to the registration of the Common Stock under the 1934 Act Registration and to use best efforts to cause such registration statement to be declared effective by the Commission not later than 120 days following the end of the year which the Metaldyne Distribution shall have occurred.
      12.  Covenants, Representations and Warranties of MCLLC and Metaldyne Shareholder Parties . (a) Each Metaldyne Shareholder Party hereby agrees that, as a condition to any Transfer of shares of common stock of Metaldyne prior to the completion of the Metaldyne Distribution, it shall cause the Transferee to execute a Joinder Agreement to the Shareholders Agreement to become a Metaldyne Shareholder Party (if it is not already a party to the Shareholders Agreement).
          (b) Each of the Metaldyne Shareholder Parties hereby severally makes to the Company the representations and warranties set forth in Sections 2.01 (“Authority; Enforceability”), 2.02 (“No Breach”) and Section 2.03(a) (“Consents”) solely with respect to the execution, delivery and performance of this Amendment and the matters contemplated hereby.
          (c) Each Metaldyne Shareholder Party hereby agrees and authorizes the Company to act as a custodian to hold any Distributed Shares prior to the 1934 Act Registration to ensure compliance with United States Federal securities laws and acknowledges that Metaldyne has agreed to deliver any Distributed Shares to the Company for that purpose. In addition, the Company is authorized to retain such shares for the duration of any lock-up or hold back period consistent with Section 10(c) of this Amendment if 1934 Act Registration occurs in connection with an Initial Public Offering.
          (d) The Company hereby agrees with Metaldyne that it will not effect transfers of Common Stock in the stock ledger of the Company or issue new certificates in connection with any such transfers, other than in compliance with all Regulatory Requirements and this Shareholders Agreement.

 

 -8- 
          (e) The Distributed Shares will contain the following legend, notwithstanding Section 3.04, and MCLLC and the Company shall cooperate to ensure that, prior to the Metaldyne Distribution, all Distributed Shares, whether or not subject to the Shareholders Agreement will bear the following legend:
     THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD PRIOR TO THE REGISTRATION OF THE CLASS OF THE SECURITIES UNDER THE UNITED STATES SECURITIES ACT OF 1934 EXCEPT TO (A) WITH RESPECT TO ANY SHAREHOLDER THAT IS A NATURAL PERSON, (I) THE SPOUSE OR ANY LINEAL DESCENDANT (INCLUDING BY ADOPTION OR STEPCHILDREN) OF SUCH SHAREHOLDER OR ANY TRANSFEREE OF SUCH SHAREHOLDER BY OPERATION OF LAWS OF DESCENT, (II) ANY TRUST OF WHICH SUCH SHAREHOLDER IS THE TRUSTEE AND WHICH IS ESTABLISHED SOLELY FOR THE BENEFIT OF ANY OF THE FOREGOING INDIVIDUALS AND (III) ANY PARTNERSHIP, ALL OF THE GENERAL PARTNER(S) AND LIMITED PARTNER(S) (IF ANY) OF WHICH ARE ONE OR MORE PERSONS IDENTIFIED IN THE PRECEDING CLAUSE (I) AND (B) WITH RESPECT TO ANY OTHER PERSON, AN AFFILIATE OF SUCH PERSON.
          Distributed Shares subject to the Shareholders Agreement shall also bear the following legend:
     THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING WITH RESPECT TO THE DIRECT OR INDIRECT TRANSFER THEREOF, OF A SHAREHOLDERS AGREEMENT DATED AS OF JUNE 6, 2002, AS AMENDED AND RESTATED AS OF JULY 19, 2002 AND AS AMENDED ON AUGUST 31, 2006 (AS AMENDED, AMENDED AND RESTATED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME, THE “SHAREHOLDERS AGREEMENT”). THE SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, SIGNIFICANT RESTRICTIONS ON TRANSFER OF THE SECURITIES OF THE COMPANY. A COPY OF THE SHAREHOLDERS AGREEMENT IS AVAILABLE UPON REQUEST FROM THE COMPANY.
      13.  Provisions of General Application . Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions to the Shareholders Agreement remain unaltered. The Shareholders Agreement and this Amendment shall be read and construed as one agreement. If any of the terms of this Amendment shall conflict in any respect with any of the terms of the Shareholders Agreement, the terms of this Amendment shall be controlling.

 

 -9- 
      14.  Counterparts; Effectiveness; Captions . This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. The captions of this Amendment are included for convenience of reference only, do not constitute a part hereof and shall be disregarded in the construction hereof.
      15.  GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
      16.  Entire Agreement . This Amendment constitutes the full and entire understanding and agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, understandings and agreements between such parties in respect of such subject matter.

 

 -10- 
     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.
 	 	 	 	 	
 	TRIMAS CORPORATION
 	 	
Date: August 31, 2006 	By:  	/s/ [ILLEGIBLE]  	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	

 

 	 	 	 	 	 	 	
 	 	HIP SIDE-BY-SIDE PARTNERS, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	HEARTLAND INDUSTRIAL ASSOCIATES, L.L.C.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ [Illegible]	 	 	
 	 	 	 	 
Name:	 	 	
 	 	 	 	Title:	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	METALDYNE COMPANY LLC
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	MESIROW CAPITAL PARTNERS VIII, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	by	 	Mesirow Financial Services, Inc., its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	by	 	/s/ Thomas E. Galuhn	 	 	
 	 	 	 	 
Name: Thomas E. Galuhn	 	 	
 	 	 	 	Title: Sr. Managing Director	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	MESIROW CAPITAL PARTNERS VIII, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	by	 	Mesirow Financial Services, Inc., its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	by	 	/s/ Thomas E. Galuhn	 	 	
 	 	 	 	 
Name: Thomas E. Galuhn	 	 	
 	 	 	 	Title: Sr. Managing Director	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	TRIMAS INVESTMENT FUND I, L.L.C.
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	TRIMAS INVESTMENT FUND I, L.L.C.
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	
MASCO CAPITAL CORPORATION
 	 	
 	By:  	/s/ Peter A. Dow  	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	CRAIG MANCHEN
 	 	
 	By:  	/s/Craig Manchen  	 	
 	 	Name:	 	 	
 	 	Title:	 Shareholder 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	GE CAPITAL EQUITY INVESTMENTS, INC.
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	METALDYNE INVESTMENT FUND I, LLC
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	METALDYNE INVESTMENT FUND II, LLC
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON EQUITY PARTNERS, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Hemisphere Private Equity Partners, Ltd., Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Kenneth Lohsen	 	 	
 	 	 	 	 
Name:   Kenneth Lohsen	 	 	
 	 	 	 	Title: Attorney-in-Fact	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BSTON EQUITY PARTNERS (BERMUDA), L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Hemisphere Private Equity Partners, Ltd., Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Kenneth Lohsen	 	 	
 	 	 	 	 
Name:   Kenneth Lohsen	 	 	
 	 	 	 	Title: Attorney-in-Fact	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	 	 	
  	 	CREDIT SUISSE FIRST BOSTON FUND INVESTMENTS VI HOLDINGS, LLC	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse First Boston Fund Investments VI, L.P., Its Managing Member	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse First Boston Fund Investments VI — Side Partnership, L.P., Its Managing Member	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse First Boston fund Investments VI (Bermuda), L.P., Its Managing Member	 	 	
 	 	 	 	 	 	 	 	 	
 	 	 	 	By:	 	Merchant Capital, Inc., the General Partner of the foregoing entities	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/Kenneth Lohsen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Kenneth Lohsen	 	 	
 	 	 	 	Title:	 	Vice President	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON FUND INVESTMENTS VI-B (BERMUDA), L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Merchant Capital, Inc., Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Kenneth Lohsen	 	 	
 	 	 	 	 
Name:  Kenneth Lohsen	 	 	
 	 	 	 	Title:    Vice President	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	CREDIT SUISSE FIRST BOSTON U.S. EXECUTIVE ADVISORS, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Hemisphere Private Equity Partners, Ltd., Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Kenneth Lohsen	 	 	
 	 	 	 	 
Name:  Kenneth Lohsen	 	 	
 	 	 	 	Title:    Attorney-in-Fact	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	MASCO CORPORATION
 	 	
 	By:  	/s/Peter A. Dow  	 	
 	 	Name:  	Peter A. Dow 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	RICHARD AND JANE MANOOGIAN FOUNDATION
 	 	
 	By:  	/s/Richard A. Manoogian  	 	
 	 	Name:  	Richard A. Manoogian 	 	
 	 	Title:  	President and Treasurer 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	RICHARD MANOOGIAN
 	 	
 	By:  	/s/Richard A. Manoogian  	 	
 	 	Name:  	Richard A. Manoogian 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	WACHOVIA CAPITAL PARTNERS 2000, LLC
(formerly First Union Capital Partners, LLC)
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	Vice President 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	BANCBOSTON CAPITAL INC.
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name:  	 	 	
 	 	Title:  	Vice President 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	METROPOLITAN LIFE INSURANCE COMPANY
 	 	
 	By:  	/s/Christopher Farrington  	 	
 	 	Name:  	Christopher Farrington 	 	
 	 	Title:  	Director 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	EQUITY ASSET INVESTMENT TRUST
 	 	
 	By:  	/s/ [Illegible]	 	
 	 	Name: 	 	 	
 	 	Title:	Attorney-in-Fact 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	ANNEX HOLDINGS I LP	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Annex Capital Partners LLC, its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Alexander P. Coleman	 	 	
 	 	Name:	 	 
Alexander P. Coleman	 	 	
 	 	Title:	 	MANAGING MEMBER OF THE GENERAL PARTNER	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	LONGPOINT CAPITAL FUND, L.P.
 	 	
 	By:  	/s/ Gerard Boylan  	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	LONGPOINT CAPITAL PARTNERS, L.L.C.
 	 	
 	By:  	/s/Gerard Boylan  	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	EMA PARTNERS FUND 2000, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse (Bermuda) Limited, Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Kenneth Lohsen	 	 	
 	 	Name:	 	 
Kenneth Lohsen	 	 	
 	 	Title:	 	Vice President	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	EMA PARTNERS EQUITY FUND 2000, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Credit Suisse (Bermuda) Limited, Its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Kenneth Lohsen	 	 	
 	 	Name:	 	 
Kenneth Lohsen	 	 	
 	 	Title:	 	Vice President	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	 	 	
 	 	75 WALL STREET ASSOCIATES LLC	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	Allianz Leben Private Equity Funds Plus GmbH	 	 	
 	 	Its:	 	Members	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/Wancfing Aug	 	Claus Zeilner	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Wancfing Aug	 	Claus Zeilner	 	 	
 	 	 	 	Title:   Managing Director	 	Director	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	Alliance Private Equity Partners, Inc.	 	 	
 	 	Its:	 	Adviser	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/Arthur Ebersole	 	Brian Welker	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name: Arthur Ebersole	 	Brian Welker	 	 	
 	 	 	 	Title:   Vice President	 	Vice President	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	GRAHAM PARTNERS INVESTMENTS, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS GENERAL PARTNER, L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS (GP2), L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS (GP), LLC	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Steven C. Graham	 	 	
 	 	 	 	 
Name:  Steven C. Graham	 	 	
 	 	 	 	Title:    Managing Member	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	GRAHAM PARTNERS INVESTMENTS (A), L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS GENERAL PARTNER, L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS (GP2), L.P.	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	GRAHAM PARTNERS INVESTMENTS (GP), LLC	 	 	
 	 	Its:	 	General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Steven C. Graham	 	 	
 	 	 	 	 
Name:  Steven C. Graham	 	 	
 	 	 	 	Title:    Managing Member	 	 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	PRIVATE EQUITY PORTFOLIO FUND II, LLC
 	 	
 	By:  	/s/Matthew J. Ahern  	 	
 	 	Name:  	Matthew J. Ahern 	 	
 	 	Title:  	Vice President 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	
 	CRM 1999 ENTERPRISE FUND, LLC
 	 	
 	By:  	/s/Carlos Leal  	 	
 	 	Name:  	Carlos Leal 	 	
 	 	Title:  	CFO of Managing Member 	 	
 	
Amendment to TriMas Shareholders Agreement

 

 	 	 	 	 	 	 	
 	 	HEARTLAND INDUSTRIAL PARTNERS, L.P.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	Heartland Industrial Associates L.L.C., its General Partner	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/Daniel P. Tredwell	 	 	
 	 	 	 	 
Name:    Daniel P. Tredwell	 	 	
 	 	 	 	Title:	 	 	
Amendment to TriMas Shareholders Agreement

 

EXHIBIT A
JOINDER AGREEMENT
     WHEREAS, the undersigned is acquiring simultaneously with the execution of this Agreement common stock (the “Common Stock”), par value $0.01 per share of TriMas Corporation (the “Company”); and
     WHEREAS, as a condition to the acquisition of the Common Stock, the undersigned has agreed to join in a certain Shareholders Agreement (the “Shareholders Agreement”) dated as of June 6, 2002 and amended and restated as of July 19, 2002 among TriMas Corporation and the Shareholders (as such term is defined in the Shareholders Agreement); and
     WHEREAS, the undersigned understands that execution of this Agreement is a condition precedent to the acquisition of the Common Stock;
     NOW, THEREFORE, as an inducement to both the transferor of the Common Stock and the other Shareholders (as such term is defined in the Shareholders Agreement), to Transfer (as such term is defined in the Shareholders Agreement) and to allow the Transfer of the Common Stock to the undersigned, the undersigned agrees as follows:

 	1.	 	The undersigned hereby joins in the Shareholders Agreement and agrees to be bound by the terms and provisions of the Shareholders Agreement as provided by the Shareholders Agreement.	
 		
 	2.	 	The undersigned hereby consents that the certificate or certificates to be issued to the undersigned representing the Common Stock shall be legended as follows:	
 		
 	 	 	“THE SERCUITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFCTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.	
 		
 	 	 	THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING WITH RESPECT TO THE DIRECT OR INDIRECT TRANSFER THEREOF, OF A	

 

 	 	 	SHAREHOLDERS AGREEMENT DATED AS OF JUNE 6, 2002, AS AMENDED AND RESTATED AS OF JULY 19, 2002. THE SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, SIGNIFICANT RESTRICTIONS ON TRANSFER OF THE SECURITIES OF THE COMPANY. A COPY OF THE SHAREHOLSERS AGREEMENT IS AVAILABLE UPON REQUEST FROM THE COMPANY.”	
     INWITNESS WHEREOF, the undersigned has executed this Agreement this                      day of                      , 20              .

Name:	 	 	
 	 	Title:	 	 	
 	 	Address:	 	 	

 

Exhibit 12
 
MASCO CORPORATION
 
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

 	 	(Dollars in Millions)	 	
 	 	Year Ended December 31,	 	
 	 	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	 	$	900	 	 	$	1,402	 	 	$	1,534	 	 	$	1,243	 	 	$	927	 	
Deduct equity in undistributed (earnings) of fifty-percent-or- less-owned companies	 	 	(1	)	 	 	(1	)	 	 	(1	)	 	 	–	 	 	 	(10	)	
Add interest on indebtedness, net	 	 	241	 	 	 	246	 	 	 	214	 	 	 	252	 	 	 	226	 	
Add amortization of debt expense	 	 	4	 	 	 	6	 	 	 	6	 	 	 	13	 	 	 	13	 	
Add estimated interest factor for rentals	 	 	53	 	 	 	40	 	 	 	34	 	 	 	31	 	 	 	24	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings before income taxes, minority interest, cumulative effect of accounting change, net, fixed charges and preferred stock dividends	 	$	1,197	 	 	$	1,693	 	 	$	1,787	 	 	$	1,539	 	 	$	1,180	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed Charges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on indebtedness	 	$	241	 	 	$	244	 	 	$	214	 	 	$	253	 	 	$	225	 	
Amortization of debt expense	 	 	4	 	 	 	6	 	 	 	6	 	 	 	13	 	 	 	13	 	
Estimated interest factor for rentals	 	 	53	 	 	 	40	 	 	 	34	 	 	 	31	 	 	 	24	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed charges	 	$	298	 	 	$	290	 	 	$	254	 	 	$	297	 	 	$	262	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred stock dividends (a)	 	$	–	 	 	$	–	 	 	$	8	 	 	$	16	 	 	$	14	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Combined fixed charges and preferred stock dividends	 	$	298	 	 	$	290	 	 	$	262	 	 	$	313	 	 	$	276	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	 	4.0	 	 	 	5.8	 	 	 	7.0	 	 	 	5.2	 	 	 	4.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred stock dividends	 	 	4.0	 	 	 	5.8	 	 	 	6.8	 	 	 	4.9	 	 	 	4.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred stock dividends excluding certain items  (b)	 	 	5.5	 	 	 	6.2	 	 	 	7.2	 	 	 	4.9	 	 	 	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 2006 non-cash, pre-tax impairment charges for goodwill and financial investments of $331 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 $69 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 $112 million, and the pre-tax impairment charge related to a marketable security of $21 million; the 2003 pre-tax income related to the Behr litigation settlement of $72 million and the non-cash, pre-tax goodwill impairment charges of $53 million; 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 31, 2007*
 	 	 	
 	 	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 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	
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	
Brush Creek Ranch II, Inc.	 	Missouri	
BuildLogix, Inc.	 	Delaware	
Cal-Style Furniture Mfg. Co.	 	California	
Cobra Products, Inc.	 	Delaware	
d-Scan, Inc.	 	Delaware	
EnergySense, Inc.	 	Delaware	
Epic Fine Arts Company	 	Delaware	
Beacon Hill Fine Art Corporation	 	New York	
Canyon Road Corporation	 	New Mexico	
H & H Tube & Manufacturing Company	 	Michigan	

*	 	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	
 	 	 	
Hansgrohe AG (37.35%) Masco GmbH owns 27% of Hansgrohe AG	 	Germany	
(see subsidiaries listed under Hansgrohe AG under Masco GmbH)	 	 	
Jarry Realty, Inc.	 	Florida	
KraftMaid Cabinetry, Inc.	 	Ohio	
KraftMaid Trucking, Inc.	 	Ohio	
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 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 Nederland B.V.	 	Netherlands	
Damixa N.V./S.A.	 	Belgium	
Damixa SARL	 	France	
Glass Idromassaggio Srl (49%)	 	Italy	
KS Beheer BV	 	Netherlands	
Intermart Insaat Malzemeleri Sanayi ve Ticaret AS	 	Turkey	

*	 	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	
 	 	 	 	
 	Masco Belgium BVBA	 	Belgium	
 	Thermic Italia S.r.l.	 	Italy	
 	Masco Corporation Limited	 	United Kingdom	
 	Avocet Hardware Limited	 	United Kingdom	
 	Avocet Hardware (Taiwan) Ltd.	 	Taiwan	
 	Avocet Security Products (Dongguan) Ltd.	 	China	
 	Avocet Security Products (Hong Kong) Ltd.	 	Hong Kong	
 	Avocet Security Products (Suzhou) Company Limited (51%)	 	China	
 	Bristan Group Limited	 	United Kingdom	
 	Cambrian Windows Limited	 	United Kingdom	
 	Duraflex Limited	 	United Kingdom	
 	Griffin Windows Limited	 	United Kingdom	
 	Techniglass Limited	 	United Kingdom	
 	Liberty Hardware Mfg U.K. 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	
 	Stormfront Door Limited	 	United Kingdom	
 	Masco Denmark ApS	 	Denmark	
 	Tvilum-Scanbirk ApS	 	Denmark	
 	Tvilum-Scanbirk GmbH	 	Germany	
 	Masco Europe Inc. Financial SCS	 	Luxembourg	
 	Masco Europe Financial SARL	 	Luxembourg	
 	Masco International Services BVBA	 	Belgium	
 	Masco Germany Holding	 	Germany	
 	Masco GmbH	 	Germany	
 	Alfred Reinecke GmbH & Co. KG	 	Germany	
 	Glass Idromassaggio (51%)	 	Italy	
 	Aquastyle Poland	 	Poland	
 	S.T.S.R.	 	Italy	
 	Hansgrohe AG (27%)	 	Germany	
 	Hansgrohe D	 	Germany	

*	 	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	
 	 	 	 	
 	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	
 	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.	 	Spain	
 	Hansgrohe S.A.R.L.	 	France	
 	Hansgrohe S.R.L.	 	Italy	
 	Hansgrohe, Inc.	 	Georgia	
 	Pontos GmbH	 	Germany	
 	Horst Breuer GmbH & Co. KG	 	Germany	
 	Hueppe Belgium N.V./S.A.	 	Belgium	
 	Hueppe B.V.	 	Netherlands	
 	Hueppe GmbH	 	Austria	
 	Hueppe GmbH & Co.	 	Germany	
 	Hueppe Kft.	 	Hungary	
 	Hueppe Sarl	 	France	

*	 	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	
 	 	 	 	
 	Hueppe Sp. z.o.o.	 	Poland	
 	Hueppe SRO	 	Czech Republic	
 	Hueppe Switzerland	 	Switzerland	
 	Hueppe S.r.l.	 	Italy	
 	Reser SL	 	Spain	
 	Masco Ireland Ltd.	 	Ireland	
 	Metalurgica Recor, S.A.	 	Portugal	
 	The Heating Company BVBA (formerly Vasco BVBA)	 	Belgium	
 	The Heating Company — Netherlands BV (fka Masco B.V.)	 	Netherlands	
 	Brugman International, B.V.	 	Netherlands	
 	Brugman Activa Sp.z.o.z. Poland (48.5%)	 	Poland	
 	Brugman Fabryka Grzejnikow	 	Poland	
 	Brugman France SARL	 	France	
 	Brugman Industrie Sp. z.o.o.	 	Poland	
 	Brugman Polska Sp. z.o.o.	 	Poland	
 	Brugman Radiatorenfabriek B.V.	 	Netherlands	
 	The Heating Company Denmark (fka Northor AS)	 	Denmark	
 	The Heating Company Germany GmbH (fka Brugman GmbH)	 	Germany	
 	LTV Transport BVBA	 	Belgium	
 	Superia Radiatoren, BVBA	 	Belgium	
 	Vamic BV	 	Netherlands	
 	Vasco BC Sarl	 	France	
 	Vasco BVBA (formerly Vasco Imperial Europe)	 	Belgium	
 	Vasco GesmbH	 	Austria	
 	Vasco GmbH	 	Germany	
 	Vasco Limited	 	United Kingdom	
 	Vasco sp z.o.o.	 	Poland	
 	Watkins Europe BVBA	 	Belgium	
     Peerless Sales Corporation	 	Delaware	
Masco Europe SCS (51.5%)	 	 	Luxembourg	
Masco Product Design, Inc.	 	 	Delaware	

*	 	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	
 	 	 	
Masco Retail Sales Support, Inc.	 	Delaware	
KraftMaid Sales and Distribution, LLC	 	Delaware	
Liberty Hardware Retail & Design Services LLC	 	Delaware	
Masco HD Support Services, LLC	 	Delaware	
Masco WM Support Services, LLC	 	Delaware	
Mill’s Pride Store Support, LLC	 	Delaware	
Masco Services Group Corp.	 	Delaware	
Masco Contractor Services, LLC	 	Delaware	
American National Services, Inc.	 	California	
Coast Insulation Contractors, Inc.	 	California	
InsulPro Projects, Inc.	 	Washington	
Sacramento Insulation Contractors	 	California	
Schmid Insulation Contractors, Inc.	 	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	
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	
Moore Products, 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	
 	 	 	
Renfrow Insulation, LLC	 	Virginia	
Renfrow Supply, LLC	 	Virginia	
Service Partners Supply, LLC	 	California	
Service Partners Northwest, LLC	 	Virginia	
Thermoguard Insulation Company, LLC	 	Virginia	
Service Partners of Florida, LLC	 	Virginia	
Service Partners of Georgia, LLC	 	Virginia	
Service Partners of the Carolinas, LLC	 	Virginia	
Vest Insulation, LLC	 	Virginia	
Service Partners Gutter Supply, LLC	 	Virginia	
Masco Services, Inc.	 	Delaware	
Masco Support Services, Inc.	 	Delaware	
Mascomex S.A. de C.V.	 	Mexico	
Masterchem Brands, Inc.	 	Missouri	
Merillat Industries, LLC	 	Delaware	
Masco Cabinetry Holdings, Inc.	 	Delaware	
Masco Cabinetry, L.L.C.	 	Delaware	
Texwood Industries, L.P. (99%)	 	Delaware	
Merillat LP (1%)	 	Delaware	
Texwood Holdings LLC	 	Delaware	
Merillat LP (99%)	 	Delaware	
Texwood Industries, L.P. (1%)	 	Delaware	
Merillat Transportation Company	 	Delaware	
Milgard Manufacturing Incorporated	 	Washington	
Class Fund, LLC	 	Delaware	
Mill’s Pride, Inc.	 	Connecticut	
Mill’s Pride Limited Partnership (99%)	 	Ohio	
Mill’s Pride Pennsylvania, LLC	 	Ohio	
Mill’s Pride LLC	 	Ohio	
Mill’s Pride Limited Partnership (1%)	 	Ohio	
Mill’s Pride Premier, Inc.	 	Ohio	
Premier Vanity Tops L.L.C.	 	Ohio	
Mirolin Industries Corp.	 	Ontario	
Morgantown Plastics Company	 	Delaware	
NCFII Holdings Inc.	 	Delaware	
North Carolina STM, Inc.	 	Delaware	
Universal Furniture Limited	 	Delaware	

*	 	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 - 

 

 	 	 	
 	 	Jurisdiction of	
Name	 	Incorporation or Organization	
 	 	 	
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.	
 - 8 - 

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. 333-100641), 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 27, 2007 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
February 27, 2007

 

Exhibit 31.a
MASCO CORPORATION
 CERTIFICATION
I, Richard A. Manoogian, 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 annual 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 annual 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 annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this annual report based on such evaluation; and	
 		
 	d)	 	disclosed in this annual 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 27, 2007 	By:  	/s/ Richard A. Manoogian  	 	
 	 	Richard A. Manoogian 	 	
 	 	Chief Executive Officer 	 	

 

 	 	 	 	 	
Exhibit 31.b
MASCO CORPORATION
 CERTIFICATION
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 annual 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 annual 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 annual 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 annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this annual report based on such evaluation; and	

 	d)	 	disclosed in this annual 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 27, 2007 	By:  	/s/ Timothy Wadhams  	 	
 	 	Timothy Wadhams 	 	
 	 	Senior Vice President and
Chief Financial Officer 	 	

 

 	 	 	 	 	
Exhibit 32
MASCO CORPORATION
Certifications 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,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     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, 2006 (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.
     Richard A. Manoogian, the Chief Executive Officer, and Timothy Wadhams, the Senior Vice President 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 27, 2007 	/s/ Richard A. Manoogian  	 	
 	Name:  	Richard A. Manoogian 	 	
 	Title:  	Chief Executive Officer 	 	

Date: February 27, 2007 	/s/ Timothy Wadhams  	 	
 	Name:  	Timothy Wadhams 	 	
 	Title:  	Senior Vice President and
Chief Financial Officer 	 	
 	
     A signed original of this written statement required by Section 906 has been provided to Masco Corporation and will be retained by Masco Corporation and furnished to the Securities and Exchange Commission or its staff upon request.